Chapter 1
Information Systems in Global Business Today
NBA TEAMS MAKE A SLAM DUNK WITH INFORMATION
TECHNOLOGY
Basketball is a very fast-paced, high-energy sport but it’s also big business. Professional
teams that belong to the National Basketball Association (NBA) pay each of their players an
average of $5 million per year. For that amount of money, member teams expect a great deal
and are constantly on the watch for ways of improving their performance. During an 82game season, every nuance a coach can pick up about a weakness in an opponent’s offense or
in the jump shot of one of his own players will translate into more points on the scoreboard,
more wins, and ultimately more money for the team.
Traditional basketball game statistics failed to capture all of the details associated with every
play and were not easily related to videotapes of games. As a result, decisions about changes
in tactics or how to take advantage of opponents’ weaknesses were based primarily on
hunches and gut instincts. Coaches could not easily answer questions such as “Which types
of plays are hurting us?” Now professional basketball coaches and managers are taking their
cues from other businesses and learning how to make decisions based on hard data.
A company called Synergy Sports Technology has found a way to collect and organize finegrained statistical data and relate the data to associated video clips. Synergy employs more
than 30 people to match up video of each play with statistical information on which players
have the ball, what type of play is involved, and the result.
Each game is dissected and tagged, play by play, using hundreds of descriptive categories,
and these data are linked to high-resolution video.
Coaches then use an index to locate the exact video clip in which they are interested and
access the video at a protected Web site. Within seconds they are able to watch streaming
video on the protected site or they can download it to laptops and even to iPods. One NBA
team puchased iPods for every player so they could review videos to help them prepare for
their next game.
For example, if the Dallas Mavericks have just lost to the Phoenix Suns and gave up too
many fast-break points, the Mavericks coach can use Synergy’s service to see video clips of
every Phoenix fast break in the game. He can also view every Dallas transitional situation for
the entire season to see how that night’s game compared with others. According to Dallas
Mavericks owner Mark Cuban, “the system allows us to look at every play, in every way,
and tie it back to stats. So we can watch how we played every pick and roll, track our success
rate, and see how other teams are doing it.”
The service helps coaches analyze the strengths and weaknesses of individual players. For
example, Synergy’s system has recorded every offensive step of the Mavericks’ Dirk
Nowitzki since he joined the NBA in 1998. The system can show how successfully he is
driving right or left in either home or away games, with the ability to break games and player
performance into increasingly finer-grained categories. If a user clicks on any statistic, that
person will find video clips from the last three seasons of 20, 50, or even 2,000 plays that
show Nowitzki making that particular move.
About 14 NBA teams have already signed up for Synergy’s service, and are using it to help
them scout for promising high school and international players. Although nothing will ever
replace the need to scout players in person, the service has reduced NBA teams’ skyrocketing
travel costs.
The challenges facing NBA teams show why information systems are so essential today. Like
other businesses, professional basketball faces pressures from high costs, especially for team
member salaries and travel to search for new talent. Teams are trying to increase revenue by
improving employee performance, especially the performance of basketball team members.
The chapter-opening diagram calls attention to important points raised by this case and this
chapter. Management was unable to make good decisions about how to improve the
performance of teams and of individual players because it lacked precise data about plays. It
had to rely on “best guesses” based on videotapes of games. Management found a new
information system to provide better information.
The information system is based on a service provided by Synergy Sports Technology.
Synergy staff members break down each game into a series of plays and then categorize each
play by players, type of play, and the outcome. These data are tagged to the videos they
describe to make the videos easy to search. NBA coaches and management can analyze the
data to see which offensive and defensive moves are the most effective for each team player.
Team members themselves can use iPods to download the videos to help them prepare for
games. This innovative solution makes it possible for basketball management to use objective
statistical data about players, plays, and outcomes to improve their decision making about what
players should or shouldn’t do to most effectively counter their opponents.
1.1
THE ROLE OF INFORMATION SYSTEMS IN BUSINESS TODAY
It’s not business as usual in America anymore, or the rest of the global economy. In 2008,
American businesses will spend about $840 billion on information systems hardware,
software and telecommunications equipment. In addition, they will spend another $900
billion on business and management consulting and services—much of which involves
redesigning firms’ business operations to take advantage of these new technologies. Figure 11 shows that between 1980 and 2007, private business investment in information technology
consisting of hardware, software, and communications equipment grew from 32 percent to 51
percent of all invested capital.
As managers, most of you will work for firms that are intensively using information systems
and making large investments in information technology. You will certainly want to know
how to invest this money wisely. If you make wise choices, your firm can outperform
competitors. If you make poor choices, you will be wasting valuable capital. This book is
dedicated to helping you make wise decisions about information technology and information
systems.
HOW INFORMATION SYSTEMS ARE TRANSFORMING
BUSINESS
You can see the results of this massive spending around you every day by observing how
people conduct business. More wireless cell phone accounts were opened in 2008 than
telephone land lines installed. Cell phones, BlackBerrys, iPhones, e-mail, and online
conferencing over the Internet have all become essential tools of business. Fifty-eight
percent of adult Americans have used a cell phone or mobile handheld device for activities
other than voice communication, such as texting, emailing, taking a picture, looking for
maps or directions, or recording video (Horrigan, 2008).
By June, 2008, more than 80 million businesses worldwide had dot-com Internet sites
registered (60 million in the U.S. alone) (Versign, 2008). Today 138 million Americans
shop online, and 117 million have purchased on line. Every day about 34 million
Americans go online to research a product or service.
In 2007, FedEx moved over 100 million packages in the United States, mostly overnight,
and the United Parcel Service (UPS) moved 3.7 billion packages worldwide. 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.
As newspaper readership continues to decline, more than 64 million people receive their
news online. About 67 million Americans now read blogs, and 21 million write blogs,
creating an explosion of new writers and new forms of customer feedback that did not exist
five years ago (Pew, 2008). Social networking sites like MySpace and Facebook attract
over 70 and 30 million visitors a month, respectively, and businesses are starting to use
social networking tools to connect their employees, customers, and managers worldwide.
FIGURE 1-1 INFORMATION TECHNOLOGY CAPITAL
INVESTMENT
Information technology capital investment, defined as hardware, software, and
communications equipment, grew from 32 percent to 51 percent of all invested capital
between 1980 and 2008.
Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National
Income and Product Accounts, 2008.
E-commerce and Internet advertising are booming: Google’s online ad revenues surpassed
$16.5 billion in 2007, and Internet advertising continues to grow at more than 25 percent a
year, reaching more than $28 billion in revenues in 2008.
New federal security and accounting laws, requiring many businesses to keep e-mail
messages for five years, coupled with existing occupational and health laws requiring firms
to store employee chemical exposure data for up to 60 years, are spurring the growth of
digital information now estimated to be 5 exabytes annually, equivalent to 37,000 new
Libraries of Congress.
WHAT’S 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. Old systems are being creatively destroyed, and entirely new systems are
taking their place. New industries appear, old ones decline, and successful firms are those
who learn how to use the new technologies. Table 1-1 summarizes the major new themes in
business uses of information systems. These themes will appear throughout the book in all
the chapters, so it might be a good idea to take some time now and discuss these with your
professor and other students. You may want to even add to the list.
In the technology area there are three interrelated changes: (1) the emerging mobile digital
platform (think iPhones, BlackBerrys, and tiny Web-surfing netbooks), (2) the growth of
online software as a service, and (3) the growth in “cloud computing” where more and
more business software runs over the Internet. Of course these changes depend on other
building-block technologies described in Table 1-1, such as faster processor chips that use
much less power.
TABLE 1-1
WHAT’S NEW IN MIS
CHANGE
BUSINESS IMPACT
TECHNOLOGY
Cloud computing platform emerges as a major business area of innovation
A flexible collection of computers on the Internet begins to perform tasks
traditionally performed on corporate computers.
More powerful, energy efficient computer processing and storage devices
Intel’s new PC processor chips consume 50% less power, generate 30% less heat,
and are 20% faster than the previous models, packing over 400 million transistors
on a dual-core chip.
Growth in software as a service (SaaS)
Major business applications are now delivered online as an Internet service rather
than as boxed software or custom systems.
Netbooks emerge as a growing presence in the PC marketplace, often using open
source software
Small, lightweight, low-cost, energy-efficient, net-centric subnotebooks use
Linux, Google Docs, open source tools, flash memory, and the Internet for their
applications, storage, and communications.
A mobile digital platform emerges to compete with the PC as a business system
Apple opens its iPhone software to developers, and then opens an Applications
Store on iTunes where business users can download hundreds of applications to
support collaboration, location-based services, and communication with
colleagues.
MANAGEMENT
Managers adopt online collaboration and social networking software to improve
coordination, collaboration, and knowledge sharing
Google Apps, Google Sites, Microsoft’s Office Sharepoint and IBM’s Lotus
Connections are used by over 100 million business decision makers worldwide to
support blogs, project management, online meetings, personal profiles, social
bookmarks, and online communities.
Business intelligence applications accelerate
More powerful data analytics and interactive dashboards provide real-time
performance information to managers to enhance management control and
decision making.
Managers adopt millions of mobile tools such as smartphones and mobile Internet
devices to accelerate decision making and improve performance
The emerging mobile platform greatly enhances the accuracy, speed, and richness
of decision making as well as responsiveness to customers.
Virtual meetings proliferate
Managers adopt telepresence video conferencing and Web conferencing
technologies to reduce travel time and cost while improving collaboration and
decision making.
ORGANIZATIONS
Web 2.0 applications are widely adopted by firms
Web-based services enable employees to interact as online communities using
blogs, wikis e-mail, and instant messaging services. Facebook and MySpace
create new opportunities for business to collaborate with customers and vendors.
Telework gains momentum in the workplace
The Internet, wireless laptops, iPhones, and BlackBerrys make it possible for
growing numbers of people to work away from the traditional office. 55 percent
of U.S. businesses have some form of remote work program.
Outsourcing production
Firms learn to use the new technologies to outsource production work to low
wage countries.
Co-creation of business value
Sources of business value shift from products to solutions and experiences and
from internal sources to networks of suppliers and collaboration with customers.
Supply chains and product development become more global and collaborative;
customer interactions help firms define new products and services.
YouTube, iPhones and Blackberrys, and Facebook are not just gadgets or entertainment
outlets. They represent new emerging computing platforms based on an array of new
hardware and software technologies and business investments. Besides being successful
products in their own right, these emerging technologies are being adopted by corporations
as business tools to improve management and achieve competitive advantages. We call
these developments the “emerging mobile platform.”
Managers routinely use so-called “Web 2.0” technologies like social networking,
collaboration tools, and wikis in order to make better, faster decisions. Millions of
managers rely heavily on the mobile digital platform to coordinate vendors, satisfy
customers, and manage their employees. For many if not most U.S. managers, a business
day without their cell phones or Internet access is unthinkable.
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 another—even when they are
separated by continents and time zones. The strength of cloud computing, and the growth
of the mobile digital platform means that organizations can rely more on telework, remote
work, and distributed decision making. Think decentralization. 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.
All of these changes contribute to a dynamic new global business economy. In fact, without
the changes in management information systems just described, the global economy would
not succeed.
GLOBALIZATION CHALLENGES AND OPPORTUNITIES: A
FLATTENED WORLD
In 1492 Columbus reaffirmed what astronomers were long saying: the world was round and
the seas could be safely sailed. As it turned out, the world was populated by peoples and
languages living in near total isolation from one another, with great disparities in economic
and scientific development. The world trade that ensued after Columbus’s voyages has
brought these peoples and cultures closer. The “industrial revolution” was really a worldwide phenomenon energized by expansion of trade among nations.
By 2005, journalist Thomas Friedman wrote an influential book declaring the world was
now “flat,” by which he meant that the Internet and global communications had greatly
reduced the economic and cultural advantages of developed countries. U.S. and European
countries were in a fight for their economic lives, competing for jobs, markets, resources,
and even ideas with highly educated, motivated populations in low-wage areas in the less
developed world (Friedman, 2006). This “globalization” presents both challenges and
opportunities.
A growing percentage of the economy of the United States and other advanced industrial
countries in Europe and Asia depends on imports and exports. In 2009, more than 33
percent of the U.S. economy results from foreign trade, both imports and exports. In
Europe and Asia, the number exceeds 50 percent. Many Fortune 500 U.S. firms derive half
their revenues from foreign operations. For instance, more than half of Intel’s revenues in
2006 came from overseas sales of its microprocessors. Toys for chips: 80 percent of the
toys sold in the U.S. are manufactured in China, while about 90 percent of the PCs
manufactured in China use American-made Intel or Advanced Micro Design (AMD) chips.
It’s not just goods that move across borders. So too do jobs, some of them high-level jobs
that pay well and require a college degree. In the past decade the U.S. lost several million
manufacturing jobs to offshore, low-wage producers. But manufacturing is now a very
small part of U.S. employment (less than 12 percent). In a normal year, about 300,000
service jobs move offshore to lower wage countries, many of them in less-skilled
information system occupations, but also including “tradable service” jobs in architecture,
financial services, customer call centers, consulting, engineering, and even radiology.
On the plus side, the U.S. economy creates over 3.5 million new jobs a year, and
employment in information systems, and the other service occupations listed above, has
expanded in sheer numbers, wages, productivity, and quality of work. Outsourcing has
actually accelerated the development of new systems in the United States and worldwide.
The challenge for you as a business student is to develop high-level skills through
education and on-the-job experience that cannot be outsourced. The challenge for your
business is to avoid markets for goods and services that can be produced offshore much
less expensively. The opportunities are equally immense. You will find throughout this
book examples of companies and individuals who either failed or succeeded in using
information systems to adapt to this new global environment.
What does globalization have to do with management information systems? That’s simple:
everything. The emergence of the Internet into a full-blown international communications
system has drastically reduced the costs of operating and transacting on a global scale.
Communication between a factory floor in Shanghai and a distribution center in Rapid
Falls, South Dakota, is now instant and virtually free. Customers now can shop in a
worldwide marketplace, obtaining price and quality information reliably 24 hours a day.
Firms producing goods and services on a global scale achieve extraordinary cost reductions
by finding low-cost suppliers and managing production facilities in other countries. Internet
service firms, such as Google and eBay, are able to replicate their business models and
services in multiple countries without having to redesign their expensive fixed-cost
information systems infrastructure. Half of the revenue of eBay (as well as General
Motors) in 2009 originates outside the United States. Briefly, information systems enable
globalization.
THE EMERGING DIGITAL FIRM
All of the changes we have just described, coupled with equally significant organizational
redesign, have created the conditions for a fully digital firm. A digital firm can be defined
along several dimensions. A digital firm is one in which nearly all of the organization’s
significant business relationships with customers, suppliers, and employees are digitally
enabled and mediated. Core business processes are accomplished through digital networks
spanning the entire organization or linking multiple organizations.
Business processes refer to the set of logically related tasks and behaviors that
organizations develop over time to produce specific business results and the unique manner
in which these activities are organized and coordinated. Developing a new product,
generating and fulfilling an order, creating a marketing plan, and hiring an employee are
examples of business processes, and the ways organizations accomplish their business
processes can be a source of competitive strength. (A detailed discussion of business
processes can be found in Chapter 2.)
INTERACTIVE SESSION: MANAGEMENT VIRTUAL
MEETINGS: SMART MANAGEMENT
For many businesses, including investment banking, accounting, law, technology
services, and management consulting, extensive travel is a fact of life. The expenses
incurred by business travel have been steadily rising in recent years, primarily due to
increasing energy costs. In an effort to reduce travel expenses, many companies, both
large and small, are using videoconferencing and Web conferencing technologies.
A June 2008 report issued by the Global e-Sustainability Initiative and the Climate Group
estimated that up to 20 percent of business travel could be replaced by virtual meeting
technology.
A videoconference allows individuals at two or more locations to communicate through
two-way video and audio transmissions at the same time. The critical feature of
videoconferencing is the digital compression of audio and video streams by a device
called a codec. Those streams are then divided into packets and transmitted over a
network or the Internet. The technology has been plagued by poor audio and video
performance in the past, usually related to the speed at which the streams were
transmitted, and its cost was prohibitively high for all but the largest and most powerful
corporations. Most companies deemed videoconferencing as a poor substitute for face-toface meetings.
However, vast improvements in videoconferencing and associated technologies have
renewed interest in this way of working. Videoconferencing is now growing at an annual
rate of 30 percent. Proponents of the technology claim that it does more than simply
reduce costs. It allows for ‘better’ meetings as well: it’s easier to meet with partners,
suppliers, subsidiaries, and colleagues from within the office or around the world on a
more frequent basis, which in most cases simply cannot be reasonably accomplished
through travel. You can also meet with contacts that you wouldn’t be able to meet at all
without videoconferencing technology.
The top-of-the-line videoconferencing technology is known as telepresence. Telepresence
strives to make users feel as if they are actually present in a location different from their
own. Telepresence products provide the highest-quality videoconferencing available on
the market to date. Only a handful of companies, such as Cisco, HP, and Polycom, supply
these products. Prices for fully equipped telepresence rooms can run to $500,000.
Companies able to afford this technology report large savings. For example, technology
consulting firm Accenture reports that it eliminated expenditures for 240 international
trips and 120 domestic flights in a single month. The ability to reach customers and
partners is also dramatically increased. Other business travelers report tenfold increases
in the number of customers and partners they are able to reach for a fraction of the
previous price per person. Cisco has over 200 telepresence rooms and predicts that it
saves $100 million in travel costs each year.
Videoconferencing products have not traditionally been feasible for small businesses, but
another company, LifeSize, has introduced an affordable line of products as low as
$5,000. Reviews of the LifeSize product indicate that when a great deal of movement
occurs in a frame, the screen blurs and distorts somewhat. But overall, the product is easy
to use and will allow many smaller companies to use a high-quality videoconferencing
product.
There are even some free Internet-based options like Skype videoconferencing and
ooVoo. These products are of lower quality than traditional videoconferencing products,
and they are proprietary, meaning they can only talk to others using that very same
system. Most videoconferencing and telepresence products are able to interact with a
variety of other devices. Higher-end systems include features like multi-party
conferencing, video mail with unlimited storage, no long-distance fees, and a detailed call
history.
Companies of all sizes are finding Web-based online meeting tools such as WebEx,
Microsoft Office Live Meeting, and Adobe Acrobat Connect especially helpful for
training and sales presentations. These products enable participants to share documents
and presentations in conjunction with audioconferencing and live video via Webcam.
Cornerstone Information Systems, a Bloomington, Indiana business software company
with 60 employees, cut its travel costs by 60 percent and the average time to close a new
sale by 30 percent by performing many product demonstrations online.
Before setting up videoconferencing or telepresence, it’s important for a company to
make sure it really needs the technology to ensure that it will be a profitable venture.
Companies should determine how their employees conduct meetings, how they
communicate and with what technologies, how much travel they do, and their network’s
capabilities. There are still plenty of times when face-to-face interaction is more
desirable, and often traveling to meet a client is essential for cultivating clients and
closing sales.
Videoconferencing figures to have an impact on the business world in other ways, as
well. More employees may be able to work closer to home and balance their work and
personal lives more efficiently; traditional office environments and corporate
headquarters may shrink or disappear; and freelancers, contractors, and workers from
other countries will become a larger portion of the global economy.
Sources: Steve Lohr, “As Travel Costs Rise, More Meetings Go Virtual,” The New York Times,
July 22, 2008; Karen D. Schwartz, “Videoconferencing on a Budget,” eWeek, May 29, 2008; and Jim
Rapoza, “Videoconferencing Redux,” eWeek, July 21, 2008; Mike Fratto, “High-Def Conferencing At a
Low Price,” Information Week, July 14, 2008; Marianne Kolbasuk McGee, “Looking Into The WorkTrend Crystal Ball,” Information Week, June 24, 2008; Eric Krapf, “What’s Video Good For?”,
Information Week, July 1, 2008.
CASE STUDY QUESTIONS
1.
One consulting firm has predicted that video and Web conferencing will
make business travel extinct. Do you agree? Why or why not?
2.
What is the distinction between videoconferencing and telepresence?
3.
What are the ways in which videoconferencing provides value to a
business? Would you consider it smart management? Explain your answer.
4.
If you were in charge of a small business, would you choose to implement
videoconferencing? What factors would you consider in your decision?
MIS IN ACTION
Explore the WebEx Web site (www.webex.com) and note all of its capabilities for both
small and large businesses, then answer the following questions:
1.
List and describe its capabilities for small-medium and large businesses. How
useful is WebEx? How can it help companies save time and money?
2.
Compare WebEx video capabilities with the videoconferencing capabilities
described in this case.
3.
Describe the steps you would take to prepare for a Web conference as opposed to
a face-to-face conference.
Key corporate assets—intellectual property, core competencies, and financial and human
assets—are managed through digital means. In a digital firm, any piece of information
required to support key business decisions is available at any time and anywhere in the
firm.
Digital firms sense and respond to their environments far more rapidly than traditional
firms, giving them more flexibility to survive in turbulent times. Digital firms offer
extraordinary opportunities for more flexible global organization and management. In
digital firms, both time shifting and space shifting are the norm. Time shifting refers to
business being conducted continuously, 24/7, rather than in narrow “work day” time bands
of 9 A.M. to 5 P.M. Space shifting means that work takes place in a global workshop, as well
as within national boundaries. Work is accomplished physically wherever in the world it is
best accomplished.
A few firms, such as Cisco Systems and Dell Computers, are close to becoming digital
firms, using the Internet to drive every aspect of their business. Most other companies are
not fully digital, but they are moving toward close digital integration with suppliers,
customers, and employees. Many firms, for example, are replacing traditional face-to-face
meetings with “virtual” meetings using videoconferencing and Web conferencing
technology. The Interactive Session on Management provides more detail on this topic.
STRATEGIC BUSINESS OBJECTIVES OF INFORMATION
SYSTEMS
What makes information systems so essential today? Why are businesses investing so
much in information systems and technologies? In the United States, more than 23 million
managers and 113 million workers in the labor force rely on information systems to
conduct business. Information systems are essential for conducting day-to-day business in
the United States and most other advanced countries, as well as achieving strategic
business objectives.
Entire sectors of the economy are nearly inconceivable without substantial investments in
information systems. E-commerce firms such as Amazon, eBay, Google, and E*Trade
simply would not exist. Today’s service industries—finance, insurance, and real estate, as
well as personal services such as travel, medicine, and education—could not operate
without information systems. Similarly, retail firms such as Wal-Mart and Sears and
manufacturing firms such as General Motors and General Electric require information
systems to survive and prosper. Just like offices, telephones, filing cabinets, and efficient
tall buildings with elevators were once the foundations of business in the twentieth century,
information technology is a foundation for business in the twenty-first century.
There is a growing interdependence between a firm’s ability to use information technology
and its ability to implement corporate strategies and achieve corporate goals (see Figure 12). What a business would like to do in five years often depends on what its systems will be
able to do. Increasing market share, becoming the high-quality or low-cost producer,
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.
FIGURE 1-2 THE INTERDEPENDENCE BETWEEN
ORGANIZATIONS AND INFORMATION SYSTEMS
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.
Operational Excellence
Businesses continuously seek to improve the efficiency of their operations in order to
achieve higher profitability. Information systems and technologies are some of the most
important tools available to managers for achieving higher levels of efficiency and
productivity in business operations, especially when coupled with changes in business
practices and management behavior.
Wal-Mart, the largest retailer on Earth, exemplifies the power of information systems
coupled with brilliant business practices and supportive management to achieve worldclass operational efficiency. In 2007, Wal-Mart achieved close to $379 billion in sales—
nearly one-tenth of retail sales in the United States—in large part because of its
RetailLink system, which digitally links its suppliers to every one of Wal-Mart’s stores.
As soon as a customer purchases an item, the supplier monitoring the item knows to ship
a replacement to the shelf. Wal-Mart is the most efficient retail store in the industry,
achieving sales of more than $28 per square foot, compared to its closest competitor,
Target, at $23 a square foot, with other retail firms producing less than $12 a square foot.
New Products, Services, and Business Models
Information systems and technologies are a major enabling tool for firms to create new
products and services, as well as entirely new business models. A business model
describes how a company produces, delivers, and sells a product or service to create
wealth.
Today’s music industry is vastly different from the industry in 2000. 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. Apple has prospered from a continuing stream of iPod innovations, including
the iPod, the iTunes music service, and the iPhone.
Customer and Supplier Intimacy
When a business really knows its customers, and serves them well, the customers
generally respond by returning and purchasing more. This raises revenues and profits.
Likewise with suppliers: the more a business engages its suppliers, the better the
suppliers can provide vital inputs. This lowers costs. How to really know your customers,
or suppliers, is a central problem for businesses with millions of offline and online
customers.
With its stunning multitouch display, full Internet browsing, digital camera, and
portable music player, Apple’s iPhone set a new standard for mobile phones. Other
Apple products have transformed the music and entertainment industries.
The Mandarin Oriental in Manhattan and other high-end hotels exemplify the use of
information systems and technologies to achieve customer intimacy. These hotels use
computers to 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 giant 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 at one of these hotels, the system automatically changes the
room conditions, such as dimming the lights, setting the room temperature, or selecting
appropriate music, based on the customer’s digital profile. The hotels also analyze their
customer data to identify their best customers and to develop individualized marketing
campaigns based on customers’ preferences.
JC Penney exemplifies the benefits of information systems-enabled supplier intimacy.
Every time a dress shirt is bought at a Penney store in the United States, the record of the
sale appears immediately on computers in Hong Kong at the TAL Apparel Ltd. supplier,
a giant contract manufacturer that produces one in eight dress shirts sold in the United
States. TAL runs the numbers through a computer model it developed and then decides
how many replacement shirts to make, and in what styles, colors, and sizes. TAL then
sends the shirts to each Penney store, bypassing completely the retailer’s warehouses. In
other words, Penney’s shirt inventory is near zero, as is the cost of storing it.
Improved Decision Making
Many business 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 over-or underproduction of goods and
services, misallocation of resources, and poor response times. These poor outcomes raise
costs and lose customers. In the past decade, information systems and technologies have
made it possible for managers to use real-time data from the marketplace when making
decisions.
For instance, Verizon Corporation, one of the largest regional Bell operating companies
in the United States, 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. Using this information,
managers can immediately allocate repair resources to affected areas, inform consumers
of repair efforts, and restore service fast.
Information Builders’ digital dashboard delivers comprehensive and accurate
information for decision making. The graphical overview of key performance
indicators helps managers quickly spot areas that need attention.
Competitive Advantage
When firms achieve one or more of these business objectives—operational excellence;
new products, services, and business models; customer/supplier intimacy; and improved
decision making—chances are they have already achieved a 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.
Perhaps no other company exemplifies all of these attributes leading to competitive
advantage more than Toyota Motor Company. Toyota has become the world’s largest
auto maker because of its high level of efficiency and quality. Competitors struggle to
keep up. Toyota’s legendary Toyota Production System (TPS) focuses on organizing
work to eliminate waste, making continuous improvements, and optimizing customer
value. Information systems help Toyota implement the TPS and produce vehicles based
on what customers have actually ordered.
Survival
Business firms also invest in information systems and technologies because they are
necessities of doing business. Sometimes these “necessities” are driven by industry-level
changes. For instance, after Citibank introduced the first automatic teller machines
(ATMs) in the New York region in 1977 to attract customers through higher service
levels, its competitors rushed to provide ATMs to their customers to keep up with
Citibank. Today, virtually all banks in the United States have regional ATMs and link to
national and international ATM networks, such as CIRRUS. Providing ATM services to
retail banking customers is simply a requirement of being in and surviving in the retail
banking business.
There are many federal and state statutes and regulations that create a legal duty for
companies and their employees to retain records, including digital records. For instance,
the Toxic Substances Control Act (1976), which regulates the exposure of U.S. workers
to more than 75,000 toxic chemicals, requires firms to retain records on employee
exposure for 30 years. The Sarbanes—Oxley Act (2002), which was intended to improve
the accountability of public firms and their auditors, requires certified public accounting
firms that audit public companies to retain audit working papers and records, including
all e-mails, for five years. Many other pieces of federal and state legislation in healthcare,
financial services, education, and privacy protection impose significant information
retention and reporting requirements on U.S. businesses. Firms turn to information
systems and technologies to provide the capability to respond to these
1.2
PERSPECTIVES ON INFORMATION SYSTEMS
So far we’ve used information systems and technologies informally without defining the
terms. Information technology (IT) consists of all the hardware and software that a firm
needs to use in order to achieve its business objectives. This includes not only computer
machines, disk drives, and handheld mobile devices, but also software, such as the Windows
or Linux operating systems, the Microsoft Office desktop productivity suite, and the many
thousands of computer programs that can be found in a typical large firm. “Information
systems” are more complex and can be best be understood by looking at them from both a
technology and a business perspective.
WHAT IS AN INFORMATION SYSTEM?
An information system can be defined technically as 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.
Information systems contain information about significant people, places, and things within
the organization or in the environment surrounding it. By information we mean data that
have been shaped into a form that is meaningful and useful to human beings. Data, in
contrast, are streams of raw facts representing events occurring in organizations or the
physical environment before they have been organized and arranged into a form that people
can understand and use.
A brief example contrasting information and data may prove useful. Supermarket checkout
counters scan millions of pieces of data from bar codes, which describe each product. Such
pieces of data can be totaled and analyzed to provide meaningful information, such as the
total number of bottles of dish detergent sold at a particular store, which brands of dish
detergent were selling the most rapidly at that store or sales territory, or the total amount
spent on that brand of dish detergent at that store or sales region (see Figure 1-3).
FIGURE 1-3
DATA AND INFORMATION
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.
Three activities in an information system produce the information that organizations need
to make decisions, control operations, analyze problems, and create new products or
services. These activities are input, processing, and output (see Figure 1-4). 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.
FIGURE 1-4
SYSTEM
FUNCTIONS OF AN INFORMATION
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.
In the NBA teams’ system for analyzing basketball moves, there are actually two types of
raw input. One consists of all the data about each play entered by Synergy Sports
Technology’s staff members—the player’s name, team, date of game, game location, type
of play, other players involved in the play, and the outcome. The other input consists of
videos of the plays and games, which are captured as digital points of data for storage,
retrieval, and manipulation by the computer.
Synergy Sports Technology server computers store these data and process them to relate
data such as the player’s name, type of play, and outcome to a specific video clip. The
output consists of videos and statistics about specific players, teams, and plays. The system
provides meaningful information, such as the number and type of defensive plays that were
successful against a specific player, what types of offensive plays were the most successful
against a specific team, or comparisons of individual player and team performance in home
and away games.
Although computer-based information systems use computer technology to process raw
data into meaningful information, there is a sharp distinction between a computer and a
computer program on the one hand, and an information system on the other. Electronic
computers and related software programs are the technical foundation, the tools and
materials, of modern information systems. Computers provide the equipment for storing
and processing information. Computer programs, or software, are sets of operating
instructions that direct and control computer processing. Knowing how computers and
computer programs work is important in designing solutions to organizational problems,
but computers are only part of an information system.
A house is an appropriate analogy. Houses are built with hammers, nails, and wood, but
these do not make a house. The architecture, design, setting, landscaping, and all of the
decisions that lead to the creation of these features are part of the house and are crucial for
solving the problem of putting a roof over one’s head. Computers and programs are the
hammer, nails, and lumber of computer-based information systems, but alone they cannot
produce the information a particular organization needs. To understand information
systems, you must understand the problems they are designed to solve, their architectural
and design elements, and the organizational processes that lead to these solutions.
DIMENSIONS OF INFORMATION SYSTEMS
To fully understand information systems, you must understand the broader organization,
management, and information technology dimensions of systems (see Figure 1-5) and their
power to provide solutions to challenges and problems in the business environment. We
refer to this broader understanding of information systems, which encompasses an
understanding of the management and organizational dimensions of systems as well as the
technical dimensions of systems, as information systems literacy. Computer literacy, in
contrast, focuses primarily on knowledge of information technology.
FIGURE 1-5 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.
The field of management information systems (MIS) tries to achieve this broader
information systems literacy. MIS deals with behavioral issues as well as technical issues
surrounding the development, use, and impact of information systems used by managers
and employees in the firm.
Let’s examine each of the dimensions of information systems—organizations,
management, and information technology.
Organizations
Information systems are an integral part of organizations. Indeed, for some companies,
such as credit reporting firms, without an information system, there would be no
business. The key elements of an organization are its people, structure, business
processes, politics, and culture. We introduce these components of organizations here and
describe them in greater detail in Chapters 2 and 3.
Organizations have a structure that is composed of different levels and specialties. Their
structures reveal a clear-cut division of labor. Authority and responsibility in a business
firm are organized as a hierarchy, or a pyramid structure. The upper levels of the
hierarchy consist of managerial, professional, and technical employees, whereas the
lower levels consist of operational personnel.
Senior management makes long-range strategic decisions about products and services as
well as ensures financial performance of the firm. Middle management carries out the
programs and plans of senior management and operational management is responsible
for monitoring the daily activities of the business. Knowledge workers, such as
engineers, scientists, or architects, design products or services and create new knowledge
for the firm, whereas data workers, such as secretaries or clerks, assist with paperwork
at all levels of the firm. Production or service workers actually produce the product and
deliver the service (see Figure 1-6).
FIGURE 1-6 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.
Experts are employed and trained for different business functions. The major business
functions, or specialized tasks performed by business organizations, consist of sales and
marketing, manufacturing and production, finance and accounting, and human resources
(see Table 1-2). Chapter 2 provides more detail on these business functions and the ways
in which they are supported by information systems.
An organization coordinates work through its hierarchy and through its business
processes, which are logically related tasks and behaviors for accomplishing work.
Developing a new product, fulfilling an order, or hiring a new employee are examples of
business processes.
Most organizations’ business processes include formal rules that have been developed
over a long time for accomplishing tasks. These rules guide employees in a variety of
procedures, from writing an invoice to responding to customer complaints. Some of these
business processes have been written down, but others are informal work practices, such
as a requirement to return telephone calls from co-workers or customers, that are not
formally documented. Information systems automate many business processes. For
instance, how a customer receives credit or how a customer is billed is often determined
by an information system that incorporates a set of formal business processes.
Each organization has a unique culture, or fundamental set of assumptions, values, and
ways of doing things, that has been accepted by most of its members. You can see
organizational culture at work by looking around your university or college. Some
bedrock assumptions of university life are that professors know more than students, the
reasons students attend college is to learn, and that classes follow a regular schedule.
Parts of an organization’s culture can always be found embedded in its information
systems. For instance, UPS’s concern with placing service to the customer first is an
aspect of its organizational culture that can be found in the company’s package tracking
systems, which we describe later in this section.
Different levels and specialties in an organization create different interests and points of
view. These views often conflict over how the company should be run and how resources
and rewards should be distributed. Conflict is the basis for organizational politics.
Information systems come out of this cauldron of differing perspectives, conflicts,
compromises, and agreements that are a natural part of all organizations. In Chapter 3, we
examine these features of organizations and their role in the development of information
systems in greater detail.
TABLE 1-2
FUNCTION
MAJOR BUSINESS FUNCTIONS
PURPOSE
Sales and marketing
Selling the organization’s products and services
Manufacturing and production
Producing and delivering products and services
Finance and accounting
Managing the organization’s financial assets and maintaining the organization’s
financial records
Human resources
Attracting, developing, and maintaining the organization’s labor force;
maintaining employee records
Management
Management’s job is to make sense out of the many situations faced by organizations,
make decisions, and formulate action plans to solve organizational problems. Managers
perceive business challenges in the environment; they set the organizational strategy for
responding to those challenges; and they allocate the human and financial resources to
coordinate the work and achieve success. Throughout, they must exercise responsible
leadership. The business information systems described in this book reflect the hopes,
dreams, and realities of real-world managers.
But managers must do more than manage what already exists. They must also create new
products and services and even re-create the organization from time to time. A substantial
part of management responsibility is creative work driven by new knowledge and
information. Information technology can play a powerful role in helping managers design
and deliver new products and services and redirecting and redesigning their
organizations. Chapter 12 treats management decision making in detail.
Technology
Information technology is one of many tools managers use to cope with change.
Computer hardware is the physical equipment used for input, processing, and output
activities in an information system. It consists of the following: computers of various
sizes and shapes (including mobile handheld devices); various input, output, and storage
devices; and telecommunications devices that link computers together.
Computer software consists of the detailed, preprogrammed instructions that control
and coordinate the computer hardware components in an information system. Chapter 5
describes the contemporary software and hardware platforms used by firms today in
greater detail.
Data management technology consists of the software governing the organization of
data on physical storage media. More detail on data organization and access methods can
be found in Chapter 6.
Networking and telecommunications technology, consisting of both physical devices
and software, links the various pieces of hardware and transfers data from one physical
location to another. Computers and communications equipment can be connected in
networks for sharing voice, data, images, sound, and video. A network links two or more
computers to share data or resources, such as a printer.
The world’s largest and most widely used network is the Internet. The Internet is a
global “network of networks” that uses universal standards (described in Chapter 7) to
connect millions of different networks with more than 1.4 billion users in over 230
countries around the world.
The Internet has created a new “universal” technology platform on which to build new
products, services, strategies, and business models. This same technology platform has
internal uses, providing the connectivity to link different systems and networks within the
firm. Internal corporate networks based on Internet technology are called intranets.
Private intranets extended to authorized users outside the organization are called
extranets, and firms use such networks to coordinate their activities with other firms for
making purchases, collaborating on design, and other interorganizational work. For most
business firms today, using Internet technology is both a business necessity and a
competitive advantage.
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. By clicking on highlighted words or buttons on
a Web page, you can link to related pages to find additional information and links to
other locations on the Web. The Web can serve as the foundation for new kinds of
information systems such as UPS’s Web-based package tracking system described in the
following Interactive Session.
All of these technologies, along with the people required to run and manage them,
represent resources that can be shared throughout the organization and constitute the
firm’s information technology (IT) infrastructure. The IT infrastructure provides the
foundation, or platform, on which the firm can build its specific information systems.
Each organization must carefully design and manage its information technology
infrastructure so that it has the set of technology services it needs for the work it wants to
accomplish with information systems. Chapters 5 through 8 of this text examine each
major technology component of information technology infrastructure and show how
they all work together to create the technology platform for the organization.
The Interactive Session on Technology describes some of the typical technologies used in
computer-based information systems today. United Parcel Service (UPS) invests heavily
in information systems technology to make its business more efficient and customer
oriented. It uses an array of information technologies including bar code scanning
systems, wireless networks, large mainframe computers, handheld computers, the
Internet, and many different pieces of software for tracking packages, calculating fees,
maintaining customer accounts, and managing logistics.
Let’s identify the organization, management, and technology elements in the UPS
package tracking system we have just described. The organization element anchors the
package tracking system in UPS’s sales and production functions (the main product of
UPS is a service—package delivery). It specifies the required procedures for identifying
packages with both sender and recipient information, taking inventory, tracking the
packages en route, and providing package status reports for UPS customers and customer
service representatives.
The system must also provide information to satisfy the needs of managers and workers.
UPS drivers need to be trained in both package pickup and delivery procedures and in
how to use the package tracking system so that they can work efficiently and effectively.
UPS customers may need some training to use UPS in-house package tracking software
or the UPS Web site.
UPS’s management is responsible for monitoring service levels and costs and for
promoting the company’s strategy of combining low cost and superior service.
Management decided to use computer systems to increase the ease of sending a package
using UPS and of checking its delivery status, thereby reducing delivery costs and
increasing sales revenues.
The technology supporting this system consists of handheld computers, bar code
scanners, wired and wireless communications networks, desktop computers, UPS’s
central computer, storage technology for the package delivery data, UPS in-house
package tracking software, and software to access the World Wide Web. The result is an
information system solution to the business challenge of providing a high level of service
with low prices in the face of mounting competition.
INTERACTIVE SESSION: TECHNOLOGY UPS COMPETES
GLOBALLY WITH INFORMATION TECHNOLOGY
United Parcel Service (UPS) started out in 1907 in a closet-sized basement office. Jim
Casey and Claude Ryan—two teenagers from Seattle with two bicycles and one
phone—promised the “best service and lowest rates.” UPS has used this formula
successfully for more than 90 years to become the world’s largest ground and air
package-distribution company. It is a global enterprise with more than 425,000
employees, 93,000 vehicles, and the world’s ninth largest airline.
Today UPS delivers more than 15 million parcels and documents each day in the
United States and more than 200 other countries and territories. The firm has been able
to maintain leadership in small-package delivery services despite stiff competition from
FedEx and Airborne Express by investing heavily in advanced information technology.
UPS spends more than $1 billion each year to maintain a high level of customer service
while keeping costs low and streamlining its overall operations.
It all starts with the scannable bar-coded label attached to a package, which contains
detailed information about the sender, the destination, and when the package should
arrive. Customers can download and print their own labels using special software
provided by UPS or by accessing the UPS Web site. Before the package is even picked
up, information from the “smart” label is transmitted to one of UPS’s computer centers
in Mahwah, New Jersey, or Alpharetta, Georgia, and sent to the distribution center
nearest its final destination. Dispatchers at this center download the label data and use
special software to create the most efficient delivery route for each driver that considers
traffic, weather conditions, and the location of each stop. UPS estimates its delivery
trucks save 28 million miles and burn 3 million fewer gallons of fuel each year as a
result of using this technology.
The first thing a UPS driver picks up each day is a handheld computer called a Delivery
Information Acquisition Device (DIAD), which can access one of the wireless
networks cell phones rely on. As soon as the driver logs on, his or her day’s route is
downloaded onto the handheld. The DIAD also automatically captures customers’
signatures along with pickup and delivery information. Package tracking information is
then transmitted to UPS’s computer network for storage and processing. From there,
the information can be accessed worldwide to provide proof of delivery to customers or
to respond to customer queries. It usually takes less than 60 seconds from the time a
driver presses “complete” on a DIAD for the new information to be available on the
Web.
Through its automated package tracking system, UPS can monitor and even re-route
packages throughout the delivery process. At various points along the route from sender
to receiver, bar code devices scan shipping information on the package label and feed
data about the progress of the package into the central computer. Customer service
representatives are able to check the status of any package from desktop computers
linked to the central computers and respond immediately to inquiries from customers.
UPS customers can also access this information from the company’s Web site using
their own computers or wireless devices such as cell phones.
Anyone with a package to ship can access the UPS Web site to track packages, check
delivery routes, calculate shipping rates, determine time in transit, print labels, and
schedule a pickup. The data collected at the UPS Web site are transmitted to the UPS
central computer and then back to the customer after processing. UPS also provides
tools that enable customers, such Cisco Systems, to embed UPS functions, such as
tracking and cost calculations, into their own Web sites so that they can track shipments
without visiting the UPS site.
UPS is now leveraging its decades of expertise managing its own global delivery
network to manage logistics and supply chain activities for other companies. It created
a UPS Supply Chain Solutions division that provides a complete bundle of standardized
services to subscribing companies at a fraction of what it would cost to build their own
systems and infrastructure. These services include supply chain design and
management, freight forwarding, customs brokerage, mail services, multimodal
transportation, and financial services, in addition to logistics services.
Hired Hand Technologies, a Bremen, Alabama-based manufacturer of agricultural and
horticultural equipment, uses UPS Freight services not only to track shipments but also
to build its weekly manufacturing plans. UPS provides up-to-the-minute information
about exactly when parts are arriving within 20 seconds.
Sources: United Parcel Service, “Powering Up the Supply Chain,” UPS Compass, Winter 2008
and “LTL’s High-Tech Infusion,” UPS Compass, Spring 2007; Claudia Deutsch, “Still Brown, but
Going High Tech,” The New York Times, July 12, 2007; and www.ups.com, accessed July 26, 2008.
CASE STUDY QUESTIONS
1.
What are the inputs, processing, and outputs of UPS’s package tracking
system?
2.
What technologies are used by UPS? How are these technologies related
to UPS’s business strategy?
3.
What problems do UPS’s information systems solve? What would happen
if these systems were not available?
MIS IN ACTION
Explore the UPS Web site (www.ups.com) and answer the following questions:
1. What kind of information and services does the Web site provide for individuals,
small businesses, and large businesses? List these services and write several
paragraphs describing one of them, such as UPS Trade Direct or Automated
Shipment Processing. Explain how you or your business would benefit from the
service.
2. Explain how the Web site helps UPS achieve some or all of the strategic business
objectives we described earlier in this chapter. What would be the impact on UPS’s
business if this Web site were not available?
IT ISN’T JUST TECHNOLOGY: A BUSINESS PERSPECTIVE
ON INFORMATION SYSTEMS
Managers and business firms invest in information technology and systems because they
provide real economic value to the business. The decision to build or maintain an
information system assumes that the returns on this investment will be superior to other
investments in buildings, machines, or other assets. These superior returns will be
expressed as increases in productivity, as increases in revenues (which will increase the
firm’s stock market value), or perhaps as superior long-term strategic positioning of the
firm in certain markets (which produce superior revenues in the future).
We can see that 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. For example, the
information system for analyzing supermarket checkout data illustrated in Figure 1-3 can
increase firm profitability by helping managers make better decisions on which products to
stock and promote in retail supermarkets.
Every business has an information value chain, illustrated in Figure 1-7, in which raw
information 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. Although there are other reasons why systems are
built, their primary purpose is to contribute to corporate value.
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.
FIGURE 1-7
CHAIN
THE BUSINESS INFORMATION VALUE
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. Every chapter in this book begins with short case study that illustrates this
concept. A diagram at the beginning of each chapter illustrates the relationship between a
business challenge and resulting management and organizational decisions to use IT as a
solution to challenges generated by the business environment. You can use this diagram as
a starting point for analyzing any information system or information system problem you
encounter.
Review the diagram at the beginning of this chapter. The diagram shows how the NBA’s
systems solved the business problem presented by intense competitive pressures of
professional sports, the high cost of professional basketball players, and incomplete data on
team and player performance. Its system provides a solution that takes advantage of
computer capabilities for processing digital video data and linking them to team and player
data. It helps NBA coaches and managers make better decisions about how to best use the
talents of their players in both offensive and defensive maneuvers. The diagram also
illustrates how management, technology, and organizational elements work together to
create the systems.
COMPLEMENTARY ASSETS: ORGANIZATIONAL CAPITAL
AND THE RIGHT BUSINESS MODEL
FIGURE 1-8 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.
Source: Based on Brynjolfsson and Hitt (2000).
Awareness of the organizational and managerial dimensions of information systems can
help us understand why 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 (see Figure 1-8). Some firms invest a
great deal and receive a great deal (quadrant 2); others invest an equal amount and receive
few returns (quadrant 4). Still other firms invest little and receive much (quadrant 1),
whereas others invest little and receive little (quadrant 3). This suggests that investing in
information technology does not by itself guarantee good returns. What accounts for this
variation among firms?
The answer lies in the concept of complementary assets. Information technology
investments alone cannot make organizations and managers more effective unless they are
accompanied by supportive values, structures, and behavior patterns in the organization and
other complementary assets. Business firms need to change how they do business before
they can really reap the advantages of new information technologies.
Some firms fail to adopt the right business model that suits the new technology, or seek to
preserve an old business model that is doomed by new technology. For instance, recording
label companies refused to change their old business model which was based on physical
music stores for distribution rather than adopt a new online distribution model. As a result,
online legal music sales are dominated not by record companies but by a technology
company called Apple Computer.
Complementary assets are those assets required to derive value from a primary
investment (Teece, 1988). For instance, to realize value from automobiles requires
substantial complementary investments in highways, roads, gasoline stations, repair
facilities, and a legal regulatory structure to set standards and control drivers.
Recent research on business information technology investment indicates that firms that
support their technology investments with investments in complementary assets, such as
new business models, new business processes, management behavior, organizational
culture, or training, receive superior returns, whereas those firms failing to make these
complementary investments receive less or no returns on their information technology
investments (Brynjolfsson, 2003; Brynjolfsson and Hitt, 2000; Davern and Kauffman,
2000; Laudon, 1974). These investments in organization and management are also known
as organizational and management capital.
TABLE 1-3
COMPLEMENTARY SOCIAL, MANAGERIAL,
AND ORGANIZATIONAL ASSETS REQUIRED TO OPTIMIZE
RETURNS FROM INFORMATION TECHNOLOGY
INVESTMENTS
Organizational assets
Supportive organizational culture that values efficiency and effectiveness
Appropriate business model
Efficient business processes
Decentralized authority
Distributed decision-making rights
Strong IS development team
Managerial assets
Strong senior management support for technology investment and change
Incentives for management innovation
Teamwork and collaborative work environments
Training programs to enhance management decision skills
Management culture that values flexibility and knowledge-based decision
making.
Social assets
The Internet and telecommunications infrastructure
IT-enriched educational programs raising labor force computer literacy
Standards (both government and private sector)
Laws and regulations creating fair, stable market environments
Technology and service firms in adjacent markets to assist implementation
Table 1-3 lists the major complementary investments that firms need to make to realize
value from their information technology investments. Some of this investment involves
tangible assets, such as buildings, machinery, and tools. However, the value of investments
in information technology depends to a large extent on complementary investments in
management and organization.
Key organizational complementary investments are 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.
Important managerial complementary assets are 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.
Important social investments (not made by the firm but by the society at large, other firms,
governments, and other key market actors) are the Internet and the supporting Internet
culture, educational systems, network and computing standards, regulations and laws, and
the presence of technology and service firms.
Throughout the book we emphasize a framework of analysis that considers technology,
management, and organizational assets and their interactions. Perhaps the single most
important theme in the book, reflected in case studies and exercises, is that managers need
to consider the broader organization and management dimensions of information systems
to understand current problems as well as to derive substantial above-average returns from
their information technology investments. As you will see throughout the text, firms that
can address these related dimensions of the IT investment are, on average, richly rewarded.
1.3
CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS
The study of information systems is a multidisciplinary field. No single theory or perspective
dominates. Figure 1-9 illustrates the major disciplines that contribute problems, issues, and
solutions in the study of information systems. In general, the field can be divided into
technical and behavioral approaches. Information systems are sociotechnical systems.
Though they are composed of machines, devices, and “hard” physical technology, they
require substantial social, organizational, and intellectual investments to make them work
properly.
TECHNICAL APPROACH
The technical approach to information systems emphasizes mathematically based models to
study information systems, as well as the physical technology and formal capabilities of
these systems. The disciplines that contribute to the technical approach are computer
science, management science, and operations research.
Computer science is concerned with establishing theories of computability, methods of
computation, and methods of efficient data storage and access. Management science
emphasizes the development of models for decision-making and management practices.
Operations research focuses on mathematical techniques for optimizing selected parameters
of organizations, such as transportation, inventory control, and transaction costs.
FIGURE 1-9 CONTEMPORARY APPROACHES TO
INFORMATION SYSTEMS
The study of information systems deals with issues and insights contributed from
technical and behavioral disciplines.
BEHAVIORAL APPROACH
An important part of the information systems field is concerned with behavioral issues that
arise in the development and long-term maintenance of information systems. Issues such as
strategic business integration, design, implementation, utilization, and management cannot
be explored usefully with the models used in the technical approach. Other behavioral
disciplines contribute important concepts and methods.
For instance, sociologists study information systems with an eye toward how groups and
organizations shape the development of systems and also how systems affect individuals,
groups, and organizations. Psychologists study information systems with an interest in how
human decision makers perceive and use formal information. Economists study
information systems with an interest in understanding the production of digital goods, the
dynamics of digital markets, and understanding how new information systems change the
control and cost structures within the firm.
The behavioral approach does not ignore technology. Indeed, information systems
technology is often the stimulus for a behavioral problem or issue. But the focus of this
approach is generally not on technical solutions. Instead, it concentrates on changes in
attitudes, management and organizational policy, and behavior.
APPROACH OF THIS TEXT: SOCIOTECHNICAL SYSTEMS
Throughout this book you will find a rich story with four main actors: suppliers of
hardware and software (the technologists); business firms making investments and seeking
to obtain value from the technology; managers and employees seeking to achieve business
value (and other goals); and the contemporary legal, social, and cultural context (the firm’s
environment). Together these actors produce what we call management information
systems.
The study of management information systems (MIS) arose in the 1970s to focus on the use
of computer-based information systems in business firms and government agencies. 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.
Our experience as academics and practitioners leads us to believe that no single approach
effectively captures the reality of information systems. The successes and failures of
information are rarely all technical or all behavioral. Our best advice to students is to
understand the perspectives of many disciplines. Indeed, the challenge and excitement of
the information systems field is that it requires an appreciation and tolerance of many
different approaches.
The view we adopt in this book is best characterized as the sociotechnical view of systems.
In this view, 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. For instance, the fact that information technology is
rapidly declining in cost and growing in power does not necessarily or easily translate into
productivity enhancement or bottom-line profits. The fact that a firm has recently installed
an enterprise-wide financial reporting system does not necessarily mean that it will be used,
or used effectively. Likewise, the fact that a firm has recently introduced new business
procedures and processes does not necessarily mean employees will be more productive in
the absence of investments in new information systems to enable those processes.
In this book, we stress the need to optimize the firm’s performance as a whole. Both the
technical and behavioral components need attention. This means that technology must be
changed and designed in such a way as to fit organizational and individual needs.
Sometimes, the technology may have to be “de-optimized” to accomplish this fit. For
instance, mobile phone users adapt this technology to their personal needs, and as a result
manufacturers quickly seek to adjust the technology to conform with user expectations.
Organizations and individuals must also be changed through training, learning, and planned
organizational change to allow the technology to operate and prosper. Figure 1-10
illustrates this process of mutual adjustment in a sociotechnical system.
FIGURE 1-10 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.
1.4
HANDS-ON MIS PROJECTS
The projects in this section give you hands-on experience in analyzing financial reporting
and inventory management problems, using data management software to improve
management decision making about increasing sales, and using Internet software for
developing shipping budgets.
Management Decision Problems
1.
Snyders of Hanover, which sells more than 78 million bags of pretzels, snack
chips, and organic snack items each year, had its financial department use spreadsheets
and manual processes for much of its data gathering and reporting. Hanover’s financial
analyst would spend the entire final week of every month collecting spreadsheets from
the heads of more than 50 departments worldwide. She would then consolidate and reenter all the data into another spreadsheet, which would serve as the company’s monthly
profit-and-loss statement. If a department needed to update its data after submitting the
spreadsheet to the main office, the analyst had to return the original spreadsheet and wait
for the department to re-submit its data before finally submitting the updated data in the
consolidated document. Assess the impact of this situation on business performance and
management decision making.
2.
Dollar General Corporation operates deep discount stores offering housewares,
cleaning supplies, clothing, health and beauty aids, and packaged food, with most items
selling for $1. Its business model calls for keeping costs as low as possible. Although the
company uses information systems (such as a point-of-sale system to track sales at the
register), it deploys them very sparingly to keep expenditures to the minimum. The
company has no automated method for keeping track of inventory at each store.
Managers know approximately how many cases of a particular product the store is
supposed to receive when a delivery truck arrives, but the stores lack technology for
scanning the cases or verifying the item count inside the cases. Merchandise losses from
theft or other mishaps have been rising and now represent over 3 percent of total sales.
What decisions have to be made before investing in an information system solution?
Improving Decision Making: Using Databases to Analyze
Sales Trends
Software skills: Database querying and reporting
Business skills: Sales trend analysis
Effective information systems transform data into meaningful information for decisions
that improve business performance. At the Laudon Web site for Chapter 1, you can find a
Store and Regional Sales Database with raw data on weekly store sales of computer
equipment in various sales regions. A sample is shown below, but the Web site may have a
more recent version of this database for this exercise. The database includes fields for store
identification number, sales region number, item number, item description, unit price, units
sold, and the weekly sales period when the sales were made. Develop some reports and
queries to make this information more useful for running the business. Try to use the
information in the database to support decisions on which products to restock, which stores
and sales regions would benefit from additional marketing and promotional campaigns,
which times of the year products should be offered at full price, and which times of the
year products should be discounted. Modify the database table, if necessary, to provide all
of the information you require. Print your reports and results of queries.
Achieving Operational Excellence: Using Internet Tools to
Budget for Shipping Costs
Software skills: Internet-based software
Business skills: Shipping cost budgeting
You are the shipping clerk of a small firm that prints, binds, and ships popular books for a
midlevel publisher. Your production facilities are located in Albany, New York (ZIP code
12250). Your customers’ warehouses are located in Irving, Texas (75015); Charlotte, North
Carolina (28201); Sioux Falls, South Dakota (57117); and Portland, Oregon (97202). The
production facility operates 250 days per year. Your books are usually shipped in one of
two sized packages:
•
Height: 9 inches, Length: 13 inches, Width: 17 inches, Weight: 45 pounds
•
Height: 10 inches, Length: 6 inches, Width: 12 inches, Weight: 16 pounds
The company ships about four of the 45-pound boxes to each of the warehouses on an
average day and about eight 16-pound boxes.
Your task is to select the best shipper for your company. Compare three shippers, such as
FedEx (www.fedex.com), UPS (www.ups.com), and the U.S. Postal Service
(www.usps.gov). Consider not only costs but also such issues as delivery speed, pickup
schedules, drop-off locations, tracking ability, and ease of use of the Web site. Which
service did you select? Explain why.
LEARNING TRACK MODULES
The following Learning Tracks provide content relevant to topics covered in this chapter:
1.
How Much Does IT Matter?
2.
Information Systems and Your Career
Review Summary
1.
How are information systems transforming business and what is their
relationship to globalization?
E-mail, online conferencing, and cell phones have become essential tools for conducting
business. Information systems are the foundation of fast-paced supply chains. The Internet
allows many businesses to buy, sell, advertise, and solicit customer feedback online.
Organizations are trying to become more competitive and efficient by digitally enabling
their core business processes and evolving into digital firms. The Internet has stimulated
globalization by dramatically reducing the costs of producing, buying, and selling goods on
a global scale. New information system trends include the emerging mobile digital
platform, online software as a service, and cloud computing.
2.
today?
Why are information systems so essential for running and managing a business
Information systems are a foundation for conducting business today. In many industries,
survival and the ability to achieve strategic business goals are difficult without extensive
use of information technology. Businesses today use information systems to achieve six
major objectives: operational excellence; new products, services, and business models;
customer/supplier intimacy; improved decision making; competitive advantage; and dayto-day survival.
3.
What exactly is an information system? How does it work? What are its
management, organization, and technology components?
From a technical perspective, an information system collects, stores, and disseminates
information from an organization’s environment and internal operations to support
organizational functions and decision making, communication, coordination, control,
analysis, and visualization. Information systems transform raw data into useful information
through three basic activities: input, processing, and output.
From a business perspective, an information system provides a solution to a problem or
challenge facing a firm and represents a combination of management, organization, and
technology elements. The management dimension of information systems involves issues
such as leadership, strategy, and management behavior. The technology dimension consists
of computer hardware, software, data management technology, and
networking/telecommunications technology (including the Internet). The organization
dimension of information systems involves issues such as the organization’s hierarchy,
functional specialties, business processes, culture, and political interest groups.
4.
What are complementary assets? Why are complementary assets essential for
ensuring that information systems provide genuine value for an organization?
In order to obtain meaningful value from information systems, organizations must support
their technology investments with appropriate complementary investments in organizations
and management. These complementary assets include new business models and business
processes, supportive organizational culture and management behavior, appropriate
technology standards, regulations, and laws. New information technology investments are
unlikely to produce high returns unless businesses make the appropriate managerial and
organizational changes to support the technology.
5.
What academic disciplines are used to study information systems? How does
each contribute to an understanding of information systems? What is a sociotechnical
systems perspective?
The study of information systems deals with issues and insights contributed from technical
and behavioral disciplines. The disciplines that contribute to the technical approach
focusing on formal models and capabilities of systems are computer science, management
science, and operations research. The disciplines contributing to the behavioral approach
focusing on the design, implementation, management, and business impact of systems are
psychology, sociology, and economics. A sociotechnical view of systems considers both
technical and social features of systems and solutions that represent the best fit between
them.
Chapter 2
Global E-Business: How Businesses Use
Information Systems
THE TATA NANO MAKES HISTORY USING DIGITAL
MANUFACTURING
On January 10, 2008, India’s Tata Motors unveiled its Nano car. It was an historic moment,
because the Nano was the cheapest auto ever made at that time, with a price tag around US
$2,500. The Nano joined Ford’s Model T as a car within reach of millions of people who
previously could not afford one.
Tata Motors started its Nano project in 2003, when a team was charged with creating a car
that would cost no more than about US $2,500 without compromising on safety, aesthetics,
or value to the customer. It was a Herculean task. Tata met the challenge by using digital
manufacturing systems to dramatically shorten the time required to design the new product
and bring it to market. The ability to develop and produce new products with many different
variations within a very short time span is a key competitive advantage in the automotive
industry.
Until a few years ago, it would have been impossible to design and produce the Nano at this
price. Tata Motors had outdated manufacturing processes. Manual effort was required to
create and maintain processes, plants, and product design, resulting in longer lead times to
choose the appropriate tools for an operation. The company had to create programs manually
for assembly line robots, a process that was error-prone and time-consuming. Such delays
had a number of negative consequences: Data used to plan a vehicle became useless over
time, and the company was unable to easily change its product mix, roll out a new product on
an existing production line, or schedule the assembly of two different products on the same
line.
All that changed in July 2005 when Tata Motors switched to digital manufacturing using
Dassault Systems’ Digital Enterprise Lean Manufacturing Interactive Application
(DELMIA). Digital manufacturing automates processes in product design and production
engineering planning, enabling Tata to plan manufacturing processes, design plant layouts,
and then simulate the repercussions of those plans, including the impact of new
manufacturing techniques and changes of products on existing production lines. It provides
data to Tata’s SAP enterprise resource planning system, which costs out a product, an
assembly or a sub-assembly. Digital manufacturing also simulates the movements of people
working on the shop floor so that planners can design more efficient work processes.
Companies using digital manufacturing can model products and operations and make
changes to them on the computer. This cuts down on the use of expensive physical
prototypes, which must be rebuilt each time a design changes.
According to T.N. Umamaheshwaran, who headed Tata Motors’ digital manufacturing
program, “We can’t imagine what would take place at a new plant if we did not have DM
Tools. Two years before the first stone of a plant is laid, we already start working on it. We
don’t even know where the site will be, but we know what it will take to make 750 cars a
day.”
As a result of adopting digital manufacturing, Tata Motors has reduced time-to-market for
new passenger cars by at least six months. The company can now rapidly identify areas of
“work overload” and constraints while quickly adapting assembly lines to accommodate
multiple automobile variations. The ability to simulate facilities and processes has reduced
the cost of physical rework. Manufacturing and facilities planning now take 30 percent less
time, with a 20 percent reduction in the cost of the manufacturing planning process. For
certain functions, the time to design an entire process end-to-end has been reduced by over
50 percent.
Sources: Gunjan Trivedi, “Driving Down Cost,” CIO Asia, February 2008; Richard Chang, “Nano’s Price
Is Under Pressure,” The New York Times, August 10, 2008; and www.tatapeoplescar.com, accessed July
31,2008.
The experience of Tata Motors illustrates how much companies today rely on information
systems to run their businesses and drive innovation, growth, and profitability. It also shows
how much information systems make a difference in a company’s ability to innovate, execute,
and improve overall business performance.
The chapter-opening diagram calls attention to important points raised by this case and this
chapter. Management identified an opportunity to use information systems to improve business
performance, and radically reduce costs. Tata Motors was confronted with both a problem and
an opportunity. The company operates in a highly competitive industry where the
manufacturers are expected to bring new car models with many different variations to market
very quickly, but it was slowed down by relying too much on manual processes. Tata
management also saw an opportunity to enter a new marketspace, specifically consumers in
India and other developing countries who wanted cars but could not afford them. Management
decided to design and develop a car for this market and to switch to digital manufacturing for
all of its auto production. Technology alone would not have provided a solution. The company
had to revise many of its manufacturing processes to support digital manufacturing. Once that
was accomplished, Dassault’s DELMIA software proved invaluable for modeling designs,
factories, and production processes and for coordinating information between processes.
Digital manufacturing systems increased flexibility and efficiency while decreasing production
costs, and made it possible to pioneer in low-cost cars such as the Nano.
2.1
BUSINESS PROCESSES AND INFORMATION SYSTEMS
In order to operate, businesses must deal with many different pieces of information about
suppliers, customers, employees, invoices, and payments, and of course their products and
services. They must organize work activities that use this information to operate efficiently
and enhance the overall performance of the firm. Information systems make it possible for
firms to manage all their information, make better decisions, and improve the execution of
their business processes.
BUSINESS PROCESSES
Business processes, which we introduced in Chapter 1, refer to the manner in which work
is organized, coordinated, and focused to produce a valuable product or service. Business
processes are concrete workflows of material, information, and knowledge—sets of
activities. Business processes also refer to the unique ways in which organizations
coordinate work, information, and knowledge, and the ways in which management chooses
to coordinate work.
To a large extent, the performance of a business firm depends on how well its business
processes are designed and coordinated. A company’s business processes can be a source
of competitive strength if they enable the company to innovate or to execute better than its
rivals. Business processes can also be liabilities if they are based on outdated ways of
working that impede organizational responsiveness and efficiency. The chapter-opening
case on Tata Motors product development and manufacturing processes clearly illustrates
these points.
Every business can be seen as a collection of business processes. Some of these processes
are part of larger encompassing processes. (In the chapter opening case, for instance,
designing a new car model, manufacturing components, and assembling the finished car are
all part of the overall production process.) Many business processes are tied to a specific
functional area. For example, the sales and marketing function would be responsible for
identifying customers, and the human resources function would be responsible for hiring
employees. Table 2-1 describes some typical business processes for each of the functional
areas of business.
TABLE 2-1
PROCESSES
EXAMPLES OF FUNCTIONAL BUSINESS
FUNCTIONAL AREA
BUSINESS PROCESS
Manufacturing and production
Assembling the product
Checking for quality
Producing bills of materials
Sales and marketing
Identifying customers
Making customers aware of the product
Selling the product
Finance and accounting
Paying creditors
Creating financial statements
Managing cash accounts
Human resources
Hiring employees
Evaluating employees’ job performance
Enrolling employees in benefits plans
Other business processes cross many different functional areas and require coordination
across departments. For instance, consider the seemingly simple business process of
fulfilling a customer order (see Figure 2-1). Initially, the sales department would receive a
sales order. The order will pass first to accounting to ensure the customer can pay for the
order either by a credit verification or request for immediate payment prior to shipping.
Once the customer credit is established, the production department has to pull the product
from inventory or produce the product. Then the product will need to be shipped (and this
may require working with a logistics firm, such as UPS or FedEx.) A bill or invoice will
then have to be generated by the accounting department, and a notice will be sent to the
customer indicating that the product has shipped. Sales will have to be notified of the
shipment and prepare to support the customer by answering calls or fulfilling warranty
claims.
What at first appears to be a simple process, fulfilling an order, turns out to be a very
complicated series of business processes that require the close coordination of major
functional groups in a firm. Moreover, to efficiently perform all these steps in the order
fulfillment process requires a great deal of information. The required information must
flow rapidly both within the firm—with business partners, such as delivery firms—and
with the customer. Computerized information systems make this possible.
HOW INFORMATION TECHNOLOGY ENHANCES BUSINESS
PROCESSES
FIGURE 2-1
THE ORDER FULFILLMENT PROCESS
Fulfilling a customer order involves a complex set of steps that requires the close
coordination of the sales, accounting, and manufacturing functions.
Exactly how do information systems enhance business processes? Information systems
automate many steps in business processes that were formerly performed manually, such as
checking a client’s credit, or generating an invoice and shipping order. But today,
information technology can do much more. New technology can actually change the flow
of information, making it possible for many more people to access and share information,
replacing sequential steps with tasks that can be performed simultaneously, and eliminating
delays in decision making. It can even transform the way the business works and drive new
business models. Ordering a book online from Amazon.com or downloading a music track
from iTunes are entirely new business processes based on new business models that would
be inconceivable without information technology.
That’s why it’s so important to pay close attention to business processes, both in your
information systems course and in your future career. By analyzing business processes, you
can achieve a very clear understanding of how a business actually works. Moreover, by
conducting a business process analysis, you will also begin to understand how to change
the business to make it more efficient or effective. Throughout this book we examine
business processes with a view to understanding how they might be changed, or replaced,
by using information technology to achieve greater efficiency, innovation and customer
service.
2.2
TYPES OF INFORMATION SYSTEMS
Now that you understand business processes, it is time to look more closely at how
information systems support the business processes of a firm. Because a business may have
hundreds or even thousands of different business processes, and because there are different
interests, specialties, and levels in an organization, there are different kinds of systems. No
single system can provide all the information an organization needs.
A typical business organization will have systems supporting processes for each of the major
business functions—systems for sales and marketing, manufacturing and production, finance
and accounting, and human resources. You can find examples of systems for each of these
business functions in the Learning Tracks for this chapter. Functional systems that operated
independently of each other are becoming a thing of the past because they could not easily
share information to support cross-functional business processes. They are being replaced
with large-scale cross-functional systems that integrate the activities of related business
processes and organizational units. We describe these integrated cross-functional applications
in Section 2.3.
A typical business firm will also have different systems supporting the decision making
needs of each of the main management groups we described earlier. Operational
management, middle management, and senior management each use a specific type of
system to support the decisions they must make to run the company. Let’s look at these
systems and the types of decisions they support.
TRANSACTION PROCESSING SYSTEMS
Operational managers need systems that keep track of the elementary activities and
transactions of the organization, such as sales, receipts, cash deposits, payroll, credit
decisions, and the flow of materials in a factory. Transaction processing systems (TPS)
provide this kind of information. A transaction processing system 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.
The principal purpose of systems at this level is to answer routine questions and to track the
flow of transactions through the organization. How many parts are in inventory? What
happened to Mr. Williams’s payment? To answer these kinds of questions, information
generally must be easily available, current, and accurate.
At the operational level, tasks, resources, and goals are predefined and highly structured.
The decision to grant credit to a customer, for instance, is made by a lower-level supervisor
according to predefined criteria. All that must be determined is whether the customer meets
the criteria.
Figure 2-2 illustrates a TPS for payroll processing. A payroll system keeps track of money
paid to employees. An employee time card with the employee’s name, Social Security
number, and number of hours worked per week represents a single transaction for this
system. Once this transaction is input into the system, it updates the system’s file, or
database (see Chapter 6), that permanently maintains employee information for the
organization. The data in the system are combined in different ways to create reports of
interest to management and government agencies and to send paychecks to employees.
FIGURE 2-2
A PAYROLL TPS
A TPS for payroll processing captures employee payment transaction data (such as a
time card). System outputs include online and hard-copy reports for management and
employee paychecks.
Managers need TPS to monitor the status of internal operations and the firm’s relations
with the external environment. TPS are also major producers of information for the other
types of systems. For example, the payroll system illustrated in Figure 2-2, along with other
accounting TPS, supplies data to the company’s general ledger system, which is
responsible for maintaining records of the firm’s income and expenses and for producing
reports such as income statements and balance sheets. It also supplies employee payment
history data for insurance, pension, and other benefits calculations to the firm’s human
resource systems and employee payment data to government agencies such as the U.S.
Internal Revenue Service and Social Security Administration.
Transaction processing systems are often so central to a business that TPS failure for a few
hours can lead to a firm’s demise and perhaps that of other firms linked to it. Imagine what
would happen to UPS if its package tracking system were not working! What would the
airlines do without their computerized reservation systems? (See the chapter-ending case
study on JetBlue.)
MANAGEMENT INFORMATION SYSTEMS AND DECISIONSUPPORT SYSTEMS
Middle management needs systems to help with monitoring, controlling, decision-making,
and administrative activities. The principal question addressed by such systems is this: Are
things working well?
In Chapter 1, we defined management information systems as the study of information
systems in business and management. The term management information systems (MIS)
also designates a specific category of information systems serving middle management.
MIS provide middle managers with reports on the organization’s current performance. This
information is used to monitor and control the business and predict future performance.
MIS summarize and report on the company’s 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 transactionlevel data from inventory, production, and accounting into MIS files that are used to
provide managers with reports. Figure 2-4 shows a sample report from this system.
FIGURE 2-3 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.
MIS serve managers primarily interested in weekly, monthly, and yearly results, although
some MIS enable managers to drill down to see daily or hourly data if required. MIS
generally provide answers to routine questions that have been specified in advance and
have a predefined procedure for answering them. For instance, MIS reports might list the
total pounds of lettuce used this quarter by a fast-food chain or, as illustrated in Figure 2-4,
compare total annual sales figures for specific products to planned targets. 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.
Decision-support systems (DSS) support nonroutine decision making for middle
management. 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. They try to
answer questions such as these: 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?
Although DSS use internal information from TPS and MIS, they often bring in information
from external sources, such as current stock prices or product prices of competitors. These
systems use a variety of models to analyze data, or they condense large amounts of data
into a form in which decision makers can analyze them. DSS are designed so that users can
work with them directly; these systems explicitly include user-friendly software.
FIGURE 2-4
SAMPLE MIS REPORT
This report, showing summarized annual sales data, was produced by the MIS in Figure
2-3.
An interesting, small, but powerful DSS is the voyage-estimating system of a subsidiary of
a large American metals company that exists primarily to carry bulk cargoes of coal, oil,
ores, and finished products for its parent company. The firm owns some vessels, charters
others, and bids for shipping contracts in the open market to carry general cargo. A voyageestimating system calculates financial and technical voyage details. Financial calculations
include ship/time costs (fuel, labor, capital), freight rates for various types of cargo, and
port expenses. Technical details include a myriad of factors, such as ship cargo capacity,
speed, port distances, fuel and water consumption, and loading patterns (location of cargo
for different ports).
The system can answer questions such as the following: Given a customer delivery
schedule and an offered freight rate, which vessel should be assigned at what rate to
maximize profits? What is the optimal speed at which a particular vessel can optimize its
profit and still meet its delivery schedule? What is the optimal loading pattern for a ship
bound for the U.S. West Coast from Malaysia? Figure 2-5 illustrates the DSS built for this
company. The system operates on a powerful desktop personal computer, providing a
system of menus that makes it easy for users to enter data or obtain information.
This voyage-estimating DSS draws heavily on analytical models. Other types of DSS are
less model driven, focusing instead on extracting useful information to support decision
making from massive quantities of data. For example, Intrawest—the largest ski operator in
North America—collects and stores vast amounts of customer data from its Web site, call
center, lodging reservations, ski schools, and ski equipment rental stores. It uses special
software to analyze these data to determine the value, revenue potential, and loyalty of each
customer so managers can make better decisions on how to target their marketing
programs. The system segments customers into seven categories based on needs, attitudes,
and behaviors, ranging from “passionate experts” to “value-minded family vacationers.”
The company then e-mails video clips that would appeal to each segment to encourage
more visits to its resorts.
Sometimes you’ll hear DSS referred to as business intelligence systems because they focus
on helping users make better business decisions. You’ll learn more about them in Chapters
6 and 12.
The Interactive Session on Technology describes another example of a system for decision
support. Air Canada adopted Maintenix software for its aviation maintenance program to
help schedule and organize aircraft maintenance work. Try to identify the decision-support
applications detailed in the case and the kinds of decisions they support.
FIGURE 2-5 VOYAGE-ESTIMATING DECISIONSUPPORT SYSTEM
This DSS operates on a powerful PC. It is used daily by managers who must develop
bids on shipping contracts.
INTERACTIVE SESSION: TECHNOLOGY AIR CANADA
TAKES OFF WITH MAINTENIX
Air Canada is Canada’s most prominent airline. It is the largest provider of scheduled
passenger services in the Canadian market, the Canada-U.S. transborder market, and in
the international market to and from Canada. The airline serves over 33 million
customers annually and provides direct passenger service to over 170 destinations on five
continents. But the company’s information systems had plenty of room for improvement.
When Air Canada technicians worked on planes, they used several different legacy
software packages installed over the past 15 years. The systems weren’t able to interact
with one another or with finance and inventory systems. The inefficiencies of these
systems were costing Air Canada the time of its engineers and money that could have
been used on maintaining its planes, instead of needlessly maintaining excess inventory.
Air Canada turned to Mxi Technologies for help in addressing these problems. Mxi is
renowned in the airline industry for its Maintenix software package, which provides
integrated, intelligent aviation MRO (maintenance, repair, and operations) software to
aviation organizations hoping to improve productivity. The benefits of Maintenix that
interested Air Canada were enhanced visibility of fleet-wide data, timelier decisionmaking, support of its currently existing business model, and increased operational
efficiencies.
Maintenix provides a system platform that is accessible via the Web and easy to deploy
to all stations around the world. Mxi claims that their software reduces repetitive tasks
and time chasing missing or incomplete information by allowing maintenance,
engineering, and finance divisions to easily share information. Maintenix can supply data
to the company’s existing enterprise resource planning (see Section 2.3) and financial
software, and Air Canada plans to link it up with its PeopleSoft finance and human
resource applications. Wireless deployment also makes Maintenix more effective, since
aviation technicians, equipment, and parts are always on the move.
The Maintenix software package consists of six different modules, which are separate
segments of the product that interconnect. Airlines deploying Maintenix can choose
which modules they want to use, as well as whether they want full or partial installation
of those modules. The six modules are maintenance engineering, line maintenance, heavy
maintenance, shop maintenance, materials management, and finance. Air Canada chose
to fully implement the maintenance engineering, line maintenance, and materials
management modules. The airline chose to only partially implement the heavy
maintenance, shop maintenance, and finance modules because a separate contractor that
also maintains Air Canada planes handles those tasks.
The maintenance engineering module is the foundation of the Maintenix system. It is
used to establish the configuration hierarchy, rules, and maintenance program that all of
the other modules depend upon. Through this module, the airline can set up a “logical
configuration”, which describes aircraft components, part relationships, and compatibility
rules.
Line maintenance involves matching a dynamic list of maintenance work requirements
against finite resources at varying locations within a flight schedule that is constantly
undergoing change. The module includes line station planning applications, which are
designed to schedule maintenance and allocate work, based on the capabilities of the line
station facilities as well as the aircrafts’ scheduled locations. For example, this module
allows Air Canada to ensure that qualified technicians are available before they schedule
maintenance.
The materials management module deals with the logistically complex process of
ensuring availability of parts without overstocking. Maintenix ensures that the minimum
amount of each part is always in inventory without causing engineers to be short on parts
at any time. Maintaining this delicate balance is critical in order to maximize revenue and
achieve greater operational efficiencies. Maintenix allows wireless, real-time
management of inventory, automates routine activities, and integrates fully with an
airline’s existing inventory management systems.
The biggest advantage of the system is that all of this information provided by
Maintenix’s various modules is located in one place. This results in more rapid
scheduling and avoids pitfalls of poorly organized information systems, such as
scheduling work to a station that lacks the proper qualifications to accomplish it.
One example of how Maintenix will increase Air Canada’s efficiency might be as
follows. An Air Canada technician requests a part he needs for maintenance from supply.
Maintenix automatically processes the request. If the required part is available, Maintenix
automatically reserves it and the appropriate personnel are immediately informed that the
part is ready to be picked for issue. In the meantime, the technician is easily able to track
the status of his part requests and is made aware once the part is ready to be collected. If
any change happens and the part is unavailable, Maintenix will notify the technician. As a
result, technicians can accomplish more maintenance work as opposed to managing
details that Maintenix is now handling via automation. This leads to increased
productivity and increased profitability. The system is expected to be fully implemented
by 2010.
Sources: Greg Meckbach, “Air Canada to Overhaul Maintenance Software,” ComputerWorld
Canada, April 18, 2008; “Air Canada Selects Maintenix for Fleetwide Implementation,” Reuters, April
15, 2008; “Maintenix Product Overview,” www.mxi.com, May 2008.
CASE STUDY QUESTIONS
1.
What problems does Air Canada hope that Maintenix will solve?
2.
How does Maintenix improve operational efficiency and decisionmaking?
3.
Give examples of three decisions supported by the Maintenix system.
What information do the Maintenix modules provide to support each of these
decisions?
MIS IN ACTION
Visit the Mxi Technologies Web site (www.mxi.com) and examine the Maintenix
modules for heavy maintenance, shop maintenance, and finance modules. Then answer
the following questions:
1.
How could an airline benefit from implementing these modules?
2.
Give an example of a decision that each of these modules supports.
EXECUTIVE SUPPORT SYSTEMS FOR SENIOR
MANAGEMENT
Senior managers need systems that address strategic issues and long-term trends, both in
the firm and in the external environment. They are concerned with questions such as these:
What will employment levels be in five years? What are the long-term industry cost trends,
and where does our firm fit in? What products should we be making in five years? What
new acquisitions would protect us from cyclical business swings?
Executive support systems (ESS) help senior management make these decisions. ESS
address nonroutine decisions requiring judgment, evaluation, and insight because there is
no agreed-on procedure for arriving at a solution. ESS present 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. You will learn more about other applications of
portals in Chapters 10 and 11.
ESS are 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. For example, the CEO of Leiner Health Products, the largest manufacturer of
private-label vitamins and supplements in the United States, has an ESS that provides on
his desktop a minute-to-minute view of the firm’s financial performance as measured by
working capital, accounts receivable, accounts payable, cash flow, and inventory. The
information is presented in the form of a digital dashboard, which displays on a single
screen graphs and charts of key performance indicators for managing a company. Digital
dashboards are becoming an increasingly popular feature of ESS.
Figure 2-6 illustrates a model of an ESS. It consists of workstations with menus, interactive
graphics, and communications capabilities that can be used to access historical and
competitive data from internal corporate systems and external databases such as Dow Jones
News/Retrieval or the Gallup Poll. More details on leading-edge applications of DSS and
ESS can be found in Chapter 12.
The Interactive Session on Organizations describes real-world examples of several of these
types of systems used by a company that is attempting to grow from a successful local
restaurant into a nationwide fast-food chain. Note the types of systems illustrated by this
case and the role they play in improving both operations and decision making.
2.3
SYSTEMS THAT SPAN THE ENTERPRISE
Reviewing all the different types of systems we have just described, you might wonder how a
business can manage all the information in these different systems. In fact, getting all the
different kinds of systems in a company to work together has proven to be a major challenge.
There are several solutions to this problem.
ENTERPRISE APPLICATIONS
FIGURE 2-6
SYSTEM
MODEL OF AN EXECUTIVE SUPPORT
This system pools data from diverse internal and external sources and makes them
available to executives in an easy-to-use form.
One solution is to implement enterprise applications, which are systems that span
functional areas, focus on executing business processes across the business firm, and
include all levels of management. Enterprise applications help businesses become more
flexible and productive by coordinating their business processes more closely and
integrating groups of processes so they focus on efficient management of resources and
customer service.
INTERACTIVE SESSION: ORGANIZATIONS “FRESH, HOT,
FAST”—CAN INFORMATION SYSTEMS HELP JOHNNY’S
LUNCH GO NATIONAL?
In 1936, Johnny Colera began selling hot dogs at his lunch counter in Jamestown, New
York. Thanks to his special chili sauce and savvy business management, his restaurant,
named Johnny’s Lunch, became a huge success and a local institution. Johnny’s Lunch
offers good food, low prices, top-notch service, and a unique store atmosphere, featuring
Johnny’s Hots hot dogs, burgers, fries, onion rings, and shakes, as well as less common
options like homemade rice pudding.
The restaurant now wants to grow into a national QSR (quick-service restaurant, or fast
food) leader similar to McDonald’s. The company is currently led by two of Colera’s
grandchildren, Anthony and John Calamunci, and a newly assembled team of executives
with experience in the QSR industry.
Growing the company from its humble origins into a national presence faces significant
challenges. One will be to retain the restaurant’s small-town, local flavor as franchises
proliferate across the country. Accomplishing this goal will require a coordinated effort.
Another challenge for Johnny’s Lunch will be to sustain growth despite the impact of a
weak economy. Analysts predict that the slow economy will threaten growth potential for
QSRs; it’s estimated that the sector’s annual growth will slow to 2% or 3%, down from
much higher rates during more promising times. The company hopes that familiar and
cheap food will translate to success even in an economic downturn during 2008 and
beyond.
Management wants to expand to 30–50 restaurants by the end of 2008, with a goal of as
many as 3,000 locations nationwide in the next 5 years. There are only 3,300 hot dog
restaurants in the country, and the most prominent chains like Nathan’s Famous and
Wienerschnitzel have only 180 and 250 outlets, respectively. Johnny’s Lunch and
industry analysts believe that there is room for the explosive growth the company is
planning.
Johnny’s Lunch hopes to overcome these challenges with the help of state-of-the-art
technology, including sophisticated mapping technology to scout locations, state-of-theart point of sale (POS) systems, and inventory management systems that ensure freshness
and reduce costs.
Pitney Bowes MapInfo has allowed Johnny’s to take a scientific approach to choosing
spots for new restaurants. MapInfo’s Predictive Analytics group interviewed 800
customers at the original Jamestown restaurant to identify the types of customers
Johnny’s Lunch attracted. Half were families; most were ages 16-24 or over 60 and had
lower-middle-to upper-middle-class incomes. The interviews also determined the
distribution of customers coming into the restaurant from work, home, shopping, or some
other location.
MapInfo’s Smart Site Solutions analytics technology helped Johnny’s Lunch use this
information to pinpoint potential markets and to identify the optimal number of sites
within the market to maximize sales. Smart Site Solutions separated the country into
many designated market areas (DMAs) showing the level of competition, demographics,
and characteristics of prospective franchise locations. Pitney Bowes consultants
determined which of 72 “clusters”, or neighborhood types, best match the restaurant’s
optimal target areas from a variety of perspectives. Using this data within the Smart Site
Solutions model allowed Johnny’s Lunch to identify approximately 4,500 optimal trade
areas across the country. The executive team believes that these areas possess the best
opportunities for successful Johnny’s Lunch franchises.
Using data such as trade area size, buffer distance between stores, customer profile, and
more, Smart Site Solution created a model that predicted the potential success of various
sites. The processes allowed Johnny’s Lunch to identify sites without a wealth of
historical sales data. Target spots include strip malls in facilities ranging from 1,400–
1,800 feet, as opposed to freestanding locations, which tend to cost more to set up. The
company also hopes that its franchises will be placed alongside well-known national
brands, which will give Johnny’s Lunch immediate credibility among consumers.
Another area in which Johnny’s Lunch is using advanced technology to spur growth is
their POS system. A POS system captures sales transaction data at the actual physical
location where goods or services are bought or sold through electronic cash registers or
handheld scanners. Company executives have selected the MICROS 3700 POS system
from MICROS Systems as the system all their franchises will use as Johnny’s Lunch
expands. A good POS system helps monitor inventory, control waste, and adhere to
government regulations (for example, if food takes too long to prepare, if a cashier voids
excessive transactions, or if any violations of labor laws occur, the system will alert
employees). The MICROS system does all this and provides several other advantages.
The system has impressed Johnny’s Lunch with how easy it is to understand and use, and
MICROS is a large company with national reach and vendor locations throughout the
country. This means that as Johnny’s Lunch grows nationally, MICROS will continue to
be able to meet the company’s needs throughout the United States and should be simple
for new franchises to master. The system also allows the company to track useful data
about consumers’ habits, such as how much food is eaten in the restaurant as opposed to
how much is carried out.
Until recently, the company exclusively used laptop computers and two POS systems to
run the business. Johnny’s Lunch currently uses a single custom-made server from Dell
Direct, but plans to add more new servers in the near future, one for marketing data, and
one for POS that will network all locations’ POS systems, as part of an IT overhaul.
Johnny’s Lunch also plans to upgrade their Web site, incorporating a portal that will
allow franchise operators to place orders and download pertinent information.
Sources: “Hot Dog: Franchising with Technology,” Baselinemag.com, April 30, 2008; Nora
Parker, “Johnny’s Lunch Plans Franchise Expansion with LI,” Directions Magazine, October 8, 2007;
Karen E. Klein, “Finding the Perfect Location”, Businessweek, March 2008; and
www.johnnyslunch.com, accessed August 3, 2008.
CASE STUDY QUESTIONS
1.
Describe Johnny’s Lunch’s business model and business strategy. What
challenges does Johnny’s Lunch face as it begins its expansion?
2.
What systems has the company used or planned to use to overcome these
challenges? What types of systems are they? What role will each play in helping
Johnny’s Lunch overcome these challenges?
3.
What other kinds of systems described in this chapter might help Johnny’s
Lunch as it expands?
4.
Do you believe Johnny’s Lunch will be successful in its attempts to
expand nationally? Why or why not?
MIS IN ACTION
Visit Johnny’s Lunch Web site (www.johnnyslunch.com) and then answer the following
questions:
1.
What is the target audience for this Web site? What is the objective of the Web
site? How easy is it to use? How useful is it in attracting customers? How well does this
Web site support the company’s business strategy?
2.
How many franchise locations are described on the Web site? Where are they
located? What does this tell you about the company’s expansion strategy?
There are four major enterprise applications: enterprise systems, supply chain management
systems, customer relationship management systems, and knowledge management systems.
Each of these enterprise applications integrates a related set of functions and business
processes to enhance the performance of the organization as a whole. Figure 2-7 shows that
the architecture for these enterprise applications encompasses processes spanning the entire
organization and, in some cases, extending beyond the organization to customers, suppliers,
and other key business partners.
FIGURE 2-7
ENTERPRISE APPLICATION ARCHITECTURE
Enterprise applications automate processes that span multiple business functions and
organizational levels and may extend outside the organization.
Enterprise Systems
A large organization typically has many different kinds of information systems built
around different functions, organizational levels, and business processes that cannot
automatically exchange information. This fragmentation of data in hundreds of separate
systems degrades organizational efficiency and business performance. For instance, sales
personnel might not be able to tell at the time they place an order whether the ordered
items are in inventory, and manufacturing cannot easily use sales data to plan for new
production.
Enterprise systems, also known as enterprise resource planning (ERP) systems, solve
this problem by collecting data from various key business processes in manufacturing and
production, finance and accounting, sales and marketing, and human resources, and
storing the data in a single central data repository. Information that was previously
fragmented in different systems can be easily shared across the firm to help different
parts of the business work more closely together (see Figure 2-8).
For example, when a customer places an order, the data flow automatically to other parts
of the company that are affected by them. The order transaction triggers the warehouse to
pick the ordered products and schedule shipment. The warehouse informs the factory to
replenish whatever has depleted. The accounting department is notified to send the
customer an invoice. Customer service representatives track the progress of the order
through every step to inform customers about the status of their orders. Improved
coordination between these different parts of the business lowers costs while increasing
customer satisfaction.
FIGURE 2-8 ENTERPRISE SYSTEMS
Enterprise systems integrate the key business processes of an entire firm into a single
software system that enables information to flow seamlessly throughout the
organization. These systems focus primarily on internal processes but may include
transactions with customers and vendors.
Air Liquide, the world’s leading supplier of industrial and medical gases, operates more
than 500 production sites worldwide, 250 of which are in Europe. Over the years, the
company had implemented a large variety of systems to serve these sites. Acquisitions of
new subsidiaries added to the number of systems the company maintained; at one time,
the company had 800 individual applications running across Europe. This patchwork of
uncoordinated local systems prevented Air Liquide from easily shipping products across
European national borders, which EU safety standards allowed. Implementing mySAP
ERP software allowed the company to centralize business processes that had previously
been handled locally or nationally and replace its tangled legacy systems with centralized
integrated software supporting the activities of the company as a whole. Air Liquide now
has a common set of applications, consistent business processes, and integrated master
data, while still allowing international subsidiaries some measure of flexibility to adapt to
local conditions (SAP AG, 2007).
Supply Chain Management Systems
Supply chain management (SCM) systems help businesses manage relationships with
their suppliers. These systems help suppliers, purchasing firms, distributors, and logistics
companies share information about orders, production, inventory levels, and delivery of
products and services so that they can make better decisions about how to organize and
schedule sourcing, production, and distribution. The ultimate objective is to get the right
amount of their products from their source to their point of consumption with the least
amount of time and with the lowest cost.
Supply chain management systems are one type of interorganizational system because
they automate the flow of information across organizational boundaries. You will find
examples of other types of interorganizational information systems throughout this text
because such systems make it possible for firms to link electronically to customers and to
outsource their work to other companies.
Figure 2-9 illustrates supply chain management systems used by Haworth Incorporated, a
world-leading manufacturer and designer of office furniture. Haworth’s 15 North
American manufacturing facilities are located in North Carolina, Arkansas, Michigan,
Mississippi, Texas, Ontario, Alberta, and Quebec. These facilities supply inventory to
distribution centers in Michigan, Pennsylvania, Georgia, and Arkansas.
Haworth’s Transportation Management System (TMS) examines customer orders,
factory schedules, carrier rates and availability, and shipping costs to produce optimal
lowest-cost delivery plans. These plans are generated daily and updated every 15
minutes. The TMS works with Haworth’s Warehouse Management System (WMS),
which tracks and controls the flow of finished goods from Haworth’s distribution centers
to its customers. Acting on shipping plans from TMS, WMS directs the movement of
goods based on immediate conditions for space, equipment, inventory, and personnel.
Haworth uses special “middleware” software to link its TMS and WMS to order entry,
manufacturing planning, and shipping systems and to pass customer orders, shipping
plans, and shipping notifications among the applications.
Customer Relationship Management Systems
Customer relationship management (CRM) systems help firms manage their
relationships with their customers. CRM systems provide information to coordinate all of
the business processes that deal with customers in sales, marketing, and service to
optimize revenue, customer satisfaction, and customer retention. This information helps
firms identify, attract, and retain the most profitable customers; provide better service to
existing customers; and increase sales.
CRM systems consolidate and integrate customer information from multiple
communication channels—telephone, e-mail, wireless devices, retail outlets, or the Web.
Detailed and accurate knowledge of customers and their preferences helps firms increase
the effectiveness of their marketing campaigns and provide higher-quality customer
service and support.
FIGURE 2-9 EXAMPLE OF A SUPPLY CHAIN
MANAGEMENT SYSTEM
Customer orders, shipping notifications, optimized shipping plans, and other supply
chain information flow among Haworth’s Warehouse Management System (WMS),
Transportation Management System (TMS), and its back-end corporate systems.
Illustrated here are some of the capabilities of Salesforce.com, a market-leading
provider of on-demand customer relationship management (CRM) software. CRM
systems integrate information from sales, marketing, and customer service.
For example, Saab U.S.A., which imports and distributes vehicles to U.S. dealerships,
used CRM applications for automotive dealers from Oracle-Siebel Systems to integrate
data that were distributed among systems supporting its dealer network, a customer
service assistance center, and a lead management center. The CRM systems provide a
360-degree view of each Saab customer, including prior service-related questions and all
the marketing communication the customer had ever received. The systems provide
detailed information to measure the sales results of specific leads, and target leads are
directed more precisely to the right salespeople at the right dealerships. Since the CRM
applications were implemented, Saab’s follow-up rate on sales leads has increased from
38 to 50 percent and customer satisfaction rose from 69 to 75 percent.
Knowledge Management Systems
The value of a firm’s products and services is based not only on its physical resources but
also on intangible knowledge assets. Some firms perform better than others because they
have better knowledge about how to create, produce, and deliver products and services.
This firm knowledge is difficult to imitate, unique, and can be leveraged into long-term
strategic benefits. Knowledge management systems (KMS) enable organizations to
better manage processes for capturing and applying knowledge and expertise. These
systems collect all relevant knowledge and experience in the firm, and make it available
wherever and whenever it is needed to improve business processes and management
decisions. They also link the firm to external sources of knowledge.
KMS support processes for acquiring, storing, distributing, and applying knowledge, as
well as processes for creating new knowledge and integrating it into the organization.
They include enterprise-wide systems for managing and distributing documents,
graphics, and other digital knowledge objects; systems for creating corporate knowledge
directories of employees with special areas of expertise; office systems for distributing
knowledge and information; and knowledge work systems to facilitate knowledge
creation. Other knowledge management applications use intelligent techniques that
codify knowledge for use by other members of the organization and tools for knowledge
discovery that recognize patterns and important relationships in large pools of data.
We examine enterprise systems and systems for supply chain management and customer
relationship management in greater detail in Chapter 9 and cover knowledge management
applications in Chapter 11.
INTRANETS AND EXTRANETS
Enterprise applications create deep-seated changes in the way the firm conducts its
business, and they are often costly to implement. To coordinate their activities, many
different departments and employees must change the way they work and the way they use
information. Companies that do not have the resources to invest in enterprise applications
can still achieve some measure of information integration by using intranets and extranets,
which we introduced in Chapter 1.
Intranets and extranets are really more technology platforms than specific applications, but
they deserve mention here as one of the tools firms use to increase integration and expedite
the flow of information within the firm, and with customers and suppliers. Intranets are
internal networks built with the same tools and communication standards as the Internet
and are used for the internal distribution of information to employees, and as repositories of
corporate policies, programs, and data. Extranets are intranets extended to authorized users
outside the company. We describe the technology for intranets and extranets in more detail
in Chapter 7.
An intranet typically centers on a portal that provides a single point of access to
information from several different systems and to documents using a Web interface. Such
portals can be customized to suit the information needs of specific business groups and
individual users if required. They may also feature e-mail, collaboration tools, and tools for
searching internal corporate systems and documents.
For example, SwissAir’s corporate intranet for sales provides its salespeople with sales
leads, fares, statistics, libraries of best practices, access to incentive programs, discussion
groups, and collaborative workspaces. The intranet includes a Sales Ticket capability that
displays bulletins about unfilled airplane seats around the world to help the sales staff work
with colleagues and with travel agents who can help them fill those seats.
Companies can connect their intranets to internal company transaction systems, enabling
employees to take actions central to a company’s operations, such as checking the status of
an order or granting a customer credit. SwissAir’s intranet connects to its reservation
system.
Extranets expedite the flow of information between the firm and its suppliers and
customers. SwissAir uses an extranet to provide travel agents with fare data from its
intranet electronically. GUESS Jeans allows store buyers to order merchandise
electronically from ApparelBuy.com. The buyers can use this extranet to track their orders
through fulfillment or delivery.
COLLABORATION AND COMMUNICATION SYSTEMS:
“INTERACTION” JOBS IN A GLOBAL ECONOMY
With all these systems and information, you might wonder how is it possible to make sense
out of them? How do people working in firms pull it all together, work towards common
goals, and coordinate plans and actions? Information systems can’t make decisions, hire or
fire people, sign contracts, agree on deals, or adjust the price of goods to the marketplace.
The number of people who perform these tasks in a firm is growing. A recent report from
the consulting firm McKinsey and Company argued that 41 percent of the U.S. labor force
is now composed of jobs where interaction (talking, e-mailing, presenting, and persuading)
is the primary value-adding activity. Blue collar production jobs are now down to 15
percent of the labor force, and transactional jobs—filling out forms or reports or accepting
payments) are now 25 percent of the labor force. Moreover, the “interaction” jobs are the
fastest-growing: 70 percent of all new jobs created since 1998 are “interaction” jobs.
With globalization, firms have teams around the globe in different time zones working on
the same problem, so the need for continuous interaction and communication around the
clock has greatly expanded. Working 24/7 is not just a problem for call centers, but
involves a much larger group of managers and employees than in the past.
Jobs such as sales representative, marketing manager, stock analyst, corporate lawyer,
business strategist, or operations manager require sharing information and interacting with
other people. Here are some business decisions that require knowledge based on
collaboration and interaction:
•
How much should we charge for this service?
•
What kind of discount should we give this customer who is considering our
competitor?
•
Should we sign a three-year contract with a vendor, or would we be safer with a
one-year contract?
•
Should we make a special deal with our largest distributor, or work with all
distributors on an equal basis?
•
Should we put our price list on the Web site where our competitors can see it?
•
Where should we be looking for new lines of business?
The answers to these questions generally cannot be found in structured information systems
such as those we have described earlier in this chapter. True, these systems help managers
and employees by making essential information available. But what’s needed to complete
these decisions is face-to-face interaction with other employees, managers, vendors, and
customers, along with systems that allow them to communicate, collaborate, and share
ideas.
We now briefly introduce some of the enterprise-wide information system solutions used
by business firms for this purpose. They include Internet-based collaboration environments,
e-mail and instant messaging (IM), communication via cell phones and other mobile
devices, social networking, wikis, and virtual worlds. Chapters 7, 10, and 11 describe these
solutions in greater detail.
In the past, these collaboration and communication systems were not considered an
essential part of the information systems field, or even an IT management concern. Today
this has changed, and our view of information systems is extended to include these vital
management tools.
Internet-Based Collaboration Environments
Teams of employees who work together from many different locations around the world
need tools to support workgroup collaboration. These tools provide storage space for
team documents, a space separate from corporate e-mail for team communications, group
calendars, and an audio-visual environment where members can “meet” face to face in a
live video conference (see the Chapter 1 Interactive Session on Management). Products
such as IBM’s Lotus Sametime and Internet conferencing systems such as WebEx,
Microsoft Office Live Meeting, and Adobe Acrobat Connect are especially helpful.
E-mail and Instant Messaging (IM)
Worldwide, there are an estimated 210 billion legitimate e-mail messages sent each day
with about 80 billion originating in the United States. One in six people in the world use
e-mail. There are also about 12 billion instant messages sent every day, 8 billion of which
originate in business networks. E-mail and instant messaging have been embraced by
corporations as a major communication and collaboration tool supporting interaction
jobs.
Cell Phones and Smartphones
Chapter 1 has described the new mobile platforms that have emerged for coordinating
and running the business, including cell phones and smartphones such as iPhones and
BlackBerrys. Over 12 million BlackBerry subscribers use wireless devices made by
Research in Motion for e-mail, text messaging, instant messaging, phone, and wireless
Internet connections. Of the 300 million cell phone subscribers in the United States, onethird are business subscribers (Telecommunications Industry Association, 2008). Cell
phones are today a basic part of a firm’s telecommunications infrastructure for supporting
professionals and other employees whose primary job is talk with one another, with
customers and vendors, and with their managers. Cell phones, iPhones, and BlackBerrys
are digital devices, and the data generated by their communications may be stored in
large corporate systems for later review and use in legal proceedings.
Social Networking
We’ve all visited social networking sites such as MySpace and Facebook, which feature
tools to help people share their interests and interact. Social networking sites such as
LinkedIn.com provide networking services to business professionals, while other niche
sites have sprung up to serve lawyers, doctors, engineers, and even dentists. IBM has
built a Connections component into its Lotus collaboration software to add social
networking features. Users are able to set up profiles, blog, tag documents of interest, and
use online forums to communicate with other co-workers about their interests and
projects. Social networking tools are quickly becoming a corporate tool for sharing ideas
and collaborating among interaction-based jobs in the firm.
Wikis
Wikis are in reality a type of Web site that makes it easy for users to contribute and edit
text content and graphics without any knowledge of Web page development or
programming techniques. The most well-known wiki is Wikipedia, one of the largest
collaboratively edited reference projects in the world. It relies on volunteers, makes no
money, accepts no advertising, and is used by thirty-five million people in the United
States alone. It has become the world’s most successful online encyclopedia, with over
20 percent of the online reference market.
Wikis are ideal tools for storing and sharing company knowledge and insights. Enterprise
software vendor SAP AG has a wiki that acts as a base of information for people outside
the company, such as customers and software developers who build programs that
interact with SAP software. In the past, those people asked and sometimes answered
questions in an informal way on SAP online forums, but that was an inefficient system,
with people asking and answering the same questions over and over.
At Intel Corporation, employees built their own internal wiki in 2006, and it has been
edited about 100,000 times and viewed more than 27 million times by Intel employees.
The most common search is for the meaning of Intel acronyms such as EASE for
“employee access support environment” and POR for “plan of record.” Other popular
resources include a page about software-engineering processes at the company. Wikis are
destined to become a major repository for unstructured corporate knowledge in part
because they are so much less costly than formal knowledge management systems and
they can be much more dynamic and current.
Virtual Worlds
The case study concluding Chapter 1 features a detailed description of Second Life, an
online 3-D virtual world where 14 million “residents” have established lives by building
graphical representations of themselves known as avatars. Organizations such as IBM
and Insead, an international business school with campuses in France and Singapore, are
using this virtual world to house online meetings, training sessions, and “lounges.” Realworld people represented by avatars meet, interact, and exchange ideas at these virtual
locations. Communication takes place in the form of text messages similar to instant
messages.
E-BUSINESS, E-COMMERCE, AND E-GOVERNMENT
The systems and technologies we have just described are transforming firms’ relationships
with customers, employees, suppliers, and logistic partners into digital relationships using
networks and the Internet. So much business is now enabled by or based upon digital
networks that we use the terms electronic business and electronic commerce frequently
throughout this text. Electronic business, or e-business, refers to the use of digital
technology and the Internet to execute the major business processes in the enterprise. Ebusiness includes activities for the internal management of the firm and for coordination
with suppliers and other business partners. It also includes electronic commerce, or ecommerce. E-commerce is the part of e-business that deals with the buying and selling of
goods and services over the Internet. It also encompasses activities supporting those market
transactions, such as advertising, marketing, customer support, security, delivery, and
payment.
The technologies associated with e-business have also brought about similar changes in the
public sector. Governments on all levels are using Internet technology to deliver
information and services to citizens, employees, and businesses with which they work. Egovernment refers to the application of the Internet and networking technologies to
digitally enable government and public sector agencies’ relationships with citizens,
businesses, and other arms of government. In addition to improving delivery of government
services, e-government can make government operations more efficient and also empower
citizens by giving them easier access to information and the ability to network
electronically with other citizens. For example, citizens in some states can renew their
driver’s licenses or apply for unemployment benefits online, and the Internet has become a
powerful tool for instantly mobilizing interest groups for political action and fund-raising.
2.4
THE INFORMATION SYSTEMS FUNCTION IN BUSINESS
We’ve seen that businesses need information systems to operate today and that they use
many different kinds of systems. But who is responsible for running these systems? Who is
responsible for making sure the hardware, software, and other technologies used by these
systems are running properly and are up to date? End users manage their systems from a
business standpoint, but managing the technology requires a special information systems
function.
In all but the smallest of firms, the information systems department is the formal
organizational unit responsible for information technology services. The information systems
department is responsible for maintaining the hardware, software, data storage, and networks
that comprise the firm’s IT infrastructure. We describe IT infrastructure in detail in Chapter
5.
THE INFORMATION SYSTEMS DEPARTMENT
The information systems department consists of specialists, such as programmers, systems
analysts, project leaders, and information systems managers. Programmers are highly
trained technical specialists who write the software instructions for computers. Systems
analysts constitute the principal liaisons between the information systems groups and the
rest of the organization. It is the systems analyst’s job to translate business problems and
requirements into information requirements and systems. Information systems managers
are leaders of teams of programmers and analysts, project managers, physical facility
managers, telecommunications managers, or database specialists. They are also managers
of computer operations and data entry staff. In addition, external specialists, such as
hardware vendors and manufacturers, software firms, and consultants, frequently
participate in the day-to-day operations and long-term planning of information systems.
In many companies, the information systems department is headed by a chief information
officer (CIO). The CIO is a senior manager who oversees the use of information
technology in the firm. Today’s CIOs are expected to have a strong business background as
well as information systems expertise and to play a leadership role in integrating
technology into the firm’s business strategy. Large firms today also have positions for a
chief security officer, chief knowledge officer, and chief privacy officer all of whom work
closely with the CIO.
The chief security officer (CSO) is in charge of information systems security for the firm
and is responsible for enforcing the firm’s information security policy (see Chapter 8).
(Sometimes this position is called the chief information security officer (CISO) where
information systems security is separated from physical security.) The CSO is responsible
for educating and training users and information systems specialists about security, keeping
management aware of security threats and breakdowns, and maintaining the tools and
policies chosen to implement security.
Information systems security and the need to safeguard personal data have become so
important that corporations collecting vast quantities of personal data have established
positions for a chief privacy officer (CPO). The CPO is responsible for ensuring that the
company complies with existing data privacy laws.
The chief knowledge officer (CKO) is responsible for the firm’s knowledge management
program. The CKO helps design programs and systems to find new sources of knowledge
or to make better use of existing knowledge in organizational and management processes.
End users are representatives of departments outside of the information systems group for
whom applications are developed. These users are playing an increasingly large role in the
design and development of information systems.
In the early years of computing, the information systems group was composed mostly of
programmers who performed very highly specialized but limited technical functions.
Today, a growing proportion of staff members are systems analysts and network
specialists, with the information systems department acting as a powerful change agent in
the organization. The information systems department suggests new business strategies and
new information-based products and services, and coordinates both the development of the
technology and the planned changes in the organization.
In the past, firms generally built their own software and managed their own computing
facilities. Today, many firms are turning to external vendors to provide these services (see
Chapters 5 and 13) and are using their information systems departments to manage these
service providers.
ORGANIZING THE INFORMATION SYSTEMS FUNCTION
There are many types of business firms, and there are many ways in which the IT function
is organized within the firm (see Figure 2-10). A very small company will not have a
formal information systems group. It might have one employee who is responsible for
keeping its networks and applications running, or it might use consultants for these
services. Larger companies will have a separate information systems department, which
may be organized along several different lines, depending on the nature and interests of the
firm.
Sometimes you’ll see a decentralized arrangement where each functional area of the
business has its own information systems department and management that typically
reports to a senior manager or chief information officer. In other words, the marketing
department would have its own information systems group as would manufacturing and
each of the other business functions. The job of the CIO is to review information
technology investments and decisions in the functional areas. The advantage of this
approach is that systems are built that directly address the business needs of the functional
areas. However, central guidance is weak and the danger is high that many incompatible
systems will be built, increasing costs as each group makes its own technology purchases.
In another arrangement, the information systems function operates as a separate department
similar to the other functional departments with a large staff, a group of middle managers,
and a senior management group that fights for its share of the company’s resources. You’ll
see this approach in many large firms. This central information systems department makes
technology decisions for the entire company, which is more likely to produce more
compatible systems and more coherent long-term systems development plans.
FIGURE 2-10 ORGANIZATION OF THE INFORMATION
SYSTEMS FUNCTION
There are alternative ways of organizing the information systems function within the
business: within each functional area (A), as a separate department under central
control (B), or represented in each division of a large multidivisional company but
under centralized control (C).
Very large “Fortune 1,000”-size firms with multiple divisions and product lines might
allow each division (such as the Consumer Products Division or the Chemicals and
Additives Division) to have its own information systems group. All of these divisional
information systems groups report to a high-level central information systems group and
CIO. The central IS group establishes corporate-wide standards, centralizes purchasing, and
develops long-term plans for evolving the corporate computing platform. This model
combines some divisional independence with some centralization.
IT Governance
How much should the information systems function be centralized? How much power
should information systems management and business management be given to
determine what systems to build and how to manage them? Each organization will have
its own set of answers. The question of how the information systems department should
be organized is part of the larger issue of IT governance. IT governance includes the
strategy and policies for using information technology within an organization. It specifies
the decision rights and framework for accountability to ensure that the use of information
technology supports the organization’s strategies and objectives. What decisions must be
made to ensure effective management and use of information technology, including the
return on IT invesetments? Who should make these decisions? How will these decisions
be made and monitored? Firms with superior IT governance will have clearly thought out
the answers (Weill and Ross, 2004).
2.5
HANDS-ON MIS PROJECTS
The projects in this section give you hands-on experience analyzing opportunities to improve
business processes with new information system applications, using a spreadsheet to improve
decision making about suppliers, and using Internet software to plan efficient transportation
routes.
Management Decision Problems
1.
Don’s Lumber Company on the Hudson River is one of the oldest retail lumber
yards in New York State. It features a large selection of materials for flooring, decks,
moldings, windows, siding, and roofing. The prices of lumber and other building
materials are constantly changing. When a customer inquires about the price on prefinished wood flooring, sales representatives consult a manual price sheet and then call
the supplier for the most recent price. The supplier in turn consults a manual price sheet,
which has been updated each day. Often the supplier must call back Don’s sales reps
because the company does not have the newest pricing information immediately on hand.
Assess the business impact of this situation, describe how this process could be improved
with information technology, and identify the decisions that would have to be made to
implement a solution. Who would be making those decisions?
2.
Henry’s Hardware is a mom-and-pop business in Sacramento, California. Store
space is limited and the rent has doubled over the past five years. The owners, Henry and
Kathleen Nelson, are under pressure to use every square foot of space as profitably as
possible. The Nelsons have never kept detailed records of stock in inventory or of their
sales. As soon as a shipment of goods arrives, the items are immediately placed on store
shelves to be sold. Invoices from suppliers are only kept for tax purposes. When an item
is sold, the item number and price are rung up at the cash register. The Nelsons use their
own judgment in identifying items that need to be reordered. Many times, however, they
are caught short and lose a sale. What is the business impact of this situation? How could
information systems help Henry and Kathleen run their business? What data should these
systems capture? What reports should the systems produce? What decisions could the
systems improve?
Improving Decision Making: Use a Spreadsheet to Select
Suppliers
Software skills: Spreadsheet date functions, data filtering, DAVERAGE function
Business skills: Analyzing supplier performance and pricing
In this exercise, you will learn how to use spreadsheet software to improve management
decisions about selecting suppliers. You will start with raw transactional data about
suppliers organized as a large spreadsheet list. You will use the spreadsheet software to
filter the data based on several different criteria to select the best supplies for your
company.
You run a company that manufactures aircraft components. You have many competitors
who are trying to offer lower prices and better service to customers, and you are trying to
determine whether you can benefit from better supply chain management. At the Laudon
Web site for Chapter 2, you will find a spreadsheet file that contains a list of all of the
items that your firm has ordered from its suppliers during the past three months. A sample
is shown on the next page, but the Web site may have a more recent version of this
spreadsheet for this exercise. The fields in the spreadsheet file include vendor name, vendor
identification number, purchaser’s order number, item identification number and item
description (for each item ordered from the vendor), cost per item, number of units of the
item ordered (quantity), total cost of each order, vendor’s accounts payable terms, order
date, and actual arrival date for each order.
Prepare a recommendation of how you can use the data in this spreadsheet database to
improve your decisions about selecting suppliers. Some criteria to consider for identifying
preferred suppliers include the supplier’s track record for on-time deliveries, suppliers
offering the best accounts payable terms, and suppliers offering lower pricing when the
same item can be provided by multiple suppliers. Use your spreadsheet software to prepare
reports to support your recommendations.
Achieving Operational Excellence: Using Internet Software
to Plan Efficient Transportation Routes
In this exercise, you will use the same online software tool that businesses use to map out
their transportation routes and select the most efficient route. The MapQuest
(www.mapquest.com) Web site includes interactive capabilities for planning a trip. The
software on this Web site can calculate the distance between two points and provide
itemized driving directions to any location.
You have just started working as a dispatcher for Cross-Country Transport, a new trucking
and delivery service based in Cleveland, Ohio. Your first assignment is to plan a delivery
of office equipment and furniture from Elkhart, Indiana (at the corner of E. Indiana Ave.
and Prairie Street) to Hagerstown, Maryland (corner of Eastern Blvd. N. and Potomac
Ave.). To guide your trucker, you need to know the most efficient route between the two
cities. Use MapQuest to find the route that is the shortest distance between the two cities.
Use MapQuest again to find the route that takes the least time. Compare the results. Which
route should Cross-Country use?
LEARNING TRACK MODULES
The following Learning Tracks provide content relevant to topics covered in this chapter.
1.
Systems from a Functional Perspective
2.
Challenges of Using Business Information Systems
Review Summary
1.
What are business processes? How are they related to information systems?
A business process is a logically related set of activities that defines how specific business
tasks are performed, and it represents a unique way in which an organization coordinates
work, information, and knowledge. Managers need to pay attention to business processes
because they determine how well the organization can execute its business, and they may
be a source of strategic advantage. There are business processes specific to each of the
major business functions, but many business processes are cross-functional. Information
systems automate parts of business processes and they can help organizations redesign and
streamline these processes.
2.
How do systems serve the various levels of management in a business?
Systems serving operational management are transaction processing systems (TPS), such as
payroll or order processing, that track the flow of the daily routine transactions necessary to
conduct business. Management information systems (MIS) and decision-support systems
(DSS) support middle management. Most MIS reports condense information from TPS and
are not highly analytical. DSS support management decisions that are unique and rapidly
changing using advanced analytical models and data analysis capabilities. Executive
support systems (ESS) support senior management by providing data that are often in the
form of graphs and charts delivered via portals using many sources of internal and external
information.
3.
How do enterprise applications, collaboration and communication systems, and
intranets improve organizational performance?
Enterprise applications (enterprise systems, supply chain management systems, customer
relationship management systems, and knowledge management systems) are designed to
coordinate multiple functions and business processes. Enterprise systems integrate the key
internal business processes of a firm into a single software system to improve coordination,
efficiency, and decision making. Supply chain management systems help the firm manage
its relationship with suppliers to optimize the planning, sourcing, manufacturing, and
delivery of products and services. Customer relationship management uses information
systems to coordinate all of the business processes surrounding the firm’s interactions with
its customers to optimize firm revenue and customer satisfaction. Knowledge management
systems enable firms to optimize the creation, sharing, and distribution of knowledge. Jobs
where interaction is the primary value-adding activity benefit from collaboration and
communication systems. Intranets and extranets use Internet technology and standards to
assemble information from disparate systems and present it to the user in a Web page
format. Extranets make portions of private corporate intranets available to outsiders.
4.
What is the difference between e-business, e-commerce, and e-government?
E-business (electronic business) refers to the use of digital technology and the Internet to
execute a firm’s business processes. It includes internal business processes and processes
for coordination with suppliers and other external entities. E-commerce (electronic
commerce) is the part of e-business dealing with the purchase and sale of goods and
services over the Internet, including support activities such as marketing and customer
support. E-government refers to the application of the Internet and networking technologies
to digitally enable government and public sector agencies’ relationships with citizens,
businesses, and other governmental bodies.
5.
What is the role of the information systems function in a business?
The information systems department is the formal organizational unit responsible for
information technology services. It is responsible for maintaining the hardware, software,
data storage, and networks that comprise the firm’s IT infrastructure. The department
consists of specialists, such as programmers, systems analysts, project leaders, and
information systems managers, and is often headed by a CIO.