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Chapter 1
Doç.Dr. Aykut Hamit TURAN
Management Information Systems
ORGANIZATIONS, MANAGEMENT
AND THE NETWORKED
ENTERPRISE
TOYOTA MOTOR COMPANY
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The vehicle order system at Toyota
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Management Information Systems
Reduce production time and the cost of the material
as well as finished inventory
Highly competitive environments require to
create highly tuned business process and
information systems to promote agility, efficiency
and quality
 Respond instantly to changing customer needs
 Toyota vehicle order management system
reduces inventory costs and makes it easier for
customers to buy exact model, make and desire
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TOYOTA MOTOR COMPANY
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With improved information transperancy, Toyota
would be able to better readjust allocation of available
product to markets that would be high in demand and
to reduce stocks
Toyota has flourished in a highly competitive
environment because it has created a set of finely
tuned business processes and Information Systems
(IS) instantly to customers and changes in the
marketplace as events unfold, while working closely
with suppliers and retailers
In an ongoing effort to monitor quality, efficiency and
costs, Toyota management saw there was an
opportunity to use IS to improve business
performance
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THE ROLE OF IS IN BUSINESS TODAY
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In 2006, American Business spendt 1.8 trillion on IS
hardware, software and telecommunications equipment
and spent additional 1.7 trillion USD on business and
management consulting
Managers of every company makes large investment in IS
and IT
Between 1980 to 2004, private business investments in IT
consisting of hardware, sotware and communications
equipment grew from 34 percent to 50 percent of all
invested capital
In 2005, FedEx moved nearly 100 million packages in USA
and UPS moved more than 380 million packages
There has been massive shift in media markets
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THE ROLE OF IS IN BUSINESS TODAY
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IT has been transforming businesses
More wireless phones accounts have been opened up in
recent years than telephone lines installed
Videoconferencing, iPhones, Android phones have all
become essential tools of businesses
Millions of people do purchase something online everyday
and hundred of millions look Internet for information
35 million receive their news online. 32 million Americans
now read blogs, eight million write blogs
Google’s E-Commerce and Internet advertising booming,
surpassing 6 billion USD in 2005
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GLOBALIZATION OPPORTUNITIES AND
DIGITAL FIRM
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World economy today depends on imports and
exports
 Foreign trade occunts more than 25 percent of
goods and services produced in US, more in
Japan and Germany
 Customers now can shop in a worldwide market,
obtaining price and quality information reliably
24 hours a day
 Firms can achieve extraordinary cost reductions
by finding low cost suppliers and managing
production facilities in other countries
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GLOBALIZATION OPPORTUNITIES AND
DIGITAL FIRM
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All of the changes in our world coupled with equally
significant organizational redesign have created conditions
for a fully digital firm
A digital firm can be defined as a firm that digitally
enabled and mediated its relationships with its customers
and suppliers
Digital firms nearly all 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 set of logically related tasks and
behaviors that organizations develop over time to produce
specific business results
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DIGITAL FIRMS
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In a digital firm, any piece of information required to support
key business decisions available at any time and anywhere in
the firm
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Digital firms respond to its environments far more rapidly
than traditional firms with more flexibility and ability to
survive
Digital firms offer extraordinary opportunities for more
flexible global organization and management. In digital firm
both time shifting and space shifting are the norm
Time shifting refers to business being conducted continously
24X7, rather than norrow work day of 8am to 5 pm
Space shifting means that work takes place in global
workshop, as well as within national boundaries. Work is
accomplished physically whenever in the world is best
accomplished
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STRATEGIC BUSINESS OBJECTIVES
OF
IS
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Why IS is so essential today? Why investing so
much money in IS?
 In the USA alone, more than 23 million
managers and 113 million workers in the labor
force rely on IS to conduct business and achieve
business objectives
 E-Commerce firms Amazon, eBay, Google and ETrade exist today
 There is a growing interdependence between a
firm’s ability to use IT and its ability to
implement corporate strategies and achieve
corporate goals
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STRATEGIC BUSINESS OBJECTIVES
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Many sectors would exist without IS such as online auction
and commerce sites
Many traditional firms such as WalMart, Sears and GE
need IS to survive and prosper
IS is foundation of today’s businesses like telephones, office
building and elevators were once
There is a growing interdependence between firm’s ability
to use IT and its ability to implement corproate strategies
and achieve corporate goals
Firms future success depend on what Information Systems
could do
Being low cost producer, introducing new products and
services all depend on IS investment and their proper
implementation
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IS
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STRATEGIC BUSINESS OBJECTIVES
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IS
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Operational excellence: Businesses continuously
seek to improve the efficiency of their operations
to achieve higher profitability
 IS and technologies are some of the most
important tools to achieve higher levels of
efficiency and productivity in business operations
 There is a growing interdependence between a
firm’s IS and its business capabilities. Changes in
strategy, rules and business processes
increasingly require changes in hardware,
software, databases and telecommunications
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THE INTERDEPENDENCE BETWEEN
ORGANIZATIONS AND IS
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STRATEGIC BUSINESS OBJECTIVES
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IS
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WalMart attained more than $285 billion in sales
nearly one-tenth of retail sales in US in large
part because of its RetailLink system, which
digitally links its suppliers to every one of
WalMart’s 5289 stores
 As soon as a purchase occurs, suppliers would be
notified and stock accounts have been updated
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STRATEGIC BUSINESS OBJECTIVES
OF
IS
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Itunes, Netflix
Customer and Supplier intimacy: When a
business really knows its customers and serves
them well, the way they want to be served, the
customers generally respond by returning and
purchasing more
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New products, services and business models: IS
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
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STRATEGIC BUSINESS OBJECTIVES
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The more business engages with its suppliers, the better the
suppliers can provide vital inputs. This lower costs –
Mandarin Hotel in NY
Improved Decision Making: Many managers operate in an
information fog that they never really have the right
information at the right time to make an informed decision
Managers rely on forecasts, best guesses and luck
The result is over production and under production of goods
and services, misallocation of resources and poor response
times
IS have made it possible for managers to use real time data
from the marketplace when making decisions
Virozon uses web based digital dashboard to provide managers
with precise real time information on customer complaints,
network performance, storm demaged lines etc
Management Information Systems
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IS
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STRATEGIC BUSINESS OBJECTIVES
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Competitive advantage: When firms achieve one or
more of these 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
Dell Computer showed profit increase as PC prices
fell down. Online customized PC orders
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IS
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STRATEGIC BUSINESS OBJECTIVES
OF
IS
ATMs, SABRE
There are many legal regulations that create a
legal duty for companies and their employees to
retain records, including digital records
 Public companies should retain audit working
papers and records, including all emails for five
years
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Survival: Business firms also invest in ICTs
because they are necessities of doing business
 Sometimes these necessities are driven by
industry level changes
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PERSPECTIVES
Computers, printers, handheld personal digital
assistants, iPods, iPads, but also software and
thousands of computer programs
Information Systems are more complex and can
be best understood by looking at them from both
a technology and business perspectives
Management Information Systems
Information Technology consists of all the
hardware and software that a firm needs to use
in order to achieve its business objectives
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IS
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WHAT IS INFORMATION SYSTEMS
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IS can be technically defined as interrelated
components that collect, process, store and
distribute information to support decision
making and control in an organization
 In addition to support decision making,
coordination and control, IS may also help
managers and workers analyze problems,
visualize complex subjects and create new
products
 IS contain information about significant people,
places and things within the organization or in
the environment surrounding it
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WHAT IS INFORMATION SYSTEMS
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Information means 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
physical environment before they have been
organized and arranged in a form that people can
effectively understand and use
 In a supermarket counters scan million of pieces
of data. But pieces of data can be totaled and
analyzed to provide meaningful information such
as total number of detergents sold at a particular
store
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DATA VERSUS INFORMATION
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FUNCTIONS OF INFORMATION SYSTEMS
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WHAT IS INFORMATION SYSTEMS
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Three activities in an IS produce information that
organizations need to make decisions, control
operations, analyze problems and create new products
and services
Input captures or collects raw data from within the
organization or from its external environments
Processing converts this raw input into a meaningful
form
Output transfers the processed information to the
people who will use it
IS also requires feedback, which is output that is
returned to appropriate members of organization to
help them evaluate or correct the input stage
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DIMENSIONS OF INFORMATION SYSTEMS
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To fully understand IS, we must understand the
broader organization, management and information
technology dimensions of systems
This broader understanding of IS encompasses an
understanding of the management and organizational
dimensions of systems as well as technical dimensions
of systems as IS literacy
The field of Management Information Systems (MIS)
tries to achieve this broader information system
literacy
MIS deals with behavioral issues as well as technical
issues surrounding the development, use and impact
of IS used by managers and employees in a firm
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INFORMATION SYSTEMS ARE MORE THAN
COMPUTERS
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ORGANIZATIONS
IS are integral part of organizations
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The key components of organizations are its people,
structure, business processes, politics and culture
Organizations have structures composed of different
levels and specialties
Senior managers make long term decisions about
products and services
Middle managers carry out programs and plans of
senior managers and the business
Operational managers responsible for monitoring
daily activities of the business
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Some firms such as credit organizations without IS, there
is no business
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ORGANIZATIONS
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Knowledge workers such as engineers, scientist
design products or services and create new
knowledge for the firm
 Data workers such as secretaries or clerks assist
with paperwork at all levels of the firm
 Production and service worker produce the
product or service
 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
 Parts of organizational culture can always be
found embedded in its IS
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ORGANIZATIONS
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The major business function consist of sales and
marketing, manufacturing and production, finance
and accounting and human resources
An organization coordinates work through its
hierarchy and through its business processes
Each organizations has a unique culture or
fundamental set of assumptions, values and ways of
doing things that has been accepted by most of its
members
Parts of organization’s culture can always be
embedded in its information systems
Different levels and specialties in organization create
different interest and points of view. These views
sometimes conflict on how resources and rewards
should be distributed
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MANAGEMENT
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Management’s job is to make sense of the many
situations faced by organizations and formulate
actions to solve organizational problems
 Management perceive business challenges in the
environment; set the organizational strategies to
respond those challenges and coordinate the
work and achieve success
 A substantial part of managerial responsibility is
creative work driven by new knowledge and
information
 Information Technologies can play a powerful
role in helping managers design and deliver new
products and services
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TECHNOLOGY
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IT 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
Computer software consists of the detailed,
preprogrammed instructions that control and
coordinate computer hardware components in an IS
Data management technologies consist of the
software governing the organization of data on
physical storage
Network and telecommunications technologies consist
of both physical devices and software that link
various pieces of hardware and transfer data from one
physical location to another
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TECHNOLOGY
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A Network links two or more computers to share
data or resources, such as printers
 The world’s largest and most widely used
network is the Internet
 Internal corporate networks based on Internet
technology are called intranets
 Private intranets extended to authorized users
outside the organization are called extranets
 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
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TECHNOLOGY
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Each organization must carefully design and manage its IT
infrastructure so that it has set of technology services needed
to accomplish the works
IS must provide information to satisfy the needs of managers
and employees
UPS’s technology consists of handheld computers, bar code
scanners, wired and wireless communication networks,
desktop computers, UPS’s central computer, storage
technology, in house package trafficking software and
software to access Internet
The result is IS solution to business challenge of providing
high level of service with low prices in the face of mounting
competition
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Information technology infrastructure provides the foundation
or platform on which the firm can build its specific information
systems
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A BUSINESS PERSPECTIVE ON IS
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Managers and business firms invest in IT and IS
because they provide real economic value to the
business
The decision to build or invest in IS assume that the
returns on this investment will be superior to other
investments in buildings, machines or other assets
IS enable firms to increase its revenues or decrease
its costs by providing information that helps
managers make better decisions to improve the
execution of business processes
From a business perspective, IS 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
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ORGANIZATIONAL CAPITAL AND THE
RIGHT BUSINESS MODEL
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Awareness of the organizational and managerial
dimensions of IS can help us understand why some
firms achieve better results from their IS than others
Studies of returns from IS investments show that
there is considerable variation in the returns firms
receive
Some firms invest a great deal and receive a great
deal; other invest an equal amount and receive few
returns
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 the new technology
Some firms refused to change their old business
model like recording label companies. As a result
online legal music sales are dominated not by record
companies, but by a technology company Apple
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ORGANIZATIONAL CAPITAL AND THE
RIGHT BUSINESS MODEL
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Complementary assets are those assets required to derive
value from a primary investments
To realize value from automobiles requires substantial
investment in highways, roads, gasoline stations, repair
facilities and a legal regulatory structure to set standards
and control drivers
Firms that support their technology investments with
investments in complementary assets such as new business
models, new business processes, management behavior,
organizational culture receive superior returns, whereas
those firms failing to make these complementary
investments receive less or no returns on their IS
investments
Key organizational complementary investments 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 IS development team
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CONTEMPORARY APPROACHES TO IS
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The study of IS is multidisciplinary field. No
single theory or perspective dominates the field
 The field can be divided into technical and
behavioral approaches
 Information technologies are sociotechnical
systems. Though they are composed of machines,
devices and hard physical technology, they
require substaintial social, organizational and
intellectual investments to make them work
properly
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CONTEMPORARY APPROACHES TO IS
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TECHNICAL APPROACH
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The technical approach to IS emphasizes mathematically
based models to study IS as well as the physical technology
and formal capabilities of these systems
The disciplines that contribute to technical approach are
computer science, management science and operations
management
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
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BEHAVIORAL APPROACH
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Issues such as strategic business integration, design,
implementation, utilization and management cannot be explored
usefully with models used in technical approach
Sociologists study IS with an eye toward how groups and
organizations shape the development of systems and how systems
affect individuals, groups and organizations
Psychologists study IS with an interest in how human decision
makers perceive and use information. Economists study IS with
an interest in understanding the production of digital goods, the
dynamics of digital markets and understanding how new IS
change the control and cost structure of firms
Behavioral approach does not ignore technology. Indeed, IS is
often the stimulus for a behavioral problem or issue
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An important part of the IS field is concerned with behavioral
issues that arise in the development and long term maintenance
of IS
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SOCIOTECHNICAL PERSPECTIVE
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The study of MIS arose in the 1970s to focus on
the use of computer based 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 IS resources
 There is no single approach effectively captures
the reality of IS. The success and failures of
information are rarely all technical or behavioral
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SOCIOTECHNICAL PERSPECTIVE
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In sociotechnical view of IS, optimal organizational performance
is achieved by jointly optimizing both the social and technical
systems used in production
Adopting sociotechnical systems perspective helps to avaoid a
purely technological approach to IS. The fact that IT 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
enterprisewide financial reporting system does not necessarily
mean that it will be used or used efficiently.
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It is better to try to understand both perspectives
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It is important to optimize firms performance as whole. Both
technical and behavioral components need attention.
Organizations and individuals must also be changed through
training, learning and planned organizational change to allow the
technology operate and prosper
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SOCIOTECHNICAL PERSPECTIVE
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