Technology Supporting Business Processes
Assignment 1: DiscussionâTechnology Supporting Business Processes
Over the twentieth century, the ability to process information in terms of labor units has improved by a factor in the order of 1 to 5 trillion. This improvement represents a compounded growth rate of between 30 to 35 percent per year for a century. At the turn of the twentieth century, the mechanical calculator offered a modest productivity increase but the number of workers required to maintain the accounts of a medium-sized business still remained very high. Many tasks would take a large investment in equipment and a significant number of accountantsâ weeks to process. A hundred years later, the same tasks can be completed by a standard desktop computer in minutes. The challenge for management has transitioned from a simple reduction in labor requirements to leveraging the increased processing power to develop competitive, efficient, and profitable organizations.
With this example in mind, use the assigned readings for this module and respond to the following:
- Explain how information systems influence businesses to be more competitive, efficient, and profitable.
- Provide at least one example for each factor.
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| Assignment 2 Grading Criteria | Maximum Points |
| Explained how information systems influence businesses to be more competitive, efficient, and profitable. | 8 |
| Provided examples of each. |
Assignment 2: DiscussionâHow Technology is Changing the Face of Business Today
The traditional retail model has focused on finding high-margin, high-volume products or services because limited space means reduced space inventory. For example, organizations such as Walmart select the biggest hits from the broadest genres, called the âshort head.â The short head means Walmart will only carry a select mix of country, pop, and rock that is calculated to provide the greatest cost/benefit. The business model of Amazon is different. Amazon provides the short head but also provides the âlong tailâ of more than 100,000 different audio selections. The competition for customers between the Walmart and Amazon marketplace is profoundly changing the face of retail business today.
Using the assigned reading and the  University online library resources, find at least three scholarly articles that address similar current trends related to e-business and how e-business is changing the face of businesses today.
Using your company or a real-world example from your research, respond to the following:
- Describe how technology is changing the face of businesses today.
- Describe the most critical business processes that utilize information systems in your selected company.
- Explain how IT makes the companyâs business processes faster, cheaper, more accurate, and customer-savvy than that of competitors.
- Cite at least three sources found in your online library research.
Give reasons and examples from your research to support your responses.
Write your response in approximately of 300 words. Apply APA standards to citation of sources.
| Assignment 3 Grading Criteria |
| Explained how IT makes the selected companyâs business processes faster, cheaper, more accurate, and customer-savvy than that of competitors. |
From the textbook Management information systems: Managing the digital firm (11th ed.), read the following chapters:
- Information systems in global business today
- Global e-business: How businesses use information systemsChapter 1Â 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 itâs 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 82-game season, every nuance a coach can pick up about a weakness in an opponentâs 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 opponentsâ weaknesses were based primarily on hunches and gut instincts. Coaches could not easily answer questions such as âWhich types of plays are hurting us?â 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 fine-grained 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 Synergyâs 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 nightâs game compared with others. According to Dallas Mavericks owner Mark Cuban, âthe 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.â
The service helps coaches analyze the strengths and weaknesses of individual players. For example, Synergyâs system has recorded every offensive step of the Mavericksâ 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 Synergyâs 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 teamsâ 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 âbest guessesâ 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 shouldnât do to most effectively counter their opponents.
1.1Â The Role of Information Systems in Business Today
Itâs 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 servicesâmuch of which involves redesigning firmsâ business operations to take advantage of these new technologies. Figure 1-1 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 1-1Â 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: Googleâs 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.
WHATâS 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 âcloud computingâ 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 1-1Â WHATâS 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
Intelâs 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, Microsoftâs Office Sharepoint and IBMâs 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 âemerging mobile platform.â
Managers routinely use so-called âWeb 2.0â 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 anotherâeven 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 Columbusâs voyages has brought these peoples and cultures closer. The âindustrial revolutionâ was really a world-wide phenomenon energized by expansion of trade among nations.
By 2005, journalist Thomas Friedman wrote an influential book declaring the world was now âflat,â 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 âglobalizationâ 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 Intelâs 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.
Itâs 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 âtradable serviceâ 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? Thatâs 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 organizationâs 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: MANAGEMENTÂ 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-to-face 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 âbetterâ meetings as well: itâs 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 wouldnât 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, itâs 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 networkâs 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, âAs Travel Costs Rise, More Meetings Go Virtual,â The New York Times, July 22, 2008; Karen D. Schwartz, âVideoconferencing on a Budget,â eWeek, May 29, 2008; and Jim Rapoza, âVideoconferencing Redux,â eWeek, July 21, 2008; Mike Fratto, âHigh-Def Conferencing At a Low Price,â Information Week, July 14, 2008; Marianne Kolbasuk McGee, âLooking Into The Work-Trend Crystal Ball,â Information Week, June 24, 2008; Eric Krapf, âWhatâs Video Good For?â, 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 assetsâintellectual property, core competencies, and financial and human assetsâare 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 âwork dayâ 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 âvirtualâ 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. Todayâs service industriesâfinance, insurance, and real estate, as well as personal services such as travel, medicine, and educationâcould 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 firmâs ability to use information technology and its ability to implement corporate strategies and achieve corporate goals (see Figure 1-2). What a business would like to do in five years often 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 1-2Â THE INTERDEPENDENCE BETWEEN ORGANIZATIONS AND INFORMATION SYSTEMS
In contemporary systems there is a growing interdependence between a firmâs 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 world-class operational efficiency. In 2007, Wal-Mart achieved close to $379 billion in salesânearly one-tenth of retail sales in the United Statesâin large part because of its RetailLink system, which digitally links its suppliers to every one of Wal-Martâs 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.
Todayâs 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, Appleâs 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 guestsâ 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 customerâs digital profile. The hotels also analyze their customer data to identify their best customers and to develop individualized marketing campaigns based on customersâ 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 retailerâs warehouses. In other words, Penneyâs 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 Buildersâ 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 objectivesâoperational excellence; new products, services, and business models; customer/supplier intimacy; and improved decision makingâchances 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 worldâs largest auto maker because of its high level of efficiency and quality. Competitors struggle to keep up. Toyotaâs 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 ânecessitiesâ 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 SarbanesâOxley 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
1.2Â Perspectives on Information Systems
So far weâve 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. âInformation systemsâ 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 1-3Â 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 1-4Â FUNCTIONS OF AN INFORMATION SYSTEM
An information system contains information about an organization and its surrounding environment. Three basic activitiesâinput, processing, and outputâproduce 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 teamsâ 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 Technologyâs staff membersâthe playerâs 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 playerâs 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 oneâs 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 1-5Â 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.
Letâs examine each of the dimensions of information systemsâorganizations, 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 1-6Â 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 organizationsâ 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 organizationâs culture can always be found embedded in its information systems. For instance, UPSâs concern with placing service to the customer first is an aspect of its organizational culture that can be found in the companyâs 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 1-2Â MAJOR BUSINESS FUNCTIONS
FUNCTION
PURPOSE
Sales and marketing
Selling the organizationâs products and services
Manufacturing and production
Producing and delivering products and services
Finance and accounting
Managing the organizationâs financial assets and maintaining the organizationâs financial records
Human resources
Attracting, developing, and maintaining the organizationâs labor force; maintaining employee records
Management
Managementâs 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.
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