INFORMATION SYSTEMS & BUSINESS

Session objectives Upon completing this session you should be able to: Define an information system Distinguish between computer literacy and information systems literacy Explain why information systems are so important Explain why information systems are transforming organizations and management

Key topics Need for information systems Approaches to information systems Role of information systems Opportunities with information systems

Need for information systems Recent changes in the business environment: Emergence and strengthening of global economy Transformation of industrial economies and societies into knowledge & information-based service economies Transformation of the business enterprise

Emergence of global economy Economies worldwide depend on exports and imports Foreign trade accounts for over 25% of the goods and services produced in the US Success of firms today and in the future depends on their ability to operate globally Globalization offers new opportunities and threats to businesses

IS & globalization Information systems provide: Communication capabilities Analytic power that firms need Ability to conduct trade and manage businesses on a global scale Controlling far-flung global corporations is a major business challenge that requires powerful information systems

IS, globalization & competition Globalization and information technology bring new threats to business firms Customers now can shop in a worldwide marketplace 24 hours a day Phenomenon heightens competition and forces firms to play in open, unprotected worldwide markets To become effective and profitable, firms need powerful information and communication systems

Globalization outcomes Management and control must be done in a global marketplace Competition is now in world markets Global workgroups are commonplace Global delivery systems are now the norm

Transformation of economies Industrial economies are being transformed to knowledge & information-based service economies Manufacturing has been moving to low-wage countries In the new economies, knowledge & information are key ingredients in creating wealth

Knowledge & information Knowledge & information revolution began at the turn of the 20th century and has gradually accelerated Knowledge & information work now accounts for about 60% of the US gross national product and about 55% of the labor force Knowledge & information are the foundations for many new services and products

Knowledge & production Knowledge & information intense products require great deal of learning and knowledge to produce Knowledge utilization in production of traditional products has increased significantly

Knowledge & IS In knowledge & information-based economy, IT and systems take on great importance Across all industries information and the enabling technologies have become critical strategic assets for business firms and their managers Information systems are needed to optimize the flow of information and knowledge within the organization Information systems also helps management maximize the firm’s knowledge resources

Benefits of disintermediation The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer.

Transformation of enterprise Transformation of organizing and managing Traditional business forms have been replaced New business forms have developed Traditional management has been transformed

Traditional business forms Hierarchical & centralized Structured arrangement of specialists Reliance on standard operating procedures Delivering mass-produced products and services Targeting general mass markets

New business forms Flat & decentralized Flexible arrangement of generalists Reliance on instant information Delivering mass customized products and services Targeting specific markets or customers Facilitated by information technology

Traditional management Formal plans that establish goals Rigid division of labor Formal rules & procedures Appeals to loyalty to ensure proper operation of the firm

New form of management Informal commitments and networks to establish goals Flexible arrangements of teams and individuals working in task forces Customer orientation to achieve coordination among employees Appeals to professionalism and knowledge to ensure proper operation of the firm

New management & IS Information technology makes this style of management possible Information technology makes the firm more dependent on knowledge, learning and decision-making of individual employees

Outcomes of enterprise transformation Flattening of the firm Decentralization Flexibility of workers Location independence Low transaction and coordination costs Empowerment of the worker Collaborative work and teamwork

Transformation of business How information systems are transforming business Increase in wireless technology use, Web sites Shifts in media and advertising New federal security and accounting laws Globalization opportunities Internet has drastically reduced costs of operating on global scale Presents both challenges and opportunities

Capital Investment in IT Information technology investment, defined as hardware, software, and communications equipment, grew from 32% to 51% between 1980 and 2008. Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 2008.

Digital firms In the emerging, fully digital firm Significant business relationships are digitally enabled and mediated Core business processes are accomplished through digital networks Key corporate assets are managed digitally Digital firms offer greater flexibility in organization and management Time shifting, space shifting

Virtual Meetings: Smart Management What are the advantages of using videoconferencing technologies? What are the disadvantages? What is telepresence and what sorts of companies are best suited to use it as a communications tool? What kinds of companies could benefit from using videoconferencing? Are there any companies that might not derive any benefits from this technology?

Corporate goals Growing interdependence between ability to use information technology and ability to implement corporate strategies and achieve corporate goals 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 Survival

Operational excellence Improvement of efficiency to attain higher profitability Information systems, technology an important tool in achieving greater efficiency and productivity Example: Wal-Mart’s RetailLink system links suppliers to stores for superior replenishment system

Business model Business model: describes how company produces, delivers, and sells product or service to create wealth Information systems and technology: major enabling tool for new products, services, business models Examples: Apple’s iPod, iTunes, and iPhone, Netflix’s Internet-based DVD rentals

Customer & supplier intimacy Serving customers well leads to customers returning, which raises revenues and profits Example: High-end hotels that use computers to track customer preferences and use to monitor and customize environment Intimacy with suppliers allows them to provide vital inputs, which lowers costs Example: J.C.Penney’s information system which links sales records to contract manufacturer

Improved decision making Without accurate information: Managers must use forecasts, best guesses, luck Leads to: Overproduction, underproduction of goods and services Misallocation of resources Poor response times Poor outcomes raise costs, lose customers Example: Verizon’s Web-based digital dashboard to provide managers with real-time data on customer complaints, network performance, line outages, etc.

Competitive advantage Delivering better performance Charging less for superior products Responding to customers and suppliers in real time Example: Toyota and TPS (Toyota Production System) enjoy a considerable advantage over competitors – information systems are critical to the implementation of TPS

Survival Information technologies as a necessity for business May be: Industry-level changes, e.g. Citibank’s introduction of ATMs Governmental regulations requiring record-keeping Examples: Toxic Substances Control Act, Sarbanes-Oxley Act

Organizations & IT 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.

IS definitions Information system: Information vs. data Set of interrelated components Collect, process, store, and distribute information Support decision making, coordination, and control Information vs. data Data are streams of raw facts Information is data shaped into meaningful form

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.

IS activities Three activities produce information organizations need: Input: Captures raw data from organization or external environment Processing: Converts raw data into meaningful form Output: Transfers processed information to people or activities that use it

Feedback loop Feedback – output that is returned to the appropriate members of the organization to help them Evaluate the output Correct the input Computers and software are technical foundation and tools, similar to the material and tools used to build a house

Information systems & IT Computers and related software programs are the technical foundations, i.e. tools and materials of modern information systems Understanding information systems requires understanding: Problems they are designed to solve, Their architectural and design elements The organizational process that lead to these solutions

Computers & IS 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.

Organizational dimension Hierarchy of authority, responsibility Senior management Middle management Operational management Knowledge workers Data workers Production or service workers

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.

Business functions Separation of business functions Sales and marketing Human resources Finance and accounting Manufacturing and production Unique business processes Unique business culture Organizational politics

Management dimension Managers set organizational strategy for responding to business challenges In addition, managers must act creatively: Creation of new products and services Occasionally re-creating the organization

Technology dimension Computer hardware and software Data management technology Networking and telecommunications technology Networks, the Internet, intranets and extranets, World Wide Web IT infrastructure: provides platform that system is built on

Example: UPS Read the UPS Case and then discuss the following questions: What are the inputs, processing, and outputs of UPS’s package tracking system? What technologies are used by UPS? How are these technologies related to UPS’s business strategy? What problems do UPS’s information systems solve? What would happen if these systems were not available?

UPS tracking system Dimensions of UPS tracking system Organizational: Procedures for tracking packages and managing inventory and provide information Management: Monitor service levels and costs Technology: Handheld computers, bar-code scanners, networks, desktop computers, etc.

Business perspective Information system is instrument for creating value Investments in information technology will result in superior returns: Productivity increases Revenue increases Superior long-term strategic positioning

Business information Business information value chain Raw data acquired and transformed through stages that add value to that information Value of information system determined in part by extent to which it leads to better decisions, greater efficiency, and higher profits Business perspective: Calls attention to organizational and managerial nature of information systems

Information value chain 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.

Returns from IT investments Investing in information technology does not guarantee good returns Considerable variation in the returns firms receive from systems investments Factors: Adopting the right business model Investing in complementary assets (organizational and management capital)

Complementary assets Assets required to derive value from a primary investment Firms supporting technology investments with investment in complementary assets receive superior returns E.g.: invest in technology and the people to make it work properly

Complementary assets - types Organizational investments, e.g. Appropriate business model Efficient business processes Managerial investments, e.g. Incentives for management innovation Teamwork and collaborative work environments Social investments, e.g. The Internet and telecommunications infrastructure Technology standards