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Foundations of Information Systems in Business

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1 Foundations of Information Systems in Business
Syafrizal Helmi

2 Chapter Objectives Explain why knowledge of information systems is important for business professionals and identify five areas of information systems knowledge they need.

3 An IS Framework for Business Professionals
Five areas of knowledge are important to end users in order to understand information systems: Foundation Concepts. End users must be familiar with with the basic components and types of information systems there are. But they also need to be familiar with general systems theory and theories of information processing (machine and human). These topics are covered in Chapters 1 and 2. Information Technology. End users should understand technology, more precisely, the information technology of hardware, software, telecommunications, database management, and how all these elements interaction in a dynamic process of very rapid change, development, and new ways of doing business (See Chapters 3-6). Business Applications. How information systems are applied to business problems is more complex than it might seem. The informed end users seeks to learn both about how to use information systems to solve existing problems and to begin using IS as a new way of defining problems and meeting business opportunities. End users should gain a basic understanding in the areas of user needs, office automation, transaction processing, the functional areas of business, management reporting, decision support, executive support, competitive advantage, and artificial intelligence (Chapters 7 - 9). Development Processes. End users of IS need to know the fundamental concepts of problem-solving and development. Here you should become familiar with methodologies such as the systems approach, the systems development life cycle, and prototyping (Chapter 10). Management Challenges. How managers make use of IS resources is a key concern for end users. More than ever, a knowledge of management methods is required by each end users, as IT demands that end users make more independent decisions that support the company's overall objectives. Key issues such as information resource management, global IT management, and information systems planning, implementation, and control are covered in Chapters , and throughout the text.

4 Give examples to illustrate how electronic business, electronic commerce, or enterprise collaboration systems could support a firm’s business processes, managerial decision making, and strategies for competitive advantage.


6 Chapter Objectives Provide examples of the components of real world information systems. Illustrate that in an information system, people use hardware, software, data, and networks as resources to perform input, processing, output, storage, and control activities that transform data resources into information products.

7 Chapter Objectives Provide examples of several major types of information systems from your experiences with business organizations in the real world. Identify several challenges that a business manager might face in managing the successful and ethical development and use of information technology in a business.

8 There are four reasons why IT makes a difference to the success of a business:
Capital management Foundation of doing business Productivity Strategic opportunity and advantage

9 Capital Management: IT is the largest single component of capital investment in the world The success of your business in the future may well depend on how you make IT investment decisions.

10 Information Technology Capital Investment
Figure 1-1 Source: Based on the data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, Tables 5.2 and 5.8, 2004.

11 Most businesses today could not operate without extensive use of information systems and technologies.

12 Foundation IT Using IT to Growth business


14 IT is vital to the development of new products.

15 IT can increase market share.

16 IT can help a business become a high-quality, low-cost producer

17 The Interdependence between Organizations and
Information Systems Figure 1-2

18 Productivity IT is one of the most important tools managers have to increase productivity and efficiency of businesses

19 IT Increase Productivity

20 Strategic Opportunity and Advantage:
Create competitive advantage: IT makes it possible to develop competitive advantages.



23 Strategic Opportunity and Advantage:
Differentiate yourself from your competitors: Amazon has become the largest book retailer in the United States on the strength of its huge online inventory and recommender system. It has no rivals in size and scope.

24 Create new services: eBay has developed the largest auction trading platform for millions of individuals and businesses. Competitors have not been able to imitate its success.


26 New Business Models: Dell Computer has built its competitive advantage on an IT enabled build-to-order business model that other firms have not been able to imitate.


28 Growing impact of IT in business firms can be
assessed from the following five factors: Internet growth and technology convergence : Growth in e-business, e-commerce, and e-government,, making many traditional business models obsolete: the corner music store and video store.

29 2. Transformation of the business enterprise : Flattening, Decentralization, Flexibility, Location independence, Low transaction and coordination costs, Empowerment, Collaborative work and teamwork

30 3. Growth of a globally connected economy : Management and control in a global marketplace, Competition in world markets, Global workgroups, Global delivery systems

31 4. Growth of knowledge and information-base economies : Knowledge and information-based economies, New products and services, Knowledge as a central productive and strategic asset, Time-based competition, Shorter product life, Turbulent environment, Limited employee knowledge base

32 Emergence of the digital firm : Digitally enabled relationships with customers, suppliers, and employees, Core business processes accomplished using digital networks, Digital management of key corporate assets

33 Components of an Information System
Systems Resources People Software Hardware Networks Data An Information System is an organized combination of people, hardware, software, communications networks, and data resources that collects, transforms, and disseminates information in an organization. Key concepts of the text include: Information Technology (IT). The dynamic interaction of computer-based information systems with telecommunications forms the backbone of IT. End User Perspective. An end user is anyone who uses an information system or the information it produces. As a perspective on management information systems, the end user focuses designers, developers, and all information systems personnel on how the system does and should function in use. Information systems are powerful tools -- and all the more powerful when made to fit the needs of those who use them everyday. This involves adapting the system to the user, not the other way around. An Enterprise Perspective. Information technology can provide the information a business needs for efficient operations. It can even be the foundation of a company's competitive advantage. But to function properly, an information system must be developed in support of the strategic objectives, business operations, and management needs of the enterprise. Discussion Note: To emphasize how important the seamless integration of each component of the information system is, ask students to make an argument excluding each element in turn. The necessity of interdependence soon becomes clear.

34 What is an Information System?
Input of Data Resources Processing Output of Information Products Control of System Performance Storage of Data Resources What is an information system? Note: This graph is part of Figure 1.5 in the text. This information system model expresses a fundamental conceptual framework for the major components and activities of information systems. An information system depends on the resources of people (end users and IS specialists), hardware (machines and media), software (programs and procedures), data (data and knowledge bases), and networks (communications media and network support) to perform input, processing, output, storage, and control activities that covert data resources into information products. Data resources are transformed by information processing activities into a variety of information products for end users. Information processing consists of input, processing, output, storage and control activities.

35 What is a System? Environment Other Systems Manufacturing Process
Input of Raw Materials Output of Finished Products Environment Other Systems Control by Management Control Signals Feedback System Boundary System concepts underlie the field of information systems. From the end user perspective, it is necessary to understand the fundamentals of systems theory: System. A system is a group of interrelated components working together toward a common goal by accepting inputs and producing outputs in an organized transformation process. Systems have the following three basic interacting functions. Input. Input involves capturing and assembling elements that enter the system to be processed. Processing. Processing involves the transformation of input into output. Output. Output is the end result of the transformation process. Output involves transferring elements that have been produced by a transformation process to their ultimate destination. Teaching Tip: You might want to introduce the concept of "value-added" in relation to system transformation. The changes that occur during processing are typically worth more to someone outside the system, such as a customer, than the costs involved in making the transformation.


37 Components of an Information System
The information system model shown on the slide highlights the relationships among the components and activities of information systems: People Resources. People are required for operation of all ISs. People resources include: End Users. As mentioned, these people use the IS or the information it produces. IS Specialists. These people develop and operate the IS. Hardware Resources. These include all the physical devices and materials used in information processing, including all machines and data media. Key components include: Computer Systems. These are the CPUs and their related peripherals, such as terminals and networked PCs. Computer Peripherals. These are input and output devices like keyboards, monitors, and secondary storage. Telecommunications Networks. These are the computer systems interconnected by various telecommunications media such as modems. Software Resources. These include all sets of information processing instructions. Software resources include: System Software. This controls the computer. Application Software. These are for a specific end user task, such as word-processing. Procedures. These are the operating instructions for the people who use the IS. Data Resources. Data is both the raw material of and among the most valuable organizational resources in the IS. Data can be in alphanumeric, text, image and/or audio form. Data are typically organized into either Databases - which hold processed and organized data; or Knowledge bases - which hold knowledge in a variety of forms such as facts and rules of inference about a given subject.

38 Functions of an Information System


40 Attributes of Information Quality
Time Dimension: Timeliness Information should be provided when it is needed Currency Information should be up-to-date when it is provided Frequency Information should be provided as often as needed Time Period Information can be provided about past, present, and future time periods. Content Dimension: Accuracy Information should be free from errors Relevance Information should be related to the information needs of a specific recipient for a specific situation Completeness All the information that is needed should be provided Conciseness Only the information that is needed should be provided Scope Information can have a broad or narrow scope, or an internal or external focus Performance Information can reveal performance by measuring activities accomplished, progress made, or resources accumulated. Form Dimension: Clarity Information should be provided in a form that is easy to understand Detail Information can be provided in detail or summary form Order Information can be arranged in a predetermined sequence Presentation Information can be presented in narrative, numeric, graphic, or other forms. Media Information can be provided in the form of printed paper documents, video displays, or other media.

41 Information Systems Are More than Computers

42 Penggunaan SI secara efektif membutuhkan pemahaman dari organisasi, manajemen, dan IT yang membentuk sistem tersebut.

43 Major Roles of Information Systems
Support Strategies for Competitive Advantage Business Decision Making Business Processes and Operations Information Technology is increasingly important in the competitive marketplace. Managers need all the help they can get. Information systems perform three vital roles in business: Support Business Operations. From accounting to tracking customers' orders, information systems provide management with support in day-to-day business operations. As quick response becomes more important, the ability of information systems to gather and integrate information across business functions is become crucial. Teaching Tip: For example, the ability to match a change in product items sales with as a result of a new marketing campaign to the inventory and ordering system, can help keep items in high demand in stock. Support Managerial Decision Making. Just as information systems can combine information to help run the business better, the same information can help managers identify trends and to evaluate the outcome of previous decisions. IS helps managers make better, quicker, and more informed decisions. Support Strategic Advantage. Information systems designed around the strategic objectives of the company help create competitive advantages in the marketplace. Teaching Tip: For example, Wal-Mart stores can provide lower prices in part due to the lower costs incurred by their state-of-the art computerized inventory, tracking, and distribution system.

44 The Business Information Value Chain
Figure 1-7

45 The e-Business Enterprise
Manufacturing and Production Engineering & Research Accounting, and Finance Suppliers and Other Business Partners Supply Chain Management Procurement, Distribution, and Logistics Customer Relationship Management Marketing Sales Customer Service Consumer and Business Customers Company Boundary Intranets The Internet Extranets The Internet and related technologies and applications is revolutionizing the way businesses are operated and people work, and how information technology supports business operations and end user work activities. Businesses are quickly becoming e-business enterprises. The Internet and Internet-like networks - inside the enterprise (intranets), and between an enterprise and its trading partners (extranets) - have become the primary information technology infrastructure that supports the business operations of many companies. E-business enterprises rely on such technologies as to: 1. Reengineer and revitalize internal business processes 2. Implement electronic commerce systems among businesses and their customers and suppliers. 3. Promote enterprise collaboration among business teams and workgroups. E-Business: is defined as the use of Internet technologies to internetwork and empower business processes, electronic commerce, and enterprise communication and collaboration within a company and with its customers, suppliers, and other business stakeholders.

46 History of the role of Information Systems
Data Processing Management Reporting Decision Support Strategic & End User Electronic Commerce - TPS Information Systems - Ad hoc Reports Computing Exec Info Sys Expert Systems SIS Business & -Internetworked E-Business & Data Processing: 1950s ’s: Electronic data processing systems. Transaction processing, record-keeping, and traditional accounting applications Management Reporting: 1960s ’s: Management Information systems. Management reports of prespecified information to support decision making. Decision Support: 1970s s: Decision Support systems. Interactive ad hoc support of the managerial decision-making process. Strategic and End User Support: 1980s ’s: End User computing systems. Direct computing support for end user productivity and work group collaboration. Executive information systems. Critical information for top management Expert systems: Knowledge-based expert advice for end users Strategic Information Systems. Strategic products and services for competitive advantage Electronic Business and Commerce: 1990’s ’s: Internetworked e-business and e-commerce Systems. Internetworked enterprise and global e-business operations and e-commerce on the Internet, intranets, extranets, and other networks.


48 Types of Information Systems
Transaction Processing Systems Process Control Enterprise Collaboration Operations Support Management Information Decision Executive Information Systems Information Systems can be classified by the type of the support they provide an organization. Operations support systems process data generated by and used in business operations. They produce a variety of information products for internal and external use. Operations support systems do not emphasize producing the specific information products that can best be used by managers. Further processing by management information systems is usually required. The role of a business firm’s operations support systems is to: 1. Effectively process business transactions 2. Control industrial processes 3. Support enterprise communications and collaboration 4. Update corporate databases. Management support systems assist managers in decision making. Providing information and support for decision making by all types of managers and business professionals is a complex task. Conceptually, several major types of information systems support a variety of decision-making responsibilities. 1. Management information systems - provide information in the form of reports and displays to managers and many business professionals. 2. Decision support systems - give direct computer support to managers during the decision-making process. 3. Executive information systems - provide critical information from a wide variety of internal and external sources in easy-to-use displays to executives and managers.

49 Other Categories of Information Systems
Expert Systems Knowledge Management Systems Functional Business Systems Expert Systems: Knowledge-based systems that provide expert advice and act as expert consultants to users. Examples: credit application advisor, process monitor, and diagnostic maintenance systems. Knowledge Management Systems: are knowledge-based information systems that support the creation, organization, and dissemination of business knowledge to employees and managers throughout a company. Examples: intranet access to best business practices, sales proposal strategies, and customer problem resolution systems. Functional Business Systems: Support a variety of operational and managerial applications in support of basic business functions of a company. Examples: information systems that support applications in accounting, finance, marketing, operations management, and human resource management. Strategic Information Systems: are information systems that support operations or management processes that provide a firm with strategic products, services, and capabilities for competitive advantage. Examples: online stock trading, shipment tracking, and e-commerce Web systems. Cross-Functional Information Systems: are information systems that are integrated combinations of business information systems, thus sharing information resources across the functional units of an organization Strategic Information Systems Cross-Functional Information Systems

50 The Information Systems Development Process
The traditional information systems development cycle is based upon the stages in the systems approach to problem solving: Systems Investigation. This stage may begin with a formal information systems planning process to help sort out choices from many opportunities. Typically, due to the expense associated with information systems development this stage includes a cost/benefit analysis as part of a feasibility study. This stage is covered in more detail on the following slide. Systems Analysis. This stage includes an analysis of the information needs of end users, the organizational environment, and any system currently used to develop the functional requirements of a new system. Systems Design. This stage develops specifications for the hardware, software, people, and data resources of the system. The information products the system is expected to produce are also designated. Systems Implementation. Here the organization develops or acquires the hardware and software needed to implement the system design. Testing of the system and training of people to operate and use the system are also part of this stage. Finally, the organization converts to the new system. Systems Maintenance. In this stage, management uses a postimplementation review process to monitor, evaluate, and modify the system as needed.

51 Management Challenges of the E-business Enterprise
Business Strategies Business Processes Business Needs Customer Relationships Business Partners Suppliers Business Customers Ethical Considerations Potential Risks? Potential Laws? Possible Responses? IS Human Resources IS Development IT Infrastructure IS Performance Organization Structure and Culture User Acceptance Prospective managers and business professionals should become aware of the problems and opportunities presented by the use of information technology and learn how to effectively confront such managerial challenges. Managerial challenges are emphasized through the textbook.

52 Types of Information Systems

53 Major Types of Systems Transaction Processing Systems (TPS) Management Information Systems (MIS) Decision-Support Systems (DSS) Executive Support Systems (ESS)

54 Transaction Processing Systems (TPS)

55 A Symbolic Representation for a Payroll TPS

56 Typical Applications of TPS
Management Information Systems Chapter 2 Information Systems in the Enterprise MAJOR TYPES OF SYSTEMS IN ORGANIZATIONS Typical Applications of TPS

57 Management Information Systems (MIS)

58 Management Information Systems (MIS)
Management level Inputs: High volume transaction level data Processing: Simple models Outputs: Summary reports Users: Middle managers Example: Annual budgeting

59 Management Information Systems (MIS)

60 Management Information Systems (MIS) (continued)
A sample MIS report Figure 2-6

61 Decision-Support Systems (DSS)

62 Decision-Support Systems (DSS)
Management level Inputs: Transaction level data Processing: Interactive Outputs: Decision analysis Users: Professionals, staff Example: Contract cost analysis

63 Decision-Support Systems (DSS) (Continued)
Voyage-estimating decision-support system

64 Executive Support Systems (ESS)

Inputs: Aggregate data Processing: Interactive Outputs: Projections Users: Senior managers Example: 5 year operating plan

66 Model of a Typical Executive Support System
Figure 2-8

67 Figure 2-2

68 Relationship of Systems to One Another


70 Traditional View of Systems

71 Enterprise Systems

72 Thanks for your Attention

73 Sources : Kenneth C Loudon & Jane P Loudon, Management Information System, managing the digitAL firm,

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