Information technology capital investment, defined as hardware, software, and communications equipment, grew from 32 percent to 52 percent of all invested capital between 1980 and 2009.FIGURE 1-1

Information Technology Capital Investment

MGMT172 Lecture 1

• Growing interdependence between ability to use information technology and ability to implement corporate strategies and achieve corporate goals. This is due to the importance of good information when making business decision

• Web 2.0 – web based services allowing interaction e.g. instant messaging, social networks

• Teleworking/distance working with mobile platform, wi-fi

• Cloud computing – infrastructure run on the Cloud and not on-premise – more flexibility, pay for what you get

• Software as a service

Why invest?

• Businesses 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

Why invest?

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.

Figure 1.2

The Interdependence Between Organizations and Information Technology

• 1) Operational excellence:– Improvement of operational efficiency to attain higher profitability –

examples?

– Information systems and technology are an important tool in achieving greater efficiency and productivity. Does IT make your life more efficient ? How ?

– Walmart’s Retail Link system links suppliers to stores for superior replenishment system. Walmart has $405B in retail sales annually. RL system links 8,400 stores to suppliers with real time updates -> improved stock/order levels, less wastage = higher profits

– E.g. Building maintenance systems e.g. Maximo Asset Management for work schedules, information manuals, assistance

– Maximo Asset Management

The Role of Information Systems in Business Today

• 2) New products, services, and business models:– Business model: describes how company produces,

delivers, and sells product or service to create wealth– Information systems and technology a major enabling

tool for new products, services, business models• Examples: Apple’s iPad, Google Advertising, and Netflix• Apple iTunes – what did we used to do?• Netflix – what did we used to do?• eBay – what did we used to do?

The Role of Information Systems in Business Today

• 3) Customer and 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 used to monitor and customize environment. Mandarin Oriental Hotel : bedroom, TV film, breakfast, checkout time, gym etc preferences ready for next time you stay !

• Example: Tesco clubcard; Sainsbury nectorcard; UK supermarkets. Using card gives you discount and rewards – however value is in knowing what you buy….new mother, off to school ? Can market/offer targetted products. What customer information do you think might be useful ? What would it allow you to do ? How could you better serve your customers ?

• Tesco Clubcard

The Role of Information Systems in Business Today

7

• 4) Improved decision making

– Without accurate information:• Managers must use forecasts, best guesses, luck• Results in:

– Overproduction, underproduction– Misallocation of resources– Poor response times

• Poor outcomes raise costs, lose customers– Example: Disney – 30 million visitors per year. Large queues, rides at

capacity. Implemented camera system to let central control know which rides busy and which had space ; can send info to customers via ‘mobile magic’ app ; or can divert disney characters to where they are most needed, or extra staff to restaurant etc – happier customers ! What useful information could you collect before the customer arrive at Disney ?

The Role of Information Systems in Business Today

• 5) Competitive advantage– Delivering better performance– Charging less for superior products– Responding to customers and suppliers in

real time=Customer retention, higher profit– Examples: as we have seen in previous

examples – Walmart, Tesco, e-Bay

The Role of Information Systems in Business Today

• 6) Survival / Legal Requirement– Information technologies as necessity of business– Industry-level changes

• Example: Citibank’s introduction of ATMs (imagine a bank without ATMs!) ie you are forced to do it

– Governmental regulations requiring record-keeping• Examples: Toxic Substances Control Act, Sarbanes-

Oxley Act• Airplane maintenance records

The Role of Information Systems in Business Today

• Information system: – Set of interrelated components (computers, network,

people, data inputs, outputs)– 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.

What do we mean by an Information System?

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.

Figure 1.3

Data and Information

• Three activities of information systems 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– E.g. barometric pressure, wind speed, temperature (data) -

> tropical storm starting at 4pm in north eastern region (information)

Perspectives on Information Systems

• Feedback: – Output is returned to appropriate members of

organization to help evaluate or correct input stage.

• Computer/Computer program vs. information system– Computers and software are technical foundation

and tools, similar to the material and tools used to build a house.

Perspectives on Information Systems

An information system contains information about an organization and its surrounding environment. Three basic activities—input, processing, and output—produce the information organizations need. Feedback is output returned to appropriate people or activities in the organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems.

Figure 1.4

Functions of an Information System

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.

Figure 1.5

Information Systems Are More Than Computers

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

Perspectives on Information Systems

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.

Figure 1.6

Levels in a Firm

• Organizational dimension of information systems (cont.)• Separation of business functions

• Sales and marketing• Human resources• Finance and accounting• Manufacturing and production

• Unique business processes• Unique business culture• Organizational politics

Perspectives on Information Systems

• Management dimension of information systems• 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

Perspectives on Information Systems

• Technology dimension of information systems• Computer hardware and software• Data management technology• Networking and telecommunications technology• Networks: the Internet, intranets (internal corporate

network based on internet technology standards) and extranets (intranet which has been extended to authorized users outside of the organization), World Wide Web (all the services delivered over the internet)

• IT infrastructure: provides platform that system is built on

Perspectives on Information Systems