Topic 1 and 2 Management Information Systems

MANAGEMENT INFORMATION SYSTEMS Topics I & II INTRODUCTION TO INFORMATION SYSTEMS Introduction Information system a system that uses the resources of people, hardware, software and communication technology to perform input, processing, output, storage, and control activities that convert data resources into information products. It can also be referred to as a set of interrelated components that collect or retrieve, process, store, and distribute information to support decision making and control in an organization. Components People resources (specialists and end users); Hardware (computers etc); Software (programs and procedures); Data resources (databases, model bases, knowledge bases) and; Communications systems; Information products (management reports, business documents etc.). From a business perspective, information systems are part of a series of value-adding activities (value chain) for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance (processes), and ultimately increase firm profitability. The value of an information system to a business, as well as the decision to invest in any new information system, is in large part, determined by the extent to which the system will lead to better management decisions, more efficient business processes, and higher firms profitability. Every business has an information value chain, in which raw data is systematically acquired and then transformed through various stages that add value to that information. An information system contains information about an organization and its surrounding environment. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems. Information systems should be considered in terms of their purpose in an organization. They are used to support business processes and strategic objectives. There is a growing interdependence between a firms information systems and its business capabilities. Thus, 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. Business processes refer to the manner in which work is organized, coordinated, and focused to produce a valuable product or service. Many business processes are tied to a specific functional area, such as sales and marketing, while others cross many different functional areas and require coordination across departments. The diagram that follows show functional areas and systems/processes.

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Source: Laudon, K.C. and Laudon, J. P.: Management Information Systems: Managing the Digital Firm (Prentice-Hall of India Private Limited, New Delhi, 2008).

A business process is illustrated in the following diagram.

Example of a process: The order fulfillment process


Information systems enhance business processes in primarily two ways: o Increasing the efficiency of existing processes o Enabling entirely new processes that are capable of transforming the business. Business firms invest heavily in information systems to achieve six strategic business objectives: o Operational excellence: Efficiency, productivity, and improved changes in business practices and management behavior o New products, services, and business models: Information systems and technologies create opportunities for products, services, and new ways to engage in business. o Customer and supplier intimacy: Improved communication with and service to customers raises revenues, and improved communication with suppliers lowers costs. 2

o Improved decision making: Avails accurate and timely information. o Competitive advantage: Implementing effective and efficient information systems that enhance firms capabilities and enable it to offers superior products and services. o Survival: Information systems can also be a necessity of doing business. A necessity may be driven by industry-level changes such as in the implementation of ATMs in the retail banking industry or by governmental regulations, that may requiring a business to retain data and report specific information. Information technology In information systems, computers systems have to communicate together. Hence the need for data communications. Indeed, everything that presently exists on a personal computer or a laptop, experts suggest, will move onto the Net. When computer and communications technologies are combined, the result is information technology (InfoTech). Thus information technology - includes the hardware, software, databases, networks, and other electronic devices. This is IT in its narrow definition and refers to technological part of information systems hence a subsystem of information systems. A firm can build its information systems on an information technology infrastructure. A firm's information technology infrastructure consists of: o Computer hardware: The physical equipment and computing devices used for input, storage, processing, output, and telecommunications o Computer software: The detailed, preprogrammed instructions that control and coordinate the computer hardware components o Data management software: The software governing the organization of data on physical storage media o Networking and telecommunications technology: Hardware and software used to link the various pieces of hardware and transfer data from one physical location to another; a computer network links two or more computers together to share data and resources. Information and communications technology (ICT) has increasingly been integrated into information systems: o To process information, to make information available, to aid in decision making and to make decisions (replace decision makers). o For performance of organizations activities hence support of organizations goals. To perform the activities, organizations need information, which in turn require information systems. Many organizations use IT to support their operations as IT has become the major facilitator of business activities in the world today. IT also is used as it is a catalyst of fundamental changes in the structure, operations, and management of organizations. This is due to the capabilities it gives for pursuing business objectives. These capabilities support the following five business objectives: (1) Improving productivity, 3

(2) Reducing costs, (3) Improving decision making, (4) Enhancing customer relationships, and (5) Developing new strategic applications. IT is creating a transformation in the way business is conducted, facilitating a transition to a digital economy. The digital economy refers to an economy that is based on digital technologies, including digital communication networks, computers, software, and other related information technologies. The digital economy is also sometimes called the Internet economy, the new economy, or the Web. There is therefore need for investment on information technology. In addition there is need for investment on complementary assets. Complementary assets are those assets required to derive value from a primary investment. For instance, to realize value from automobiles requires substantial complementary investment in roads, petrol stations, repair facilities, regulations for traffic controls etc. For information systems, complementary investments include:

Organizational assets: These include a supportive business culture that values efficiency and effectiveness, an appropriate business model, efficient business processes, decentralization of authority, highly distributed decision rights, and a strong information system (IS) development team. Managerial assets: These include strong senior management support for change, incentive systems that monitor and reward individual innovation, an emphasis on teamwork and collaboration, training programs, and a management culture that values flexibility and knowledge. Social assets: These are not made by the firm but by the society at large, other firms, governments, and other key market actors, such as the Internet, educational systems, network and computing standards, regulations and laws, and the presence of technology and service firms.

Firms that make investments in complementary assets receive superior returns. The returns may vary from firm to firm depending on business models adopted. Failure to adopt the right business model that suits the new technology would lead to lower return on investment. A business model is a method of doing business by which a company can generate revenue to sustain itself. The model spells out how the company adds value that consumers are willing to pay for, in terms of the goods and/or services the company produces in the course of its operations. This may include making and selling products or providing free email services to customers and earning through advertisement opportunities so created. Contemporary approaches to information systems Although information systems are composed of machines, devices, and "hard" physical technology, they require substantial social, organizational, and intellectual investments to make them work properly. They are sociotechnical systems. Using them effectively requires an understanding of the organization (people, structure, business processes, politics, and culture), management, and information technology shaping the systems. Each organization has a unique 4

culture, or fundamental set of assumptions, values and ways of doing things, that has been accepted by most of its members. Example is culture of placing service to the customer first. Organization politics arise out of conflicts due to different levels and specialties in an organization that create different interests and point of view. Problems with information systemsand their solutionsare rarely all technical or behavioral. Thus, a multidisciplinary approach is needed; technical and behavioral. The technical approach emphasizes mathematically based, normative models to study information systems, as well as the physical technology and formal capabilities of these systems. The behavioral approach, a growing part of the information systems field, does not ignore technology, but tends to focus on non-technical solutions concentrating instead on changes in attitudes, management and organizational policy, and behavior. In sociotechnical view of systems, optimal organizational performance is achieved by jointly optimizing both the social and technical systems used in production. Technology must be changed and designed, sometimes even "de-optimized," to fit organizational and individual needs. Organizations and individuals must also be changed through training, learning, and planned organizational change to allow technology to operate and prosper. The result would be satisfactory final design of technology and final design of organization that technology. This is illustrated in the following diagram:


Environmental developments that call for the need for information systems There are at present innovations that are transforming the global business landscape. The Internet in this instance plays a big role, hence the resulting Internet culture where people expect services and dealings over the Net. Thus, we are increasingly transforming business firms into digital firms. 5

A digital firm is a firm where: Most of the firm's significant business relationships with customers, suppliers, and employees are digitally enabled and mediated. Core business processes, or logically related business tasks, are accomplished through digital networks. Key corporate assets (intellectual property, core competencies, and financial and human assets) are managed through digital means. Business responses to changes in their environment are enhanced through digital communications, allowing for time shifting (business being conducted 24x7) and space shifting (business being conducted globally or beyond traditional geographic boundaries). Digital firms use the Internet and networking technology to make data flow seamlessly among different parts of the organization; streams the flow of work; and create electronic links with other parties. Consequently, information systems that make use of IT do matter, and they do for the following reasons: IT is an important component of capital investment and is increasingly becoming a large component of capital investment. Choices must be made to make best use of it. IT is the foundation of doing business. Some firms especially those involved with ecommerce cannot survive or even exist without IT. IT plays a critical role in increasing the productivity of firms, and entire nations. Firms that invest wisely in IT experience continued growth in productivity and efficiency. Investment in IT increases the chances of one taking advantage of new opportunities in markets, developing new products, and creating new services. Thus, there is a need for IT and its knowledge. The need for integrating IT into information systems have also been brought about by the following business environmental changes: Internet growth and technology convergence. Four industries are moving towards a common platform and these are: Hardware and software industry; consumer electronics industry; telecommunications industry; and content industry (e.g. movies, music etc). This gives opportunities that have to be taken advantage of. With these developments, we now have new business models, and new markets (e.g. online streaming media for music etc). You cannot do business with some firms like WalMart unless you adapt to their well-defined digital technologies. Even Governments are increasingly using IT. Emergency of global economy: many firms today operate globally getting parts from one country, assembling them in another and managing finances and marketing activities in another country etc. It provides communication and analytical capabilities needed. Transformation of industrial economies from agrarian to industrial to knowledge and information based services economy. Thus IT is needed. Also, in knowledge and information-based service economies knowledge and information provide the foundation for new products and services such as credit cards, overnight package delivery, or worldwide reservation systems. Transformation of business enterprise to where IT has to be relied on. For instance online transactions rather than the traditional way of transacting. Also, rise of business 6

relationships that the Internet makes possible such as between a supplier and a customer where when stock of a customer falls to reorder point, an order could be made automatically from the supplier as though there were no boundary between the supplier and the customer and the supplier were the customer store. The emergence of the digital firm with the result of the firms using IT to integrate business processes and build closer links with other parties such as suppliers.

How information technology has transformed organizations Information systems are transforming business and industries. We now see the results that include: Increased use of cell phones and wireless telecommunications devices; Massive shift toward online news and information; booming e-commerce and Internet advertising; new laws that address issues raised the growth of digital information; and reduced costs of businesses operating on a global scale. In relation to these, organizations have been transformed in a number of ways. 1. Flattening organizations IT has empowered employees to make more decisions that in the past. So with fewer employees, an organization could achieve a desired level of output, even with fewer hours at work and away from the organization. Consequently organizations have downsized, reduced the number of employees and the number of levels in their organizational hierarchies. Separating work from location IT makes it possible to organize globally while working locally How? Global networks have extended global reach Distributed and portable computing Development of easy to use graphics user interfaces Employees can be scattered geographically and can work as team members even if distant apart. Reorganizing work flows Manual work procedures have been replaced with automated work procedures, work flows, and work processes result: o Merging of some activities o Displacing of paper and manual routines o Cost reduction o Service improvement. Increasing flexibility of organizations Empowerment of employees Ability to respond to changes in the market place Ability to solve problems or take advantage of new opportunities Ability to coordinate activities (many and even dispersed) with few managers, clerks, production workers etc. The changing management process IT is changing the management process, providing powerful new capabilities to help managers plan, organize, lead and control. Managers can perform their functions with IT application (or intervention) so much that changes would be evident in the performance of the functions. Managerial functions could be computerized to a very high level and where 7

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computerization of activities is not possible, computer would provide information to managers. 6. Redefining organizational boundaries IT has made possible linkage of companies with their customers, distributors, suppliers or partners Linkages lead to flow of information and interaction among the different organizations as though they were one big organization Result quick service/reduced costs of operations

Information systems that make use of ICT help to transform organizations with resulting benefits. As such they should be built, used and managed. In doing so, however, there are challenges. The challenge of information systems: key management issues Information systems are creating many opportunities. However, they are also a source of new problems, issues, and challenges for managers. Further, information technology is advancing fast. Yet, there is nothing easy or mechanical about building and using information systems. Thus in building, using and managing information systems that uses ICT, there are several key challenges confronting managers: The Strategic Business Challenge: This concerns how businesses can use information technology to design organizations that are competitive and effective. Why the concern? Investment in information technology amounts to a large proportion of annual capital expenditures of most large service-sector firms. Yet, despite these heavy investments, many organizations are not obtaining significant business benefits. This is so, even though the power of computer hardware and software has grown much more rapidly. For that matter, organizations need to use information systems for strategic advantage. The Globalization Challenge: This concerns how firms can understand the business and system requirements of a global economic environment. Emergence of a global economy calls for information systems that can support both producing and selling goods in many different countries. Going global also bring in global competitive pressures. Together with continuous innovations, many organizations are forced to rethink how they do business. Further, there are language, cultural, and political differences among countries in which the firm going global must operate. Such a firm must develop global hardware, software, and communications standards and create cross-cultural accounting and reporting structures The Information Architecture and Infrastructure Challenge: This concerns how organizations can develop an information architecture and information technology infrastructure that supports their business goals. Creating a new system now means much more than installing a new machine. Thousands of personal computers have to be placed on the desks of employees who have little experience with them; devices have to be connected to powerful communications networks; reporting patterns have to be changed etc. Thus, new systems today often require redesigning the organization and building new information architecture and information technology (IT) infrastructure.

Information architecture is a design for the business application systems that serve functional specialty and level of the organization and the specific way that they are used by 8

each organization. Information architecture should meet business requirements now and in the future as they are there to serve the business. The firm's information technology (IT) infrastructure provides the technology platform for this architecture. It includes computer hardware, software, data and storage technology, networks, and human resources required to operate the equipment. This technology platform is typically operated by technical personnel. Even then, general management must decide how to allocate the resources it has assigned to hardware, software, data storage, and telecommunications networks to make sound information technology investments. Issues to contend with regarding information architecture and IT infrastructure facing today's managers include: function distribution or centralized; purchase of standalone personal computers or building of a more powerful, centralized mainframe environment within an integrated communications network; building of systems to connect the entire enterprise or separate applications. The Information Systems Investment Challenge: This concerns how organizations can determine the business value of information systems. Organizations should use information technology to enhance their information processing, operations and decision making, and to design, produce, deliver, and maintain new products and should make money doing so. Management needs to gauge whether or not they are receiving the kind of return on investment on information technology that they should. The Responsibility and Control Challenge: This concerns how organizations can ensure that their information systems are used in an ethically and socially responsible manner. Information systems have provided enormous benefits. However, they have also introduced new problems and challenges of which managers should be aware. There are problems of security and control, privacy, use of systems to monitor employees, quality assurance, accuracy, reliability and timeliness of information etc. Information systems should be designed in such a way that people can control them in order to deal with the problems.

Managers thus need to knowledge of information systems that use information technology. What managers need to know: areas of knowledge Foundation Concepts: Fundamental behavioral, technical, business, and managerial and systems concepts in relation to information systems, and the components and roles of information systems, and general systems theory. Business Applications: The major uses of information systems for the operations, management, and competitive advantage of a business enterprise and electronic business, commerce, collaboration and decision making using the Internet, intranets, and extranets. Development Processes: How business professionals and information specialists plan, develop, and implement information systems to meet business opportunities using several strategic planning and application development. Management Challenges: The challenges of managing business information systems that use information technologies, strategies, and security at the end user, enterprise, and global levels of a business. Information Technologies: Hardware, software, networks, data resource management, 9

and Internet-based technologies and management issues in information technology.

References 1. OBrien, J. A..: Management Information systems: Managing Information Technology in the E-Business Enterprise (Tata McGraw-Hill Publishing Company Limited, New Delhi, 1999). 2. 3. Laudon, K.C. and Laudon, J. P.: Management Information Systems: Managing the Digital Firm (Prentice-Hall of India Private Limited, New Delhi, 2008). Turban, E. and Mclean, E. and Wetherbe.: Information Technology for Management: Transforming Organizations in the Digital Economy, John Wiley and Sons, Inc., Singapore, 2004).

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Topic 1 and 2 Management Information Systems