Chapter 1 Foundations

of Information Systems
in Business
James A. O'Brien, and George Marakas.
Management Information Systems with MISource
2007, 8th ed. Boston, MA: McGraw-Hill, Inc.,
2007. ISBN: 13 9780073323091
 Learning Objectives
1. Understand the concept of a system and how it relates to IS
2. Explain why knowledge of IS is important for business
professionals; Identify five areas of Is knowledge needed
3. Give examples to illustrate how business applications of IS
can support a firm’s business processes, managerial
decision making, and strategies for competitive advantage
4. Provide examples of IS from your experiences with
business organizations in the real world
5. Identify challenges that a business manager might face in
managing the successful, ethical development and
use of information technology
6. Provide examples of the components of real world IS
7. Become familiar with the myriad of career opportunities in IS

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Foundation Concepts
 Why study information systems and information
technology?
 Vital component of successful businesses
 Helps businesses expand and compete
 Improves efficiency and effectiveness of
business processes
 Facilitates managerial decision making and
workgroup collaboration

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Case 1 Heidelberg, Honeywell, Eaton
 Smart services, smart products
 Using information technology to monitor,
intervene, assist
 Machines relay information via the Internet
and wireless systems
 Optimized performance
 Minimized maintenance and repair costs
 Less unanticipated downtime
 Increased value justifies premium charge

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 Case Study Questions
1. Why should manufacturing companies build smart
products and provide smart services?
 What business benefits can be gained?
 Provide examples beyond those discussed in this case
2. What information technologies are used
by the companies in this case to build smart products and
provide smart services?
 What other IT components might be used?
 Give examples of the capabilities they would provide
3. What are some limitations of a smart products and smart
services strategy?
 Give several examples that a business might
encounter
 Explain how it might overcome them
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What is a System?
 A set of interrelated components
 With a clearly defined boundary
 Working together
 To achieve a common set of objectives

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What is an Information System?
 An organized combination of…
 People
 Hardware and software
 Communication networks
 Data resources
 Policies and procedures
 This system…
 Stores, retrieves, transforms, and
disseminates information in an organization

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 Information Technologies
 Information Systems
 All the components and resources necessary
to deliver information and functions to the
organization
 Could be paper based
 Information Technologies
 Hardware, software, networking, data
management
 Our focus will be on computer-based information
systems (CBIS)

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 What Should Business
Professionals Know?

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Fundamental Roles of IS in
Business

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 Trends in Information Systems

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What is E-Business?
 Using Internet technologies to empower…
 Business processes
 Electronic commerce
 Collaboration within a company
 Collaboration with customers, suppliers, and
other business stakeholders
 In essence, an online exchange of value

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 How E-Business is Being Used

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E-Business Use
 Reengineering
 Internal business processes
 Enterprise collaboration systems
 Support communications, coordination and
coordination among teams and work groups
 Electronic commerce
 Buying, selling, marketing, and servicing of
products and services over networks

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Types of Information Systems
 Operations Support Systems
 Efficiently process business transactions
 Control industrial processes
 Support communication and collaboration
 Update corporate databases
 Management Support Systems
 Provide information as reports and displays
 Give direct computer support to managers
during decision-making

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Purposes of Information Systems

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Operations Support Systems
 What do they do?
 Efficiently process business transactions
 Control industrial processes
 Support communications and collaboration
 Update corporate databases

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 Types of OSS
 Transaction Processing Systems
 Record and process business transactions
 Example: sales processing, inventory systems,
accounting systems
 Process Control Systems
 Monitor and control physical processes
 Example: using sensors to monitor chemical
processes in a petroleum refinery
 Enterprise Collaboration Systems
 Enhance team and workgroup communication
 Example: email, video conferencing

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Two Ways to Process Transactions
 Batch Processing
 Accumulate transactions over time and
process periodically
 Example: a bank processes all checks
received in a batch at night
 Online Processing
 Process transactions immediately
 Example: a bank processes an ATM
withdrawal immediately

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Management Support Systems
 What do they do?
 Provide information and support for effective
decision making by managers
 Management information systems
 Decision support systems
 Executive information systems

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Types of Management Support Systems
 Management Information Systems (MIS)
 Reports and displays
 Example: daily sales analysis reports
 Decision Support Systems (DSS)
 Interactive and ad hoc support
 Example: a what-if analysis to determine where
to spend advertising dollars
 Executive Information Systems (EIS)
 Critical information for executives and
managers
 Example: easy access to actions of competitors

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Other Information Systems
 Expert Systems - provide expert advice
 Example: credit application advisor
 Knowledge Management Systems - support creation,
organization, and dissemination of business knowledge
throughout company
 Example: intranet access to best business practices
 Strategic Information Systems - help get a strategic
advantage over customer
 Example: shipment tracking, e-commerce Web
systems
 Functional Business Systems - focus on operational and
managerial applications of basic business functions
 Example: accounting, finance, or marketing
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IT Challenges and Opportunities

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Measuring IT Success
 Efficiency
 Minimize cost, time, and use of information
resources
 Effectiveness
 Support business strategies
 Enable business processes
 Enhance organizational structure and culture
 Increase customer and business value

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Developing IS Solutions

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Challenges and Ethics of IT
 Application of IT
 Customer relationship management
 Human resources management
 Business intelligence systems
 Potential Harm
 Infringements on privacy
 Inaccurate information
 Collusion
 Potential Risks
 Consumer boycotts
 Work stoppages
 Government intervention
 Possible Responses
 Codes of ethics
 Incentives
 Certification
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Ethical Responsibilities
 What uses of IT might be considered improper
or harmful to other individuals or society?
 What is the proper business use of the Internet
or a company’s IT resources?
 How can you protect yourself from computer
crime?

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IT Careers
 Economic downturns have affected all job
sectors, including IT
 Rising labor costs are pushing jobs to India, the
Middle East, and Asia-Pacific countries
 However, IT employment opportunities are
strong, with new jobs emerging daily
 Shortages of IT personnel are frequent
 The long-term job outlook is positive and exciting
 Figure

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 IT Careers

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IT Careers
 Job increases will be driven by…
 Rapid growth in computer system design and
related services
 The need to backfill positions
 Information sharing and client/server
environments
 The need for those with problem-solving skills
 Falling hardware and software prices, which
will fuel expanded computerization of
operations
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The IS Function
 The IS function is…
A major functional area of business
 An important contributor to operational efficiency,
employee productivity, morale, customer service
and satisfaction
 A major source of information and support for
decision making
 A vital ingredient in developing competitive
products and services in the global marketplace
 A dynamic and challenging career opportunity
 A key component of today’s networked business

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System Concepts: A Foundation
 System concepts help us understand…
 Technology: hardware, software, data
management, telecommunications networks
 Applications: to support inter-connected
information systems
 Development: developing ways to use
information technology includes designing the
basic components of information systems
 Management: emphasizes the quality,
strategic business value, and security of an
organization’s information systems
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Real World Case: Lufthansa
 Lufthansa wants to…
 Keep 3,500 pilots
 Trained on the latest technology and

procedures
 Plugged into the corporate infrastructure
 Informed about schedules, weather events,

and other facts that affect their jobs

 Control costs
 Provide Internet access to passengers

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Case Study Questions
 Are many of Lufthansa’s challenges identified in
the case similar to those being experienced by
other businesses in today’s global economy?
 What other tangible and intangible benefits,
beyond those identified by Lufthansa, might a
mobile workforce enjoy as a result of deploying
mobile technologies?
 Lufthansa was clearly taking a big risk with their
decision to deploy notebook computers to their
pilots. What steps did they take to manage the
risk, and what others might be needed in today’s
business environment?
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What is a System?
 A system is…
 A set of interrelated components
 With a clearly defined boundary
 Working together
 To achieve a common set of objectives
 By accepting inputs and producing outputs
 In an organized transformation process

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Basic Functions of a System
 Input
 Capturing and assembling elements that enter
the system to be processed
 Processing
 Transformation process that converts input
into output
 Output
 Transferring transformed elements to their
ultimate destination

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 Cybernetic System
 All systems have input, processing, and output
 A cybernetic system, a self-monitoring, self-
regulating system, adds feedback and control:
 Feedback is data about the performance of a
system
 Control involves monitoring and evaluating
feedback to determine whether a system is moving
toward the achievement of its goal

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 A Business as a System

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Other System Characteristics
 If a system is one of the components of a larger
system, it is a subsystem
 The larger system is an environment
 Several systems may share the same
environment
 Some may be connected via a shared
boundary, or interface
 Types of systems…
 Open
 Adaptive

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Components of an IS

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Information System Resources
 People Resources
 Specialists
 End users
 Hardware Resources
 Machines
 Media
 Software Resources
 Programs
 Procedures
 Data Resources
 Product descriptions, customer records, employee files,
inventory databases
 Network Resources
 Communications media, communications processors, network
access and control software
 Information Resources
 Management reports and business documents using text and
graphics displays, audio responses, and paper forms
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Data Versus Information
 Data are raw facts about physical phenomena or
business transactions
 Information is data that has been converted into
meaningful and useful context for end users
 Example:
 Sales data is names, quantities, and dollar
amounts
 Sales information is amount of sales by
product type, sales territory, or salesperson

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IS Activities
 Input of data resources
 Data entry activities
 Processing of data into information
 Calculations, comparisons, sorting, and so on
 Output of information products
 Messages, reports, forms, graphic images
 Storage of data resources
 Data elements and databases
 Control of system performance
 Monitoring and evaluating feedback

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Recognizing IS
 Business professionals should be able to look at
an information system and identify…
 The people, hardware, software, data, and
network resources they use
 The type of information products they produce
 The way they perform input, processing,
output, storage, and control activities

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Case 3 Aviall, Inc.
 Supplier of airplane parts and components
 Had lost track of its inventory
 Price-tracking software didn’t work with
inventory control or purchasing forecasting
 Sent wrong parts to wrong customers
 Sales falling
 Needed a middleware vision
 Get all the software to work together

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Case Study Questions
 Why do you think that Aviall failed in their
implementation of an airplane parts and
components inventory control system?
 How has information technology brought new
business success to Aviall? How did IT change
Aviall’s business model?
 How could other companies use Aviall’s
approach to the use of IT to improve their
business success?

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Case 4 Continental Airlines
 Building customer loyalty has become crucial for
success in the airline industry
 Continental employs CallMinder systems to…
 Monitor calls and keystrokes
 Data mine keystrokes and voice calls
 This technology resulted in…
 Fewer calls going to the help desk
 Higher customer satisfaction
 Reduction of flight confirmation calls
 Cost savings in excess of $1 million

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 Case Questions
 What are the business benefits of the CallMiner
system?
 How can new technologies like CallMiner help
companies improve their customer service and
gain a competitive edge in the marketplace?
 Andre Harris refers to calls to reconfirm a flight as
“quite frankly, low-value calls.” Why are they
classified as low value? Why do you think so many
customers are placing such calls?

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