Unit: Managing the Digital Firm MIS

Managing the Digital Firm

What is an Information System?

An information system can defined technically as a set of interrelated components that
collect, process, store, and distribute information to decision making, coordination, and
control in an organization. Information systems contain information about significant
people, places, and things within the organization or in the environment surrounding
it. Data is streams of raw faces representing events occurring in organization or the
physical environment before they have been organized and arranged into a form that
people can understand and use.

Figure: Functions of an information system. An information system contains information

about an organization and its surrounding environment.

Three activities in an information system produce the information that organizations need
to make decisions, control operations, analyze problems, and create new products or
services. These activities are input, processing, and output. Input is the capture or
collection of raw data from within the organization or from its external environment for
processing in an information system. Processing is the conversion, manipulation, and
analysis of raw input into a form that is more meaningful to humans. Output is the
distribution of processed information to the people who will use it or to the activities for
which it will be used. Information systems also require feedback, which is output that is
returned to the appropriate members of the organization to help them evaluate or correct
input.

Deipak@HSM Page 1
Unit: Managing the Digital Firm MIS

The interest in formal, organizational computer based information systems (CBIS) is

information systems that rely on computer hardware and software for processing and
disseminating information. Formal system is system resting on accepted and fixed
definitions of data and procedures, operating with predefined rules.

Why Information System?

Today it is widely recognized that information systems knowledge is essential for
managers, because most organizations need information systems to service and proper.

The Competitive Business Environment and the Emerging Digital Firm.

Four powerful worldwide changes have altered the business environment.

Emergence of the Global Economy

Today, information systems provide the communication and analytical power that firms
need for conducting trade and managing business on a global scale. Globalization and
information technology also bring new threats to domestic business firms. Besides these
globalization play a great role in following sectors too.
 Management and control in the global market
 Competition in the world market
 Global work group
 Global delivery system

Transformation of Industrial Economies

In a knowledge and information based economy; knowledge and information are key
ingredients in creating wealth. Knowledge and information are becoming the foundation
for many new services and products.
 Knowledge and information based economies
 New product and services
 Time – based services
 Shorter product life
 Limited Employee knowledge base

Transformation of the Business Enterprise

The traditional business firm was and still is a hierarchical, centralized, structured
arrangement of specialist that typically relied on a fixed set of standard operating
procedures to deliver a mass-produced produced product.
 Flattering
 Decentralization
 Flexibility
 Location independence
 Low transaction and coordination cost

Deipak@HSM Page 2
Unit: Managing the Digital Firm MIS

 Team work

The Emerging Digital Firm

The intensive use of information technology in business firms since the mid 1990s,
coupled with equally significant organizational redesign, created the condition for a new
phenomenon in industrial society. The digital firm is organization where nearly all
significant business processes and relationships with customers, suppliers, and
employees are digitally enabled, and key corporate assets are managed through digital
means. Business processes refer to the unique ways in which organizations coordinate
and organization work activities, information, and knowledge to produce a product or
service.
 Digitally enabled relations with customers, suppliers and employees
 Core business process accomplished via digital networks
 Digital management of key corporate assets
 Rapid sensing and responding to environmental changes.

Why Information Systems Matter?

There are four reasons why IT makes a difference to the success of a business:
1. Capital Management: IT is the largest single component of capital investment in the
United States. About $1.8 trillion is spent each year by American businesses.
Managers and business students need to know how to invest this capital wisely. The
success of your business in the future may well depend on how you make IT
investment decisions.
2. Foundation of Doing Business: Most businesses today could not operate without
extensive use of information systems and technologies. IT can increase market
share. IT can help a business become a high-quality, low-cost producer.IT is vital to
the development of new products.
3. Productivity: IT is one of the most important tools managers have to increase
productivity and efficiency of businesses. According to the Federal Reserve Bank, IT
has reduced the rate of inflation by 0.5 to 1% in the last decade. For firms this
means IT is a major factor in reducing costs. It is estimated that IT has increased
productivity in the economy by about 1% in the last decade. For firms this means IT
is a major source of labor and capital efficiency.
4. Strategic Opportunity and Advantage:
a. Create competitive advantage: IT makes it possible to develop competitive
advantages.
b. 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.
c. 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.

Deipak@HSM Page 3
Unit: Managing the Digital Firm MIS

d. 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.

How much does IT matter?

A famous author Carr has written that whatever advantages firms build using IT can be
easily copied by competitors. But this view is not supported by the evidence: Amazon,
eBay, Dell, Wal-Mart and Apple's iTunes are just a few firms that have built and
maintained technology-based advantages. Commoditization of technology is typically a
spur to innovation and new business models, products and services. Competitive
advantage derives not from the technology, but on how businesses use the technology.
Innovations in business processes, management and organization are not easily copied
from one firm to another.

Why IT Now? Digital Convergence and the Changing Business Environment

Growing impact of IT in business firms can be assessed from the following five factors:
• Internet growth and technology convergence: A survey say that 120 million users
are online only in the United States, where as 500 million global users’ remain
online at a time, thus the business world is moving towards the internet based
model. Another context of internet is the convergence of telecommunications and
computing: VoIP telephones. Similarly, growth in e-business, e-commerce, and
e-government etc. are other influencing fields. Besides these internet is bringing
about rapid changes in markets and market structure: financial services and
banking such as eTrade.com.
• Transformation of the business enterprise:
• Flattening
• Decentralization
• Flexibility
• Location independence
• Low transaction and coordination costs
• Empowerment
• Collaborative work and teamwork
• Growth of a globally connected economy
• Management and control in a global marketplace
• Competition in world markets
• Global workgroups
• Global delivery systems
• Rise of the Information Economy
• Knowledge and information-based economies
• New products and services
• Knowledge as a central productive and strategic asset
• Time-based competition

Deipak@HSM Page 4
Unit: Managing the Digital Firm MIS

• Shorter product life

• Turbulent environment
• Limited employee knowledge base
• 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
• Agile sensing and responding to environmental changes
• Seamless flow of information within the firm, and with strategic partners

A Business Perspective on Information Systems

Information systems are more than just technology. Businesses invest in IS in order to
create value and increase profitability. Information systems are an organizational and
management solution to business challenges that arise from the business environment.
Based on information technology but also require significant investment in organizational
and management changes and innovations. IS creates value primarily by changing
business processes and management decision making.
Broad based understanding of information system that includes behavioral knowledge
about organizations and individuals using information systems as well as technical
knowledge about computers, as information system literacy. Computer literacy, in
contrast, focus on knowledge about information technology, focusing on understanding
of how computer based technology work.

Using information systems effectively requires an understanding of the organization,

management, and information technology shaping the systems.

Dimensions of Information System

Deipak@HSM Page 5
Unit: Managing the Digital Firm MIS

Organization
Information systems are an integral part of organizations. The key elements of an
organization are its people, structure, operating procedures, politics, and culture. The
major business functions, consist of specialized task performed in a business
organization, including manufacturing and production, sales and marketing, finance,
accounting, and human resources. Standard Operating Procedures (SOPs) are formal
rules for accomplishing task that have been developed to cope with expected situations.

Organizations require many difference kinds of skills and people. In addition to

manager, knowledge workers are people, such as engineers or architects, who design
products or service and create knowledge for the organization. Data workers are people,
such as secretaries or bookkeepers, who process the organization’s paperwork.
And production or service workers are people who actually produce the products or
services of the organization.

Management
Information technology can play powerful roles in redirecting and redesigning the
organization. It is important to note that managerial roles and decisions vary at different
levels of the organization. Senior managers are people occupying the topmost hierarchy
in an organization who are responsible for making long term decisions. Middle
managers are people in the middle of the organizational hierarchy who are responsible
for carrying out the plans and goals of senior management. Operational managers are
people who monitor the day-to-day activities of the organization.

Technology
Information technology is one of many tools managers use to cope with
change. Computer hardware is physical equipment used for input, processing, and
output activities in an information system. Computer software consists of detailed,
preprogrammed instruction that control and coordinate the work of computer hardware
components in an information system. Storage technology includes both physical media
and software governing the storage and organization of data for use in an information
system. Communications technology consist both physical device and software that link
various computer hardware components and transfer data from one physical location to
another. A network is the link of two or more computers to share data or resources, such
as a printer.
All of these technologies represent resource that can be share throughout the
organization and constitute the firm’s information technology (IT) infrastructure

Contemporary Approaches to Information System.

Information systems are socio-technical systems. Through they are composed of machines,
devices, and “hard’ physical technology, they require substantial social, organizational, and
intellectual investments to make them work property.
Deipak@HSM Page 6
Unit: Managing the Digital Firm MIS

Technical Approach
The technical approach to information systems emphasizes mathematically based models to
study information systems, a well as the physical technology and formal capabilities of these
systems.

Contemporary approaches to information systems. The study of information systems deals with issues
and insights contributed from technological and behavioral disciplines.

Behavioral Approach
An important part of the information systems field is concerned with behavioral issues that arise in the
development and long-term maintenance of information systems. Issues such as strategic business
integration, design, implementation, utilization, and management cannot be explored usually with the
model used in the technical approach.

Approach of this Text: sociotechnical systems

MIS combined the theoretical work of computer science, management science, and operations research
with a practical orientation toward building systems and applications. Technology must be changed and
designed in such way as to fit organizational and individual needs. At times, the technology may have to
be “de-optimized” to accomplish this fit.

Fig: Socio- Technical System

Deipak@HSM Page 7
Unit: Managing the Digital Firm MIS

Towards the Digital Firm: the New Role of Information Systems in Organizations

Manager cannot ignore information systems because they play such a critical role in
contemporary organizations. Responsibility for systems cannot be delegated to technical
decision makers.

The Widening Scope of Information Systems

The interdependence between organizations and information systems, in contemporary systems

there is a growing interdependence between organizational business strategy, rule, and
procedures and the organization’s information systems.

The interdependence between organizations and information systems.

The Network Revolution and the Internet

The world’s largest and most widely used network is the Internet. The Internet is an International network
of networks that is a collection of private and public networks. World Wide Web is of special interest to
organizations and managers. Information is stored and displayed as electric “page” that can contain text,
graphics, animations, sound, and video. All of the Web page maintained by an organization or individual
are called a Web site.

New Options for Organizational Design: the digital firm and the networked enterprise
Flattening Organization
In digital firms, hierarchy and organizational levels do not disappear. But digital firms develop “optimal
hierarchies” that balance the decision-making load across an organization, resulting in flatter
organizations.

Deipak@HSM Page 8
Unit: Managing the Digital Firm MIS

Flattening organizations. Information systems can reduce the number of levels in an organization by
providing managers with information to supervise larger numbers of workers and by giving lower-level
employees more decision-making authority.

Separating Work from Location

Communications technology has eliminated distance as a factor for many types of work in many
situations. Collaborative teamwork across thousands of miles has become a reality as designers work on
a new product together even if they are located on different continents.

Reorganizing Workflows
Redesigned workflows can have a profound impact on organizational efficiency and can even lead to new
organizational structures, products, and services.

Increasing Flexibility of Organizations

Large organizations can use information technology to achieve some of the agility and responsiveness of
small organizations. Mass customization is use of software and computer networks to finely control
production so that products can be easily customized with no added cost for small production runs.

The Changing Management process

Information technology is recasting the management process, providing powerful new capabilities to help
managers plan, organize, lead, and control.

Redefining Organizational Boundaries

A key feature of the emerging digital firm is the ability to conduct business across firm boundaries almost
as efficiently as it can conduct business within the firm. Interorganizational systems is information system
that automate the flow of information across organizational boundaries and link a company to its
customers, distributors, or suppliers.

The Digital Firm: electronic commerce and electronic business

Electronic market is a marketplace that created by computer and communication technologies that link

Deipak@HSM Page 9
Unit: Managing the Digital Firm MIS

many buyers and sellers. Companies are also taking advantage of the connectivity and ease of use of
Internet technology to create internal corporate networks called intranets that are base on Internet
technology. Private intranet extended to authorized users outside the organization are called extranetsand
firm use such networks to coordinate their activities with other firm for electronic commerce and electronic
business.

Learning to Use Information System: New Opportunities with Technology

The Challenge of Information System: Key Management Issues

Although information technology is advancing at a blinding pace, there is nothing easy or mechanical
about building and using information systems. There are key challenges confronting managers:

The Strategic Business Challenge: Realizing the Digital Firm. How can businesses use information
technology to become competitive, effective, and digitally enabled?
Despite heavy information technology investments many organizations are not obtaining significant
business benefits, nor are they becoming digitally enabled. They will have to make fundamental changes
in organizational behavior, develop new business models, and eliminate the inefficiencies of outmoded
organizational structures.

The Globalization Challenge: How can firm understand the business and system requirements of a
global economic environment?
To develop integrated, multinational information systems, business must develop global hardware,
software, and communications standards and create cross-cultural accounting and reporting structures.

The Information Architecture and Infrastructure Challenge: How can organizations develop an
information architecture and information technology infrastructure that can support their goals when
business conditions and technologies are changing so rapidly?
Meeting the business and technology challenges of today’s digital economy requires redesigning the
organization and building new information architecture and information technology (IT) infrastructure.
Information infrastructure is the particular design that information technology take in a special
organization to achieve selected goals or functions.

The Information Systems Investment Challenge: How can organizations determine the business value of
information systems?
A major problem raised by the development of powerful, inexpensive computers involves not technology
but management and organizations. It’s one thing to use information technology to design, product,
deliver, and maintain new products.

The Responsibility and Control Challenge: How can organization ensure that their information systems
are used in an ethically and socially responsible manner?
Information systems have provided enormous benefit and efficiencies; they have also introduced new
problems and challenges of which managers should aware. Managers will also be faced with ongoing
problems of security and control.

Deipak@HSM Page 10
Unit: Managing the Digital Firm MIS

Information architecture and information technology infrastructure. Today’s managers must know how to
arrange and coordinate the various computer technologies and business system applications to meet the
information needs of each level of the organization, and the needs of the organization as a whole.

Integrating Text with Technology: new opportunities for learning

In addition to the changes in business and management that we have just described, we believe that
information technology creates new opportunities for learning that can make the MIS course more
meaningful and exciting.

Assignment: 1

Visit any nearest organization using IT and prepare a presentation report about that organization. Your
presentation should include introduction of the organization, a brief view of how organization has used IT
and what part of IT is it lacking.

th
NOTE: Presentation will held on 29 and 30 September 2013.

Deipak@HSM Page 11