Lecture 1-Information Systems in Business Today

Lecture 1
Information Systems in
Business Today
VIDEO – Did you Know ?
Sanjeeva Perera 01
Recommended Text
Management Information Systems, 12 Edition
Kenneth C. Laudon & Jane P. Laudon
Assessment
Issue Date to Submission Date by
Assessment Marks (%) Type of Assessment
Students Students
Assignment 1 30 Group Assignment : 20/07/2013 10/08/2013

Tesco Case Study
Assignment 2 30 Individual Assignment 03/08/2013 20/08/2013
Examination 40
Total 100
02
Learning Objectives
• Understanding the effects of information systems on business and

their relationship to globalization.
• Explain why information systems are so essential in business

today.
• Define an information system and describe its management,

organization, and technology components.
Contd…
02
Learning Objectives
• Define complementary assets and explain how they ensure that

information systems provide genuine value to an organization.
• Describe the different academic disciplines used to study

information systems and explain how each contributes to our
understanding of them.
• Explain what is meant by a socio-technical systems perspective.
04
Visit Nike ID – www.nikeid.com create
your own shoe
05
The Role of Information Systems in
Business Today
• How information systems are transforming business
Increase in wireless technology use, Web sites
Increased business use of Web 2.0 technologies
Cloud computing, mobile digital platform allow more distributed
work, decision-making, and collaboration
• Globalization opportunities
Internet has drastically reduced costs of operating on global
scale
Presents both challenges and opportunities
06
Business Today
Information Technology Capital Investment
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.
07
Information Technology Capital
Investment
• Information Technology Capital Investment
• Considering the context of a developing country like Sri Lanka, is
the internet a strategic choice for every firm or otherwise, should
every firm do business online?
08
Sri Lankan online business sites
09
10
11
12
Business Today
• In the emerging, fully digital firm
Significant business relationships are digitally enabled and
mediated
Core business processes are accomplished through digital
networks
Key corporate assets are managed digitally
• Digital firms offer greater flexibility in organization and

management
Time shifting, space shifting
13
Business Today
MIS IN YOUR POCKET
• What are the advantages of using mobile handheld devices?

What are the disadvantages?
• What features are needed in a mobile to make it a business

solution?
• What business functions can be performed by using handhelds

alone? How have other companies utilized handhelds?
14
Business Today
• Growing interdependence between ability to use information
technology and ability to implement corporate strategies and
achieve corporate goals
• Business firms 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
15
Business Today
• Operational excellence:
Improvement of efficiency to attain higher profitability
Information systems, technology an important tool in achieving

greater efficiency and productivity
Walmart’s RetailLink system links suppliers to stores for

superior refill system
16
Business Today
• 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 iPod, iTunes, iPhone, iPad, Google’s Android
OS, and Netflix
17
Business Today
• 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 use to monitor and customize environment
Intimacy with suppliers allows them to provide vital inputs,
which lowers costs
 Example: J.C.Penney’s information system which links sales
records to contract manufacturer
18
Business Today
• Improved decision making
Without accurate information:

 Managers must use forecasts, best guesses, luck
 Leads to:
 Overproduction, underproduction of goods and services
 Misallocation of resources
 Poor response times
 Poor outcomes raise costs, lose customers
 Example: Verizon’s Web-based digital dashboard to provide
managers with real-time data on customer complaints, network
performance, line outages, etc.
19
Business Today
• Operational excellence:
Improvement of efficiency to attain higher profitability
• New products, services, and business models:

Enabled by technology
• Customer and supplier intimacy:

Serving customers raises revenues and profits
Better communication with suppliers lowers costs
• Improved decision making

More accurate data leads to better decisions
20
Business Today
• Competitive advantage
Delivering better performance
Charging less for superior products
Responding to customers and suppliers in real time
Examples: Apple, Walmart, UPS
21
Business Today
• Survival
Information technologies as necessity of business
May be:
 Industry-level changes, e.g. Citibank’s introduction of ATMs
 Governmental regulations requiring record-keeping
 Examples: Toxic Substances Control Act, Sarbanes-Oxley Act
22
Strategic Alignment Model (SAM)
- components
External
Strategic Integration
Information
Business Technology
Strategy Strategy
Internal
Organisation IS Infrastructure
Infrastructure & & Processes
Processes
Business Domain IT Domain

Functional Integration 23
4 Strategic Domains
 Business strategy
– business scope (products, markets, customers)
– distinctive competence (differentiation features)
– business governance (alliances, partnerships etc.)
 Organisational infrastructure & processes

– administrative infrastructure (roles & relationships)
– processes (management style & activities)
– organisational skills
 IT strategy
– technology scope (IT capabilities, infrastructure)
– distinctive IT competence
– IT governance (IT collaboration/co-operation)
 IS infrastructure & processes

– applications infrastructure (systems)
– processes (IS methods & management)
– IS skills 24
Information
External
Strategic Integration
Business business Technology

Strategy products &
Strategy
services
business technology
transformation transformation
automation linkage
Internal
Organisation IS Infrastructure
Infrastructure & IS products & & Processes
services
Processes
Business Domain IT Domain

Functional Integration
25
Market research
Competitive analysis Global IT platform
Strategic options generation Make-or-buy decision
impact Information
Business
Technology
Strategy
Strategy
Strategic
transformation Alignment embedded
Process technology
Organisation IS
Infrastructure Infrastructure &
& Processes information
Processes
services
Communication Methods
Required skills Tools
Resources
26
Application of Strategic Alignment Model (SAM)
Why Should DSI Rajarata Tiles goes on line ?
www.dsitiles.com
One web, no show rooms, less cost
27
28
29
http://www.ft.lk/2013/04/22/fresh-effort-to-revive-near-dead-
roofing-tile-industry/
30
http://www.colombopage.com/archive_13A/Apr22_1366570782
CH.php
There are 256 small tile factories out of a total of 312 in the
Wennappuwa, Katana and Katugampola electorates and these
factories which sometime back manufactured Euro, Calicut and
other types of tiles started production again only after the Divi
Neguma programme began buying them.
According to the president of Samastha Lanka Clay Roofing Tiles

Manufacturers Association, Baptist Fernando, Sri Lanka's tile
industry directly employs 7,250 people while employing 15,000
indirectly. Another 178,000 depends on the industry for
livelihood.
31
www.dsitiles.com
One web, no show rooms, less cost
Can DSI have own showrooms ? Cost !!!
Can DSI sell roof tiles on other showrooms (Floor tiles & Wall tiles) ?
 Buying decision on roof tiles before floor tiles
 Why not produce old roof tiles ?
32
Business Today
The Interdependence Between Organizations and Information Technology
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.
33
Perspectives on Information Systems
• Information system:
Set of interrelated components
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
34
Data and Information
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.
35
• 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
36
• Feedback:
Output 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
37
Functions of an
Information System
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.
38
Information
Systems are More
Than Computers
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.
39
• Organizational dimension of information systems
Hierarchy of authority, responsibility
 Senior management
 Middle management
 Operational management
 Knowledge workers
 Data workers
 Production or service workers
Contd…
40
Levels in a Firm
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.
41
• Organizational dimension of information systems

Separation of business functions
 Sales and marketing
 Human resources
 Finance and accounting
 Manufacturing and production
Unique business processes
Unique business culture
Organizational politics
42
• 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 recreating the organization
43
• Technology dimension of information systems
Computer hardware and software
Data management technology
Networking and telecommunications technology

 Networks, the Internet, intranets and extranets, World Wide
Web
IT infrastructure: provides platform that system is built on
44
UPS COMPETES GLOBALLY WITH INFORMATION TECHNOLOGY
• What are the inputs, processing, and outputs of UPS’s package

tracking system?
• What technologies are used by UPS? How are these technologies

related to UPS’s business strategy?
• What problems do UPS’s information systems solve? What would

happen if these systems were not available?
45
• Dimensions of UPS tracking system
Organizational:
 Procedures for tracking packages and managing inventory and
provide information
Management:
 Monitor service levels and costs
Technology:
 Handheld computers, bar-code scanners, networks, desktop
computers, etc.
VIDEO CASE
Case 1: UPS Global Operations with the DIAD IV
46
• Business perspective on information systems:
Information system is instrument for creating value
Investments in information technology will result in superior

returns:
 Productivity increases
 Revenue increases
 Superior long-term strategic positioning
47
Identifying Business Opportunities to Use IS/IT
• DP applications only support cost leadership
• Strategic opportunities
– competitive advantage
• using IS/IT in relation to market forces
– strategic collaboration
• business alliances based on sharing IS/IT
Example: Exostar (Building a better fighter jet through secure
collaboration )
Exostar was established in 2000 by five of the worlds largest
aerospace and defense companies as a central hub for information
exchange- Video
– business diversification
• new products / services, channels of delivery using IS/IT
– market focus
• customer intelligence, customer communication
– management improvement
• business / management processes, structures
48
Methods for Identifying IS/IT Opportunities
Porter’s Industry Competition Model / Analysis (ICA)
• understand a basis for IS/IT planning
• use the method to develop IT mechanisms in support of business

strategies
Porter's Value Chain Model / Analysis (VC)
• understand the role of primary and secondary activities in a

typical business
• identify IS/IT opportunities to support business
49
Business strategy frameworks - using Porter’s
Industry Competition Model/Analysis (ICA)
Threat of
new entrants
The industry:
Bargaining power jockeying for Bargaining power
of suppliers position among of customers
rivals
Threat of
substitute products /
services
50
Business strategy frameworks - exploiting IT in
the competitive arena
Competitive force Potential of IT Mechanism

new entrants barriers to entry erect (rigid)
demolish (beat)
suppliers reduce power erode (eat into)
share
customers lock in switching costs
customer info.
substitute innovation new products
products/services add value
rivalry change the basis compete
collaborate
51
Forces and Contributor Factors
• industry growth
• high fixed costs or high storage
costs
Rivalry between • intermittent over-capacity
competitors • product differences, brand identity
and switching costs for customers
• the number of organisations and
their size
• diversity of competitors
• corporate stakes
52
Forces and Contributor Factors Cont’d
• government policy
• expected retaliation
• absolute cost advantage
Threat of new • access to distribution channels
entrants • switching costs for buyers
• economies of scale
• product differentiation and brand
loyalty
• capital requirements
53
Threat of substitutes • the relative price and performance of

substitutes
• switching costs for customers
• buyers’ tendency to substitutes
price sensitivity
The power of buyers • brand loyalty and differentiation
• the impact of the product in their product
• customer’s own profitability
• decision makers’ incentives (e.g. quality)
bargaining leverage
• buyer concentration and volume
• buyer switching costs
• buyer information
• threat of backward vertical integration by
buyers
• existence of substitutes
54
• Switching costs of changing to an

alternative supplier
• availability of substitute suppliers
The power of • supplier concentration
suppliers • the importance of volume to suppliers
• cost relative to the purchasing industry’s
total costs
• the impact of product to cost or
differentiation
• the threat of forward integration by
suppliers
55
Porter Competitive Model
- Airline industry analysis: North American Market
 Aircraft manufacturers
 Aircraft leasing companies  Foreign carriers
 Labor unions
Potential  Regional carrier start-ups
 Food service companies New  Cargo carrier business
 Airports Entrants  Strategy change
 Local transportation service
 FAA (Air traffic controllers
 Hotels
Bargaining Intra-industry Rivalry Bargaining
SBU: American Airlines
Power of Power of
Rivals: Untied, Delta, User,
Suppliers Northwest, Southwest Customers
 Travel Agents
 Alternate travel services  Business Travelers
 fast trains Substitute  Pleasure Travelers
 boats  Charter service
 Private transportation
Products and
 U.S military
 Video-conferencing Services  Cargo and mail
56
• Business information value chain
Raw data acquired and transformed through stages that add

value to that information
Value of information system determined in part by extent to

which it leads to better decisions, greater efficiency, and higher
profits
• Business perspective:
Calls attention to organizational and managerial nature of

information systems
57
The Business Information Value Chain
From a business perspective, information systems are part of a series of value-

adding activities for acquiring, transforming, and distributing information that
managers can use to improve decision making, enhance organizational performance,
and, ultimately, increase firm profitability.
58
(Porter, 1985)
Generic Value Chain Model
Support Activities
Firm Infrastructure
Human Resource Management
Technology Development
Margin
Procurement
Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales
Primary Activities
59
Generic Value Chain Model (cont.)
Inbound logistics - receiving, storing, and disseminating inputs (raw
material) to the product
Operations - machining, assembling, and testing the products
Outbound logistics - warehousing and distributing finished products to

customers
Marketing & sales - advertising, promoting, pricing, channel relations
Procurement - input used in firm’s value chain
Technology development - technology used for operations (incl. IT)
Human resource management - recruiting, hiring, training, development &

compensation of employees
Firm infrastructure - planning, accounting and finance, legal, community

affairs, government regulations and quality management
60
Value Chain Analysis for Manufacturing Firms
Firm Infrastructure
Support Activities
(general management, accounting, finance, strategic planning)

(recruiting, training, development)
(R & D, product and process improvement)
Margin
Procurement
(purchasing of raw materials, machines, supplies
Inbound Operations Outbound Marketing & Service
Logistics Logistics Sales
(raw materials (machining, (warehousing (advertising, (installat-ion,
handling and assembling, and promoting, repair
warehousing) testing products) distribution of pricing, parts)
finished channel
products) relations)
Primary Activities
61
Value Chain Analysis
• Analysis of competitive potential through VC

– contribute to relative cost position
– create potential for differentiation
– indicate focus for products / services
Value created should exceed cost of the activities
• Activities add value to firms’ products/services
– designing
– producing
– marketing
– delivering
– supporting
These are physically & technologically distinct activities
62
Where & When IS/IT Used to Support Business?
• IS/IT makes activity more efficient?

– less time/money/people
• IS/IT improves efficiency of primary activities?

– better automation/coordination
• IS/IT improves effectiveness of secondary activities?

– better information/transformation
• IS/IT affects relationship of primary & secondary

activities?
– re-engineering/restructuring systems
63
Strategic IS Applied to Firms’ Business Processes
Firm Infrastructure
Support Activities
Collaborative Work Systems, Administrative Coordination and Support

Systems
Employee Skills Database Systems, ERP
Computer-Aided Engineering and Design, ERP (SAP)
Competitive
Advantage
Procurement
EDI, Internet, E-Commerce (supply-chain)
Inbound Operations Outbound Marketing & Service
Logistics Logistics Sales
Automated Just- CA/CAD On-Line Interactive Help Desk
In-Time CIM Point-of- targeted Expert
warehousing (Com. Integrated Sale and marketing systems
Manuf.)
Ordering (Internet, E-
processing Commerce)
Primary Activities
64
• Investing in information technology does not guarantee good

returns
• Considerable variation in the returns firms receive from systems
investments
• Factors:
Adopting the right business model
Investing in complementary assets (organizational and
management capital)
65
• Complementary assets:
Assets required to derive value from a primary investment
Firms supporting technology investments with investment in

complementary assets receive superior returns
Example: invest in technology and the people to make it work

properly
66
• Complementary assets include:

Organizational assets, e.g.
 Appropriate business model
 Efficient business processes
Managerial assets, e.g.
 Incentives for management innovation
 Teamwork and collaborative work environments
Social assets, e.g.
 The Internet and telecommunications infrastructure
 Technology standards
67
Contemporary Approaches to Information
Systems
Contemporary
Approaches to
Information
Systems
The study of
information systems
deals with issues and
insights contributed
from technical and
behavioral disciplines.
68
Systems
• Technical approach
Emphasizes mathematically based models
Computer science, management science, operations research
• Behavioral approach
Behavioral issues (strategic business integration,
implementation, etc.)
Psychology, economics, sociology
69
Systems
• Management Information Systems
Combines computer science, management science, operations

research and practical orientation with behavioral issues
• Four main actors
Suppliers of hardware and software
Business firms
Managers and employees
Firm’s environment (legal, social, cultural context)
70
Systems
• Approach of my lectures: Sociotechnical view
Optimal organizational performance achieved by jointly

optimizing both social and technical systems used in production
Helps avoid purely technological approach
71
Systems
A Sociotechnical Perspective on Information Systems
In a sociotechnical perspective, the performance of a system is optimized when both

the technology and the organization mutually adjust to one another until a satisfactory
fit is obtained.
72
Example for Sociotechnical view
Definition of Communication
Def of communication
• Use of symbols to transfer the meaning of information.
The continuum (band, range) of communication in organizational
behavior.
Communication media Interpersonal Nonverbal

and technology communication communication
Interpersonal communication is communication between

two or more people in an organization.
73
Nonverbal Communication
(some times called “silent language”)
• Defined as “nonword human response (such as gestures, facial
expressions) and the perceived characteristics of the environment
through which the human verbal and nonverbal messages are
transmitted”.
Nonverbal communication - Video
74
Nonverbal Communication cont’d
Body Language and Paralanguage
Body Language
• Facial expressions
• Eyes
• Feet
• Hands
• Posture
• E.g. Good salespeople, advertisers capitalized on their
knowledge of people’s eyes.
75
Nonverbal Communication cont’d

Paralanguage
• Voice quality
• Tone
• Volume
• Speech rate
• Pitch
• Nonfluencies (“ah”, “um”, or “uh”)
• Laughing
• Yawning
76
Communication Media: Information

Richness and Data Capacity
77
Other important variables in interpersonal

• Trust
communication
• Expectations
• Values
• Status
• Compatibility
Generation gap can play havoc with interpersonal communication

(Status differentials and incompatibilities)
78
Questions ?
79

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Lecture 1

VIDEO – Did you Know ?

Assignment 1 30 Group Assignment : 20/07/2013 10/08/2013

Assignment 2 30 Individual Assignment 03/08/2013 20/08/2013

• Understanding the effects of information systems on business and

• Explain why information systems are so essential in business

• Define an information system and describe its management,

• Define complementary assets and explain how they ensure that

• Describe the different academic disciplines used to study

• Explain what is meant by a socio-technical systems perspective.

Information technology capital investment, defined as hardware, software, and

• Digital firms offer greater flexibility in organization and

• What are the advantages of using mobile handheld devices?

• What features are needed in a mobile to make it a business

• What business functions can be performed by using handhelds

• Business firms invest heavily in information systems to achieve

Improvement of efficiency to attain higher profitability

Information systems, technology an important tool in achieving

Walmart’s RetailLink system links suppliers to stores for

• New products, services, and business models:

Business model: describes how company produces, delivers, and

Information systems and technology a major enabling tool for

• Customer and supplier intimacy:

Serving customers well leads to customers returning, which

Without accurate information:

• New products, services, and business models:

• Customer and supplier intimacy:

• Improved decision making

Delivering better performance

Charging less for superior products

Responding to customers and suppliers in real time

Examples: Apple, Walmart, UPS

Information technologies as necessity of business

Business Domain IT Domain

 Organisational infrastructure & processes

 IS infrastructure & processes

Business business Technology

Business Domain IT Domain

According to the president of Samastha Lanka Clay Roofing Tiles

In contemporary systems there is a growing interdependence between a firm’s

• Information vs. data

Data and Information

• Three activities of information systems produce information

Input: Captures raw data from organization or external

Processing: Converts raw data into meaningful form

Output: Transfers processed information to people or activities

Output returned to appropriate members of organization to help

• Computer/Computer program vs. information system

Computers and software are technical foundation and tools,

• Organizational dimension of information systems

Hierarchy of authority, responsibility

• Organizational dimension of information systems

• Management dimension of information systems

Managers set organizational strategy for responding to business

In addition, managers must act creatively:

 Creation of new products and services

• Technology dimension of information systems

Computer hardware and software

Data management technology

Networking and telecommunications technology

UPS COMPETES GLOBALLY WITH INFORMATION TECHNOLOGY

• What are the inputs, processing, and outputs of UPS’s package

• What technologies are used by UPS? How are these technologies

• What problems do UPS’s information systems solve? What would