FoIS 8e-Ch01

Ralph M. Stair | George W.
Reynolds
Chapter 1
An Introduction to Information
Systems
© 2016 Cengage Learning®. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.
Principles and Learning Objectives:
Working Knowledge
• Knowing the potential impact of

information systems and having the ability
to put this knowledge to work can result in
a successful personal career and in
organizations that reach their goals
– Identify the basic types of business
information systems and discuss who uses
them, how they are used, and what kinds of
benefits they deliver
2
Realizing the Benefits
• Information systems must be applied

thoughtfully and carefully so that society,
businesses, and industries can reap their
enormous benefits
– Identify key issues and challenges that must
be overcome to be successful in the global
marketplace
3
Benefits and Problems
• Information systems must be applied

thoughtfully and carefully so that society,
businesses, and industries can reap their
enormous benefits
– Identify significant benefits as well as
problems and issues associated with
information systems
4
Support Business Goals
• Information systems must be implemented

in such a manner that they are accepted
and work well within the context of an
organization and support its fundamental
business goals and strategies
– Define the term “value chain” and describe
the role that information systems play in an
organization’s supply chain
5
Working Within the Organization’s Context
• Information systems must be implemented

in such a manner that they are accepted
and work well within the context of an
organization and support its fundamental
business goals and strategies
– Identify and briefly describe two change
models that can be used to increase the
likelihood of successfully introducing a new
information system into an organization
6
Competitive Advantage
• Because information systems are so

important, businesses need to be sure that
improvements or completely new systems
help lower costs, increase profits, improve
service, or achieve a competitive
advantage
– Define the term “competitive advantage” and
identify the factors that lead firms to seek
competitive advantage
7
Assessing an IS Project
• Because information systems are so

important, businesses need to be sure that
improvements or completely new systems
help lower costs, increase profits, improve
service, or achieve a competitive
advantage
– Describe three methods for assessing the
financial attractiveness of an information
system project
8
Worker Functions
• The information system worker functions

at the intersection of business and
technology and designs, builds, and
implements solutions that allow
organizations to effectively leverage
information systems
– Define the types of roles, functions, and
careers available in the field of information
systems
9
Why Learn About Information Systems?
• Information systems are used in almost

every profession, including:
– Entrepreneurs
– Small companies to large multinationals
– Accounting, marketing, management
• Information systems are indispensable
tools to help you to achieve your career
goals
10
Introduction
• Information system (IS): a set of

interrelated components that collect,
manipulate, and disseminate data and
information and provide feedback to meet
an objective
• Information system feedback can help
organizations:
– Achieve their goals
– Increase revenues and reduce costs
11
Information Concepts
• Information
– One of an organization’s most valuable
resources
– Often confused with the term data
12
Data, Information, and Knowledge
• Data: raw facts

• Information: collection of facts organized in
such a way that they have value beyond
the facts themselves
• Process: set of logically related tasks
performed to achieve a defined outcome
13
Data, Information, and Knowledge
(cont’d.)
• Knowledge: awareness and understanding

of a set of information and the ways it can
be made useful to support a task
14
Table 1.1 Types of Data
Data Represented By
Alphanumeric data Numbers, letters, and other
characters
Audio data Sounds, noises, or tones
Image data Graphic images and pictures
Video data Moving images or pictures
15
Data and Information
16
Process of Transforming Data
into Information
17
The Characteristics of Valuable
Information
• The value of information is directly linked

to how it helps decision makers achieve
their organization’s goals
• Accuracy and completeness are critical for
data used in accounting for the
management of company assets, e.g.,
cash, inventory, and equipment
18
Table 1.2 Characteristics of Valuable
Information
Characteristics Definitions
Accessible Information should be easily accessible by authorized users so they can obtain it
in the right format and at the right time to meet their needs.
Accurate Accurate information is error free. In some cases, inaccurate information is
generated because inaccurate data is fed into the transformation process. This is
commonly called garbage in, garbage out (GIGO).
Complete Complete information contains all the important facts. For example, an
investment report that does not include all important costs is not complete.
Economical Information should also be relatively economical to produce. Decision makers
must always balance the value of information with the cost of producing it.
Flexible Flexible information can be used for a variety of purposes. For example,
information on how much inventory is on hand for a particular part can be used
by a sales representative in closing a sale, by a production manager to determine
whether more inventory is needed, and by a financial executive to determine the
total value the company has invested in inventory.
Relevant Relevant information is important to the decision maker. Information showing
that lumber prices might drop might not be relevant to a computer chip
manufacturer.
19
Table 1.2 Characteristics of Valuable
Information (cont’d.)
Characteristics Definitions
Reliable Reliable information can be trusted by users. In many cases, the reliability of the
information depends on the reliability of the data-collection method. In other
instances, reliability depends on the source of the information. A rumor from an
unknown source that oil prices might go up might not be reliable.
Secure Information should be secure from access by unauthorized users.
Simple Information should be simple, not complex. Sophisticated and detailed
information might not be needed. In fact, too much information can cause
information overload, whereby a decision maker has too much information and is
unable to determine what is really important.
Timely Timely information is delivered when it is needed. Knowing last week’s weather
conditions will not help when trying to decide what coat to wear today.
Verifiable Information should be verifiable. This means that you can check it to make
sure it is correct, perhaps by checking many sources for the same
information.
20
What is an Information System?
• An information system (IS) is a set of

interrelated elements that:
– Collect (input)
– Manipulate (process)
– Store
– Disseminate (output) data and information
– Provide a corrective reaction (feedback
mechanism) to meet an objective
21
Components of an Information System
22
Input, Processing, Output, Feedback
• Input: activity of gathering and capturing

raw data
• Processing: converting data into useful
outputs
• Output: production of useful information
– Usually in the form of documents and reports
• Feedback: information from the system
– Used to make changes to input or processing
activities
23
Computer-Based Information Systems
(CBIS)
• Single set of hardware, software,

databases, telecommunications, people,
and procedures
– Configured to collect, manipulate, store, and
process data into information
• Increasingly, companies are incorporating
CBIS into their products and services
– Example: investment tools for clients of
Fidelity Investments
24
Technology Infrastructure
• All the hardware, software, databases,

telecommunications, people, and
procedures configured to collect,
manipulate, store, and process data into
information
• A set of shared resources that form the
foundation of each CBIS
25
Components of a CBIS
26
CBIS: Hardware, Software, and
Databases
• Hardware: computer equipment used to

perform input, processing, storage, and
output activities
• Software: computer programs that govern
the operation of the computer
• Database: organized collection of facts
and information
– Typically consists of two or more related data
files
27
CBIS: Telecommunications, Networks, and
the Internet
• Telecommunications: electronic
transmission of signals for
communications
• Networks connect computers and
equipment enabling electronic
communication
• Internet: world’s largest computer network
– Thousands of interconnected networks
28
CBIS: Cloud-Computing and the Web
• Cloud-computing environment:
– Provides software and data storage via the
Internet in order to:
• Run services on another organization’s computer
hardware
• Easily access software and data
• World Wide Web (WWW or Web)
– Network of links on the Internet to documents
containing text, graphics, video, and sound
29
CBIS: Intranets and Extranets
• Intranet: internal network that allows

people within an organization to exchange
information and work on projects
• Extranet: network based on Web
technologies
– Allows selected outsiders, e.g., business
partners and customers, to access authorized
resources of a company’s intranet
30
CBIS: People and Procedures
• People are the most important element in

most computer-based information systems
• Procedures: strategies, policies, methods,
and rules for using a CBIS
31
Business Information Systems
• Most common types of information

systems:
– Systems for electronic and mobile commerce,
transaction processing, management
information, and decision support
• Special-purpose systems are utilized by
some companies
– Example: virtual reality
32
Business Information Systems (cont’d.)
33
Electronic and Mobile Commerce
• E-commerce: business transactions

executed electronically
– Business-to-business (B2B)
– Business-to-consumer (B2C)
– Consumer-to-consumer (C2C)
– Between business and the public sector
– Between consumers and the public sector
34
Mobile Commerce, E-commerce, and
Electronic Business
• Mobile commerce (m-commerce): the use

of mobile, wireless devices to place orders
and conduct business
• E-commerce offers many advantages for
streamlining work activities
• Electronic business (e-business) uses
information systems and the Internet to
perform all business-related tasks and
functions
35
Electronic Commerce
Electronic Business (E-business)
37
Enterprise Systems: Transaction
Processing Systems
• Transaction
– Any business-related exchange, such as
payments to employees and sales to
customers
• Transaction processing system (TPS)
– An organized collection of people,
procedures, software, databases, and devices
– Used to perform and record completed
business transactions
38
Integrated Transaction Processing System
Enterprise Systems: Enterprise Resource
Planning
• Enterprise resource planning (ERP)

system
– A set of integrated programs
– Manages the vital business operations for an
entire multisite, global organization
• Most ERP systems provide integrated
software to support manufacturing and
finance
40
Information and Decision Support
Systems
• Management information system (MIS)

– Organized collection of people, procedures,
software, databases, and devices
– Provides routine information to managers and
decision makers
– Focuses on operational efficiency
– Provides standard reports generated with
data and information from the TPS or ERP
41
Management Information System
42
Decision Support System (DSS)
• An organized collection of people,

procedures, software, databases, and
devices that support problem-specific
decision making
– Focus is on making effective decisions
• A DSS can include the following:
– Model base
– Database
– User interface or dialogue manager
43
Essential DSS Elements
44
Specialized Business Information
Systems: Knowledge Management
• Knowledge management systems (KMSs)

– An organized collection of people,
procedures, software, databases, and devices
– Create, store, share, and use the
organization’s knowledge and experience
45
Knowledge Management Process
Specialized Business Information
Systems: Artificial Intelligence (AI)
• A computer system takes on

characteristics of human intelligence
• Examples of AI applications: games,
medical diagnoses, and automobile
operation
47
Major Branches of Artificial
Intelligence
48
Artificial Intelligence Subfields
• Robotics: machines take over complex,

dangerous, routine or boring tasks
• Vision systems allow devices to see, store
and process images
• Natural language processing involves
computers understanding and acting on
verbal or written commands
49
Artificial Intelligence Subfields (cont’d.)
• Learning systems allow computers to learn

from past mistakes or experiences
• Neural networks allow computers to
recognize and act on patterns or trends
50
Expert Systems and Virtual Reality
• Expert systems give computers the ability

to make suggestions and function like an
expert in a particular field
– Knowledge base contains data, rules,
procedures, and relationships used by expert
system
• Virtual reality: simulation of a real or
imagined environment that can be
experienced visually in three dimensions
51
Systems Development
• The activity of creating or modifying

existing business systems
• Future projects in systems development
– Applying analytics to large amounts of data
– Leveraging advantages of cloud computing
– Creating more mobile applications
• Companies may outsource some or all of
a systems development project
52
Systems Development Life Cycle
53
Systems Development: Investigation,
Analysis, and Design
• Systems investigation: gain clear

understanding of the specifics of the
problem to be solved or the opportunity to
be addressed
• Systems analysis
– Study the existing system to uncover its
strengths and weaknesses
– Identify what the new system must do to meet
the needs of the users and the organization
54
System Design
• Determine how the new system must work

• Identify what inputs are required
• Ascertain what outputs must be produced
55
Systems Development: Development
• Convert the system design into an

operational information system
– Acquire and install hardware and software
– Code and test software programs
– Create and load data into databases
– Perform initial program testing
56
Systems Development: Integration and
Testing
• Link together all the components of the

system
– Demonstrates that the system as a whole
does indeed meet the user and business
requirements
57
Systems Development: Implementation
• Install the new system into the actual

production computer environment in which
it is expected to run
• Resolve any problems uncovered in
integration and testing
58
Systems Development: Operation,
Maintenance, and Disposition
• Operation and maintenance: identify and

make necessary changes to the system
• Disposition: activities at the end of the
useful life of the system
– Extract data from the system’s database
– Convert data to new format for the
replacement system
59
Organizations and Information Systems
• Organization: a group of people that is

structured and managed to meet its
mission or set of group goals
• An organization constantly uses money,
people, materials, machines and other
equipment, data, information, and
decisions
60
General Model of an Organization
61
Organizations and Information Systems:
Value Chain
• Value chain: a series (chain) of activities

that an organization performs to transform
inputs into outputs
– The value of the input is increased
• Supply chain: key value chain in a
manufacturing organization
62
Supply Chain
63
Innovation
• A catalyst for the growth and success of

an organization
• Innovation and change are absolutely
required in today’s highly competitive
global environment
• Types of innovation
– Sustaining innovation
– Disruptive innovation
64
Diffusion of Innovation Theory
• A theory developed by E.M. Rogers

• Explains how a new idea or product gains
acceptance and diffuses (or spreads)
through a specific population or subset of
an organization
65
Innovation Diffusion
66
Table 1.3 Five Categories of Innovation
Adopters
Adopter Characteristics Strategy to Use
Category
Innovator Risk takers, always the first to try Simply provide them with access
new products and ideas to the new system and get out of
their way
Early adopter Opinion leaders whom others Provide them assistance getting
listen to and follow, aware of the started
need for change
Early majority Listen to and follow the opinion Provide them with evidence of
leaders the system’s effectiveness and
success stories
Late majority Skeptical of change and new ideas Provide them data on how many
others have tried this and have
used it successfully
Laggards Very conservative and highly Have their peers demonstrate how
skeptical of change this change has helped them and
bring pressure to bear from other
adopters
67
Organizational Change
• Organizational change: How for-profit and

nonprofit organizations plan for,
implement, and handle change
• Causes leading to change
– Internal factors, e.g., those initiated by
employees
– External factors, e.g., economic conditions
– Merging of two or more organizations
Organizational Change: Leavitt’s Diamond
• A theory that proposes that every

organizational system is made up of four
main components—people, tasks,
structure, and technology—with an
interaction among the four components
– Any change in one of these elements will
necessitate a change in the other three
elements
69
Leavitt’s Diamond
70
• Significant and ideally long-term benefit to

a company over its competition
• Firms that gain a competitive advantage
often emphasize the alignment of
organizational goals and IS goals
71
Factors That Lead Firms to Seek
• The five forces model identifies five key

factors:
1. Rivalry among existing competitors
2. Threat of new entrants
3. Threat of substitute products and services
4. The bargaining power of buyers
5. The bargaining power of suppliers
72
Rivalry and New Entrants
• Rivalry among existing competitors

– Industries characterized by high fixed costs of
entering or leaving the industry, low degrees
of product differentiation, and many
competitors
• Threat of new entrants occurs when:
– Entry and exit costs to an industry are low
– Technology needed to start and maintain a
business is commonly available
73
Substitute Products and Services
• The more consumers can obtain similar

products and services that satisfy their
needs, the more likely firms are to try to
establish competitive advantage
74
Bargaining Powers of Customers and
Suppliers
• When customers have a lot of bargaining

power, companies increase their
competitive advantage to retain their
customers
• When the bargaining power of suppliers is
strong, companies need to improve their
competitive advantage to maintain their
bargaining position
75
Strategic Planning for Competitive
Advantage
• Strategies to attain competitive advantage

– Cost leadership
– Differentiation
– Niche strategy
– Altering the industry structure, e.g., forming a
strategic alliance (strategic partnership)
– Creating new products and services
– Improving existing product lines and service
76
Strategic Planning for Competitive
Advantage (cont’d.)
• Other strategies
– Growth in sales
– First to market
– Customizing products and services
– Hiring the best people
– Having agile information systems
– Combine two or more strategies
77
Financial Evaluation of Information
System Projects
• Cash flow: takes into account all the

increases and decreases in cash flow
associated with the project
• Time value of money: takes into account
the fact that a dollar today is worth more
than a dollar paid in the future
78
Table 1.4 Examples of Increases and
Decreases in Cash Flow
Type Examples (not exhaustive)
Increases in Any new revenue, such as additional sales generated and capture of
cash flow income earned but not collected under the old methods
Any cost savings associated with the project, such as savings from
reduction in staff, equipment rental fees, and outsourcing fees
Tax reduction generated from depreciation associated with any capital

expenditures
Decreases in Any capital investment required to buy equipment, software, or office
cash flow space
All ongoing operating costs such as equipment rental, software, office
space, additional staff required to operate or support the system, and
training of personnel
All ongoing maintenance costs for equipment and software
79
Financial Evaluation: Payback Period
• Payback period: takes into account all the

increases and decreases in cash flow
associated with the project
• Problems with this evaluation
– Time value of money is not considered
– Cash flows beyond the payback period are
not included
80
Financial Evaluation: Internal Rate of
Return
• Internal rate of return: the rate of return

that makes the net present value of all
cash flows (benefits and costs) generated
by a project equal to zero
• Most organizations set a “hurdle rate” for
evaluating projects
81
Global Challenges in Information Systems
• Cultural challenges and language

• Time and distance challenges
• State, regional, and national laws
82
Information Systems in Business and
Society
• Benefits
– Increased profits
– Improved goods and services
– Improved quality of life
• Problems and issues
– Computer waste and mistakes
– Computer crime and privacy issues
– Work environment issues and ethical issues
Careers in Information Systems
• Successful IS workers must:

– Enjoy working in a fast-paced, dynamic
environment
– Meet deadlines and solving unexpected
challenges
– Possess good communication skills
– Have solid analytical and decision-making
skills
84
Successful IS Workers’ Traits (cont’d.)
– Develop effective team and leadership skills

– Be adept at implementing organization
change
– Be prepared to engage in life-long learning
85
Important Skills for IS Workers
• Mobile applications for smartphones,

tablet computers, and other mobile
devices
• Program and application development
• Help desk and technical support
• Project management
• Networking
86
Important Skills for IS Workers (cont’d.)
• Business intelligence
• Security
• Web 2.0
• Data center
• Telecommunications
87
Occupational Outlook for Selected
Information Systems Positions
88
Roles, Functions, and Careers in IS
• In addition to technical skills, IS

professionals need:
– Skills in written and verbal communication
– An understanding of organizations and the
way they operate
– The ability to work with people and in groups
89
Three Primary Functions of the
Information Systems Organization
90
Typical IS Titles and Functions
• Chief information officer (CIO) employs the

IS department’s equipment and personnel
to help the organization attain its goals
• Senior IS Managers
– Vice president of information systems
– Manager of information systems
– Chief technology officer (CTO)
91
Typical IS Titles and Functions:
Operations Roles
• Data center managers are responsible for

the maintenance and operation of the
organization’s computing facilities
• Operations group includes:
– Data center managers
– System operators
– Information system security analysts
– LAN administrators
92
Typical IS Titles and Functions:
Development Roles
• The development group implements the

new information systems required to
support the organization’s existing and
future business
• The development group includes:
– Software developers
– Systems analysts
– Programmers
– Web developers
93
Typical IS Titles and Functions: Support
• Provides customer service for the

employees, customers, and business
partners
• The support group includes:
– Database administrators (DBAs)
– Help desk support specialists
94
Certification
• A process for testing skills and knowledge

– Results in a statement by the certifying
authority that confirms an individual is capable
of performing particular tasks
• Frequently involves specific, vendor-
provided or vendor-endorsed coursework
95
IS Careers in Technology Organizations
• Consulting opportunities
• Computer training
• Computer and computer-equipment sales
• Computer repair and maintenance
• Many other related careers
96
Working in Teams
• Most IS careers involve working in project

teams that can consist of many of the
positions and roles
• It is always good for IS professionals to
have good communications skills and the
ability to work with other people
97
Finding a Job in IS
• Developing an online résumé can be

critical to finding a good job
• The Internet
– Online job sites
– Company Web sites
– Social networking sites
• Informal networks of colleagues or
business acquaintances
98
Summary – Principle 1
• Information systems are sets of

interrelated elements that collect (input),
manipulate and store (process), and
disseminate (output) data and information
• The components of a computer-based
information system (CBIS) include:
– Hardware, software, databases,
telecommunications, people, and procedures
Summary – Principle 1 (cont’d.)
• E-commerce involves any business

transaction executed electronically
between parties
• Transaction processing system (TPS)
– Handles the large volume of business
transactions that occur daily within an
organization
• A management information system (MIS)
uses the information from a TPS
• Systems development: creating or

modifying existing business systems
• Effective information systems can have a
major impact on corporate strategy and
organizational success
• Success in global markets is imperative
today
– Along with opportunities, global markets also
present obstacles, issues, and challenges
• Organizations are systems with inputs,

transformation processes, outputs, and
feedback data used to monitor and control
• The value chain is a series of activities
that an organization performs to transform
inputs into outputs
– The value of the input is increased
• Innovation is the catalyst for the growth
and success of any organization
Summary – Principle 3 (cont’d.)
• Organizational change deals with how

organizations successfully plan for and
implement change
• Diffusion of innovation theory
– Adoption of any innovation does not happen
all at once for all people
• Organizations use information systems to
support their goals
• Competitive advantage is a significant and

ideally long-term benefit to a company
over its competition
• Financial analysis is performed to
determine whether a specific information
system project is worth doing
• Successful information system workers

need to have a variety of personal
characteristics and skills
• Technology is one of the fastest growing
areas in the U.S. economy, which has a
strong demand for IS workers
• The IS organization has three primary
functions: operations, development, and
support

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Ralph M. Stair | George W.

• Knowing the potential impact of

• Information systems must be applied

• Information systems must be applied

• Information systems must be implemented

• Information systems must be implemented

• Because information systems are so

• Because information systems are so

• The information system worker functions

• Information systems are used in almost

• Information system (IS): a set of

• Data: raw facts

• Knowledge: awareness and understanding

• The value of information is directly linked

• An information system (IS) is a set of

• Input: activity of gathering and capturing

• Single set of hardware, software,

• All the hardware, software, databases,

• Hardware: computer equipment used to

• Intranet: internal network that allows

• People are the most important element in

• Most common types of information

• E-commerce: business transactions

• Mobile commerce (m-commerce): the use

• Enterprise resource planning (ERP)

• Management information system (MIS)

• An organized collection of people,

• Knowledge management systems (KMSs)

• A computer system takes on

• Robotics: machines take over complex,

• Learning systems allow computers to learn

• Expert systems give computers the ability

• The activity of creating or modifying

• Systems investigation: gain clear

• Determine how the new system must work

• Convert the system design into an

• Link together all the components of the

• Install the new system into the actual

• Operation and maintenance: identify and

• Organization: a group of people that is

• Value chain: a series (chain) of activities

• A catalyst for the growth and success of

• A theory developed by E.M. Rogers

• Organizational change: How for-profit and

• A theory that proposes that every

• Significant and ideally long-term benefit to

• The five forces model identifies five key

• Rivalry among existing competitors

• The more consumers can obtain similar

• When customers have a lot of bargaining

• Strategies to attain competitive advantage

• Cash flow: takes into account all the

Tax reduction generated from depreciation associated with any capital

All ongoing maintenance costs for equipment and software

• Payback period: takes into account all the

• Internal rate of return: the rate of return

• Cultural challenges and language

• Successful IS workers must:

– Develop effective team and leadership skills

• Mobile applications for smartphones,

• In addition to technical skills, IS

• Chief information officer (CIO) employs the

• Data center managers are responsible for