Chapter 2

CHAPTER TWO
ORGANIZATION
AND
INFORMATION SYSTEMS
Chapter II – Organization & IS
2.1. Organization, Management

& Decision Making Process
• Organization: Definition
• Features of Organization
• Levels of Management, Decision Types and Information
Requirements
2.1.1. Organization
 Definition of Organization:
 collection of people working together in a coordinated and structured
fashion to achieve one or more goals.
 A process:
 Work – designed and grouped
 Responsibility & Authority – defined & delegated
 Relationships – established
 Resources (Capital & labor) taken from environment  processed

 Output to Environment
 Legal entity: Internal rules & procedures; legal capacity (contracts,

obligations, incur & pay debt, sue & be sued….)
2.1.2. Features of Organization
 Internal Features
 Management/Employees
 Routines:
 Sequence of actions regularly followed (rules, procedures, practices)
 Processes:
 Collection of routines (Firm = collection of business processes)
 Information System  routines and business processes
 Organizational Culture:
 Shared assumptions, values & beliefs: what is appropriate and
not (behavior); about what, how, where and for whom to produce
 Unifying force
 Interaction – each other, clients, stakeholders
 Restraint to technological change if it threatens the basic
assumptions
2.1.2. Features of Organization
 Internal
Features
 OC types 
 good innovative, risk taking, result oriented,

teamwork/participation, freedom of speech
(speaking your mind)
 Bad poor internal communication (lack of team

spirit); bad habits (coming to work late); focus on
profit (not focusing on employee engagement)
 high turnover and decrease in motivation
Org. Features
 Internal (Cont’d)
 Politics –
 View points – how resources, rewards,
punishments distributed  competition & conflict;
 finding ways to gain advantage (access to resources,
preferential treatment, power, etc.)
 Resistance to change – IS investment
 Positive– popularity, clearly defined hierarchy and roles,
intelligence and quality of ideas, performance and track
record,
Org. Features
 Internal (Cont’d)
 Politics –
 Negative– spreading rumors, Leaking confidential
information for the media, exchange of favors for mutual
benefit, lobbying on behalf of or against a particular
decision alternative.
 Structure:
 lines of authority/reporting; workflow
 Any IS reflect the existing organizational structure –
functional area based IS
Org. Features
 External - Environment
 Economic
 DD/SS, inflation, unemployment
 Technological
 methods/tools
 socio-cultural
 customs, values,
 Demographic – nationality, education status, religion, ethnicity, age composition,
…..
 political-legal
 Gov’t – business relationship, regulations
 International
 Trade, Foreign Direct Investment (FDI)  impact
 Role of IS:  environmental scanning (external changes & react)
Org. Features
2.1.3. Levels of Management and Information
 Unstructured (Top level):
 Entrance or Exit from the market;
 approving capital budget;
 setting long term goal.
 Semi-structured (Middle level):

 designing marketing plan;
 developing departmental budget.
 Structured (Operational level):

 Determining overtime eligibility,
 restock inventory,
 offer credit to customer.
2.1.3. Levels of Management and Information

Functions, Information Requirement &
Decision Structure Information System
policies, long term plans, objectives, budget framework
Unstructured
• Info: Low volume, highly aggregated, Not
Decision under uncertain
situation – undefined I, O, Top current, approximate, futuristic, more external,
Procedures • IS: DSS, ESS, AI (Expert Systems)
Short-medium term planning, budget control, sales

Semi-structured management, inventory control, resource allocation,
Middle
Some I, O, scheduling, measurement of performances
Procedures not • Info: Intermediate level of volume,
well defined aggregation, current, accuracy and more of
internal, etc.
• IS: MIS
short-range planning, production schedules, day-to-day decisions ,
Bottom use of resources, enforce polices, follow procedures
Structured
Well defined • Info: High volume, low level of
decision making aggregation, high currency, high
procedure accuracy, entirely internal, etc.
• IS: TPS
Decision Environments
complete information Incomplete information Very poor information

What do you mean by operational level?
Low level people or operational level should not

be able to see what middle level management and
middle level management should not be able to
see what top level management is having.
On the other hand, top level management should

be able to see what middle level and low level
management is having. (Top to bottom) this is what
we call it operational level hierarchy.
Organizational system and MIS operational level

Classification of management
Top level
BOD, CEO, MD
for Strategical decision
Top
Middle
level
Manager (Tactical
Decision)
Middle

Operational Decision
Operational
Top level management there are less number of people and they are the
composed of (BOD, CEO and MD) to decide the complex decision in the
company.
There are cream people and they are affect directly the middle level
management.
Middle level management the managers are near who are responsible
every day working of the company for tactical decision. For example
Hero company 545 545
Two 2 districts 2 SM (Sales Manager)
Senior Manager is found in the top level management, however, sells
manager and territory Sells Manager is a part of middle level manager.
Operational they are takes the operational decisions. Low level worker
are their delaying every day job like, reception and the people have
creating the product. Therefore labors are uses for operational decision.
2.2. Categories of Information

Systems
• Office Automation System
• Transaction Processing System (TPS)
• Management Information System (MIS)
• Decision Support System (DSS)
• Executive Support System (ESS)
• Integrated Systems (ERP, CRM, SCM)
• Artificial Intelligent Technologies
2.2. Categories of Information

Systems
Program the robots work
AI
KS/ ES artificially
ESS
Top level management use the
DSS expert system for good decision
Effect of DSS will be evaluated by
MIS ESS
1970
OAS
Office used to recorded the transaction
TPS Transaction record
1950
21st Century
 TPS: Transactional Processing System (focused on

transaction record)
 OAS: Office Automation System (focused on

communication (office to office))
 MIS: Management Information System (focused on

information)
 Right information
 To the right person
 At the right place
 At the right time
 In the right form
 At the right cost
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 DSS: Decision support System (focused on decision

support)
 ESS: Executive Support System (focused on decision

support for top management)
 KS/ ES: knowledge / Expert system (focused on

consultation)
 AI: Artificial Intelligence (focused on self-learning /

thinking system).
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 Two categories of Information System:

 Operation Support System: business operation
 Office Automation System
 TPS
 Enterprise Recourse Planning (ERP), Supply Chain Management
(SCM), Customer Relationship Management (CRM)
 Management Support System: Support of managerial

decision making
 MIS
 DSS
 ESS/EIS
 Artificial Intelligence (AI) Systems
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2.2.1. Office Automation System

 digitally create, collect, store, manipulate, transfer
office information  basic tasks
 Support office tasks with information technology
 Electronic Publishing (Word processing, spreadsheet &
desktop publishing)
 Electronic communication (e-mail, voice mail, fax,
videoconferencing)
 Electronic collaboration: Information, Update Schedules &
Plans, work on the same files simultaneously, cooperate on
Projects (groupware)
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Off. Aut. (Contd.)

 Image processing systems: electronic document
management, presentation of graphics and
multimedia systems - manipulated, stored, printed,
sent
 File transfer technologies: Intranets/Local Area
Network (LAN)
 Office Management Systems: electronic scheduling,
task management  organizing people, projects, data
 Business dates, appointments, notes, client contact
information (created, stored, retrieved)
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Off. Aut. (Contd.)
 Advantages:
 Hard physical or monotonous work

 Operation time – reduced
 Typesetting (creating), editing, revising, storing, printing, etc.
 More time to take other roles
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2.2.2. Transaction Processing System

 Transaction: business event  generate/modify data in IS
 TPS = collects & stores data about routine/daily transaction
(buying, selling, offering services, paying bills, payroll)
 TYPE: Operational-level
 INPUT: Transactions, events (e.g. order entry, employee attendance)
 Internal: Functional areas (product, employee, budget)
 External: Customers (order), suppliers (delivery of materials), …..
 PROCESS: Updating
 OUTPUTS: Detailed operational reports
 purchase orders, pay checks, sales receipts, invoices, bank statements, etc.
 USERS: Employees of functional areas

 INTERFACES : with MIS, DSS, ESS
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(TPS- Cont’d)
 Advantages of TPS
 Reduce manual data entry (reduce errors)
 Speed up transaction process; lesser cost
 Eliminate redundant data entry: a single sells transaction:
 Customer database: Updating
 Inventory Database: Decrease
 Credit Card Database: Decrease
 Sales Database: Increase
 Informs managers:
 status of internal operations
 firm’s relations with the external environment
 Immediate response to customers
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2.2.3. Management Information System (MIS)

 Management Information System is:
 Computer programs  summary and routine reports as
output
 TYPE: Middle/Tactical level
 INPUT: transaction data (TPS)
 PROCESS: consolidation, computing totals and
averages,…
 OUTPUT: Summary reports
 USERS: Middle level managers
 INTERFACE: with DSS, ESS
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(MIS- Cont’d)
 Types of Reports
 Scheduled report: periodically
 (e.g. daily sales)
 Key-indicator report: critical
activities (e.g. actual total sales
vs. forecasted)
 Demand report: on demand or
when requested
 Example are: daily sales by
sales person
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(MIS- Cont’d)
 Exception report: Unusual situation
(automatic) or requires management
action
 E.g. Inventory reorder; daily sales
exception report  order over Br. 200,000
 Drill-down report: detailed data about a
given situation
 Example:
 1st level DDR  earnings by quarter
 2nd level DDR  sales and expenses
 3rd level DDR  sales by division
 4th level DDR  sales by product category
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(MIS- Cont’d)
 Characteristics of MIS
 Integrated
 Blends information from several operational areas
 Centralized database
 Organized along functional lines: finance, HR, Mktg.
 Reports with fixed and standard formats: ease for
managers
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(MIS- - Cont’d)
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2.2.4. Decision Support System (DSS)
 Problem solving system  choice b/n alternatives

 uncertainties about the possible outcomes of
decisions
 unstructured or semi-structured
 Overcome the limitations of

 TPS: repetitive clerical processes
 MIS: inflexible report
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(DSS- Cont’d)
 Components of DSS:
 Model Management (Model Base):
 computational and analytical models – mathematical
expressions of relationship among variables
 Data Management: information
 User Interface: to communicate with the DSS
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(DSS- Cont’d)
 TYPE: Middle level & Top level
 INPUT: TPS & external data
 PROCESS: simulations and analysis
 OUTPUT: possible alternatives & predicted

outcomes of decision
 determine best/optimal decision
 reporting (graphical and tabular report)
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Least Cost financing of

buying a house and lowest
monthly payment
Total cost of all loan

options & payment Decision on
for each loan Financing
Advertising (DSS- Cont’d)

Type of Modeling Example
What-if analysis Sales?  if advertising cut by 10%?
Sensitivity analysis Sales? repeated cut advertising by 1%

How change in A influence B
Goal-seeking analysis Let’s try increasing advertising until sales
(change  target) reach $1 million
Optimization analysis What level of advertising maximizes our
(optimum value) overall profit?
Advantages:
• Productivity (speed); understanding; reduce cost &
complexity
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Factors DSS MIS

Problem type unstructured problems structured problems
Support decision support techniques information on performance
Approach Direct support interactive Indirect support  regular

reports on computer screens reports
System Real time (providing immediate Not immediate 

results) scheduled reports
Information flexible, and adaptable format Pre-specified, fixed format
format
Information Analytical modeling Extraction and manipulation
Processing
Methodology
Chapter II
2.2.5. Executive Support System (ESS)
 Tailored to executives (Top)  Strategic

Decision
 Combines many features of MIS and DSS 
specialized form of DSS
 Immediate and easy access to internal and
external information
 Critical factors  strategic objectives
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(ESS- Cont’d)
 Components of ESS
 INPUTS: aggregate data; internal and external
 MIS and DSS (Oriented more towards external events)
 PROCESS: analyzing, compare and highlight trends in critical

variables  statistical, financial & other quantitative analysis
 OUTPUTS: projections based on trend analysis and exception
reports
 USERS: senior managers; strategic level; work on long term
 DECISION MAKING: highly unstructured
 EXAMPLE: 5 year operating plan; predicting future trends, analyzing
merger possibilities, new product lines and services
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(ESS- Cont’d)
 Characteristics of ESS
 Ability to filter and organize data
 Drill-down feature – more details when needed
 Built-in graphics, charts, etc
 Customization - Content and format
 Availability of analysis tools: e.g. What-if
 Easy to learn and to use: busyness
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2.2.6. Enterprise Resource Planning (ERP)

 Firm wide IS  integrates key business
processes & consolidates data
 Integrated system as opposed to individual software
 main business area (inventory management, accounting,
payroll, human resource, marketing, product planning)
 Collect, store, manage and interpret data from

various functional areas
 Data is available on real-time basis (up-to-the minute
information)  faster and informed decision
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ERP (Contd.)
 Centralized DB – all TPSs into single DBs
 Combines all databases across departments into
a single database  Shared
 Single data entry  available for many processes
 Large enterprises – Integrated systems - huge

investment (HW, SW, Skilled)
 Small business - Light weight ERP solutions –
(selected paired modules)
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ERP (Cont’d)
Finance & Accounting: Human resources processes,

• general ledger, • personnel administration,
• accounts payable, • time accounting,
• accounts receivable, • payroll,
• fixed assets, • personnel planning and
• cash management and development,
forecasting, • benefits accounting,
• product-cost accounting, • applicant tracking,
• cost-center accounting, • time management,
• asset accounting, compensation,
• tax accounting, • workforce planning,
• credit management • performance management
• financial reporting
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Manufacturing and Sales and marketing

production processes, processes,
• procurement, • order processing,
• inventory management, • quotations,
• production planning, • contracts,
• production scheduling, • product configuration,
• material requirements • pricing,
planning, • billing,
• quality control, • credit checking,
• distribution, • incentive and commission
• transportation execution, management,
• plant and equipment • sales planning
maintenance
ERP (Cont’d)
Business Values of ERP
 Increase operational efficiency:
 Standardization, coordination
 Free flow of information across different functional
areas (Production  sales data)
 Manual data entry and repetitive processes are eliminated
 Quick look-ups at key performance indicators

across the organization  financial data, inventory
status, customers’ purchasing activities
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 Promote Collaboration:
 Data integration & interlinked processes  collaboration
among teams (geographically dispersed)
 Accurate forecast
 Centralized database (data integrity) + business
intelligence tools using machine learning and predictive
algorithms  hidden pattern extraction
 Lower Operational Cost:

 Multiple business units working closely together using real-
time data  resolving sudden problems faster with
minimum operating cost
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 Rapid responses to customer requests

 order, manufacturing and delivery data
 Comply with Regulations

Built-in regulatory process standards and
compliance reporting to meet large numbers of
business requirements
 Data Security Features
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2.2.7. Supply Chain Management (SCM)

 Manage the entire value chain  integrating:
 Production, sourcing, transportation, inventory & warehousing,
shipping
 supplier, distributor, retailor and customer logistics requirements
 Coordinating & integrating the flow of:

 Material: goods from point of origin to final destination
 Information: order, delivery
 Finance: credit terms, payment schedules, consignment and title
ownership arrangements
 Goal – reducing inventory (products are available when they

are needed)
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SCM (Contd.)
 Two major functions

a) Supply Chain Planning Systems
 Modeling the existing supply chain, demand forecasts,
manufacturing plans, level of inventory (raw material,
intermediate & finished products), transportation modes
b) Supply chain execution systems

 Manage flow of products  distribution centers &
warehouses
 Tracking physical status, warehousing & transportation,
financial information
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Features of SCM
 Inventory Management: tracking and managing the
available materials, quantity of stocked goods & spare
parts
 Order Management: purchase order process (generating
and tracking; scheduling delivery, etc.)
 Logistics and Shipping status: coordinate transportation
channels, warehouse management (storage optimization,
labelling, labor management, etc.)
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 Forecasting: anticipating customer demand &

planning procurement and production processes
(unnecessary raw material, excess finished goods)
 Return Management: inspection and handling of
damaged or faulty goods and processing of refunds
or insurance claims
Business Value of SCM system

 Match supply to demand: accurate plan and forecast of demand
 Reduce inventory levels: supplier and customer collaboration and
communication
 Improve delivery service – coordinating activities across supply
chain
 Reduced supply chain costs:
 Speed of analyzing data and collaboration on a real-time
basis
 Identifying excess materials or processes  cost saving in
logistics, warehousing, and manufacturing

up to 75% of the operating budget  increased profitability
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Business Value of SCM system

 Increased sales – the right product at the right time
 Visibility: where the inventory is (along the global supply
chain; from manufacturer  storage  transport  store
shelf
 Minimize risk by improving responsiveness to unforeseen
events – e.g. late shipment, logistical errors, machine
failures, missing goods, urgent customer orders, human
errors
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2.2.8. Customer Relation Management (CRM)

System
 Captures, integrates and analyze customer data from all
over the organization & distribute results to various
systems and customer touch points across the enterprise
 Single enterprise view of customers
 Customer satisfaction by understanding them
 ease of communication,
 organized data
 Improved customer service  customers get what they want
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Major Features of CRM

 Contact Management: contact info, support interaction,
demographics, transaction
 Email Tracking: gives visibility when your email
campaigns are clicked and opened. Integrated with
popular e-mail services (Gmail, Outlook, etc.)
 Campaign management: managing it from creation to
delivery by segmenting customers, targeting, and
streamlining workflows, tools to measure the success of
campaigns with data driven insights
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 Social media management: insight on how your clients

interacts with your social media accounts  information
from comments, likes, dislikes,  to improve marketing
strategies and customer experience.
 Report and Dashboards: accelerates how you generate
reports in real-time with accuracy  insight on market,
trends, patterns, behaviors.
CRM (Contd.)
Benefits of CRM
 Improved informational organization:
 What they do and interact is recorded more knowledge
about customers  positive experience
 Accurately quantifying and categorization of data
 Availability across departments
 Enhanced communication
 having access to the same customer data by whoever
assisting the client & understanding their unique
preferences and issues 61
CRM (Contd.)
 Enhanced customer Service
 Retrieving all available activity concerning past
purchases, preferences, etc. to address their problems
and providing high level service
 Reduced direct-marketing costs

 customer retention & returning
 Automation of Routines
 Hundreds of time-consuming smaller tasks in a sale – filling
forms, generating and sending reports, addressing legal
issues, etc. can be taken care by CRM  more time to
focus on resolving customer problems 62
CRM (Contd.)
 Increased Efficiency for multiple teams
 Automatically stored communication  ability for multiple
teams to access the same information (e-mails, calendars,
phone call details)
 Sales, marketing, customer service teams share valuable
information about the client, new product, excellent customer
service  teams can work together to improve the service
 Improved Analytical Data and Reporting

 Storing information in one place and  improved analysis of
the data as a whole and generate automatic reports 
effective decision  customer loyalty and long run profitability
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 Challenges of implementing Integrated

systems (ERP, SCM, CRM):
 Expensive: cost of software, on-premise
installation, ongoing running and maintenance
 Software Integration: with existing systems
(considerable investment, time & training)
2.2.9. Artificial Intelligence (AI) Technologies

 Artificial intelligent systems:
 make machines imitate human thinking and
behavior  replace human decision making
 computers that can simulate the ability to think
as well as see, hear, walk, talk, and feel
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Cognitive learning theory explains how internal and

external factors influence an individual's mental
processes to supplement learning.
Chapter II
a) Expert System
 Expert (Knowledge Based) System:
 Codify human expertise  applying reasoning
capability by computers
 Knowledge engineer  elicits the expertise and
encodes it in the expert system
 An ES can store facts and rules  advice to a user.
 Application Areas of Expert System:
• Medical diagnosis
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(Expt. Sys. - Cont’d)

 Three components of Expt. Sys:
 Knowledge base
 Containing facts and rules that express the reasoning
procedures of an expert
 Inference engine
 Processes the knowledge and recommends a course
of action
 User interface
 communications between the user and the computer
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(Expt. Sys. - Cont’d)

 Used for
 Diagnostic problems (what’s wrong?)
 Prescriptive problems (what to do?)
 Possible areas of applications:

 diagnose human illnesses,
 make financial forecasts,
 schedule routes for delivery vehicles,
 calculating loan/credit decisions in banks
 buy/sell; risk/no risk; rain/no rain
 An expert system can

 Reduce errors
 Improve customer service
 Reduce cost
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b) Neural Network
 Computing systems modeled after the brain’s
networks of interconnected processing elements
(neurons)
 Interconnected processors operate in parallel and interact
with each other
 Allows the network to learn from the data it processes
 capable of finding and differentiating patterns
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(NN- Cont’d)
 Neural Networks can:
 Learn and adjust to new circumstances on their own
 Take part in massive parallel processing
 Function without complete information
 Cope with huge volumes of information
 Analyze nonlinear relationships
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c) Fuzzy Logic
 a mathematical method of handling

imprecise or subjective information
approximate values, incomplete or
ambiguous data
“very high” instead of precise measures
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 Example of Fuzzy Logic Rules and Query

d) Genetic Algorithm
 mimics the evolutionary, survival-of-the-
fittest process to generate increasingly better
solutions to a problem
 Take thousands or even millions of possible
solutions and combine and recombine them until
it finds the optimal solution
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e) Intelligent Agents
 Acts on your behalf, in performing repetitive
computer-related tasks (software robots or bots)
 Built-in and learned knowledge base to make decisions
and accomplish tasks
 Information agents
 search for information of some kind and bring it back
 Ex: Buyer agent or shopping bot –find products and
services
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(IA)- Cont’d)
 Monitoring-and-surveillance or predictive agents
 observe and report on some entity of interest, a network,
or manufacturing equipment,
 User or personal agents

 intelligent agent that takes action on your behalf
 Examples:
 Prioritize e-mail
 Act as gaming partner
 Assemble customized news reports
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Chapter II – Introduction
1.4. Organizational Impact of

Information System
Why Information System Matters?

1.4.1. Organizational Impact of IS

 Operational efficiency
 New products, services, and business models
 Customer and supplier intimacy
 Improved decision making
 Competitive advantage
 Survival
Impact of IS (cont’d)
A) Operational Efficiency
 The capability of a firm to deliver products or services to its
customers in the most cost-effective manner while still ensuring
high quality.
 Wal-Mart’s Retail Link System–
 Digitally linked suppliers to each Wal-Mart’s stores for replenishment
 Once an item is sold, the system automatically informs the supplier and
the supplier packs and ships the item to the specific store
 Walmart – an American multinational retail corporation; 10,524 stores worldwide;
serving over 270 million customers per week; over 559.2 billion revenue;
2,300,000 employees; Total assets 252.5 billion; owned by Walton Family
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Impact (Cont’d)
B) New products, services, and business
models
 New Products & Services
 E.g. Apple’s – iPhone, iPod, iMac, iPad, Apple
Watch, Apple TV,
 iPhone – the latest iPhone 13, iPhone 13 Pro and iPhone13
Pro Max - faster processor, improved display technology,
upgraded camera systems and wireless charging.
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• Virtual Firms
• Do not physically exit (IP address – dot com)
• Firms are linked by IT to share skills, costs, and markets
• Highest-quality product at the lowest possible cost with high
speed and responsiveness
Impact (Cont’d)
 New Business Model
 Business Model: how company produces, delivers, and sells
product or service to create wealth
 Example: Apple’s business model: 3 business models that
ensured sustainable competitive advantage
(1) Vertical integration model - hardware, operating systems,
application software, and services (integrated) – Premium pricing
(2) Building platforms for content and apps distribution on Apple

devices
(3) Expanding the network of company-owned retail stores
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Impact (Cont’d)
•FY 2001: $5 billion revenues. Net loss of $25
million.
•FY 2007: $24 billion revenues. Net profit of
$3.5 billion.
$14 billion.
$53 billion.
•FY 2021: $559.2 billion revenues. Net profit
of $13.7 billion.
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Impact (Cont’d)
 Most common types of business models
 1. Subscription model
 2. Bundling model
 3. Freemium model
 4. Razor blades model
 5. Product to service model
 6. Leasing model
 7. Crowdsourcing model
 8. One-for-one model
 9. Franchise model
 10. Distribution model
 11. Manufacturer model
 12. Retailer model
87
Impact (Cont’d)
C) Customer and supplier intimacy:

 Customer intimacy
 higher customer loyalty, customer returning and
purchasing more – increase revenues and profits
 Better understanding of customers’ needs
 greater adaptation of products to customer needs,
 stronger relationships with customers
88
Impact (Cont’d)
Example – Role of IS:
 Hotel - tracking customer preferences (preferred
room temperature, check-in time, TV program etc. –
customizing,
 Supermarket - Collecting & analyzing customer data
– which areas of stores they visited, their product
preferences, what they wanted to buy but not
available
89
Impact (Cont’d)
 Supplier intimacy
 Information System – establishing electronic data
exchange with suppliers
 access to production schedules of the firm – what
materials to supply, how and when
 fast flow of products from suppliers to store shelves
 lowering costs
90
Impact (Cont’d)
D) Improved Decision Making

 IS improved decision – accurate & timely information
 real-time data on customer complaints, unmet demands
of customers
 analyze sales data, projecting revenues, and
evaluating scenarios
 allocating resources,
 comparing budget to actual results,
91
Impact (Cont’d)
E) Competitive advantage
E =A+B+C+D
 The firm sustains profits that exceed the average
for its industry.
 This can be attained through:
 Cost leadership strategy
 Differentiation Strategy
 Growth Strategy
 Alliance Strategy
92
Impact (Cont’d)
 Cost Leadership Strategy

 Becoming low cost producers using IT  lower prices
 Example:
 Garment – Automated pattern drawers, fabric
cutters & delivering of cloth to sewing machine – cut
50% of labor cost
 Retail stores – Replenishing inventory with no cost
(Wal-Mart)
 Online auction and auction-set pricing – eBay.com
93
Impact (Cont’d)
 Differentiation Strategy
 Distinguishing products through developing New design
features  Stimulating Demand
 Ex. Dell Computer - IT enabled build-to-order business model
that other firms have not been able to imitate – customers select
the design & color option they want and order
 bundling more information with the physical product
package (characteristics and how it should be used and
supported)
 Making the product difficult to imitate
94
Impact (Cont’d)
 Growth Strategy
 Expanding production capacity
 Changing the Competitive Scope Broader
geographic scope to create more competitive
advantage  entering new national, regional, global
market
 distribute key business activities to where they are
needed, where they are best performed, or where they
best support the competitive advantage
 Coordinating the activities using Information System
95
Impact (Cont’d)
 Alliance Strategy
 Develop inter-organizational information systems
linked by the Internet and extranets that support
strategic business relationships with customers,
suppliers, competitors, consultants, subcontractors,
and others.
 E.g. Financial institutions – banks, insurance corporations
& brokers
96
Influencing the Five Competitive Forces (with strategic use of IS)
Huge IT investment 
• Interaction and collaboration
IT enabled product/service
1
• Rich customer information
differentiation; electronic market Potential Threats of New Outcome  Barrier to Entry
Outcome  cost effectiveness; Entrants
increased market access

5
Industry Competitors
4 2
Bargaining Power of Bargaining Power of
Suppliers Buyers
E-procurement system Online Customer Services

Integrate backward linkages Outcome  increasing
Outcome  Reduce switching cost, buyer selection
operating costs of suppliers
3
Threats of Substitute
Products
Computer-aided design and manufacturing:
Outcome  quicker, easier, and cheaper
adaptation; Improved price/performance
Five Comp. Forces (Cont’d)

 Potential Threats of New Entrants
 Strategic Use of IS: Huge investment on IT and increase
in its complexity
 Strong IT to support interaction and collaboration among
product designers, market specialists, production planners
& managers
 Rich information repository about customers
Chapter I – Introduction

 Bargaining Power of Consumers
 Strategic uses of IS: Increasing switching costs by
introducing innovative IS:
 reluctance to pay more costs (time, money, effort,
inconvenience) by changing brand, product or supplier
 E.g. Online reservation system for airlines; efficient on-line
cash management (account information) to corporate
customers

 Threat of Substitute
 Strategic Use of IS: Flexible Use of computer-aided
design and manufacturing system – quicker, easier, and
cheaper to incorporate enhanced features into the product
 Threats of Suppliers
 Strategic Use of IS: Integrate backward linkages; Reduce
operating costs of suppliers – e-procurement system,
computer controlled cutting machine (sewers)

 Industry Competitors
 Strategic Use of IS:
 Differentiate products or services
 build new markets such as e-market.
Impact (Cont’d)
F) Survival
 Investing on Information Systems out of necessity
 Introduction of ATM (Banks) – in order to keep-up
with competitors
 Financial management system – as a government
requirement
102
Chapter I – Introduction
Assignment I 20%- Individual
 Do original research and write a maximum of three-pages

report detailing an information systems that your/others’
organization has implemented and the major benefits that the
organization gained from the systems and the drawback of the
system with the constructive recommendation.
 Submission Date – Within the coming 2 weeks
 The work should be original and printed
103
THE END

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CHAPTER TWO

2.1. Organization, Management

 Work – designed and grouped

 Responsibility & Authority – defined & delegated

 Resources (Capital & labor) taken from environment  processed

 Legal entity: Internal rules & procedures; legal capacity (contracts,

 good innovative, risk taking, result oriented,

 Bad poor internal communication (lack of team

 Semi-structured (Middle level):

 Structured (Operational level):

2.1.3. Levels of Management and Information

Short-medium term planning, budget control, sales

complete information Incomplete information Very poor information

What do you mean by operational level?

Low level people or operational level should not

On the other hand, top level management should

Organizational system and MIS operational level

2.2. Categories of Information

2.2. Categories of Information

TPS Transaction record

 TPS: Transactional Processing System (focused on

 OAS: Office Automation System (focused on

 MIS: Management Information System (focused on

 DSS: Decision support System (focused on decision

 ESS: Executive Support System (focused on decision

 KS/ ES: knowledge / Expert system (focused on

 AI: Artificial Intelligence (focused on self-learning /

 Two categories of Information System:

 Management Support System: Support of managerial

2.2.1. Office Automation System

Off. Aut. (Contd.)

Off. Aut. (Contd.)

 Hard physical or monotonous work

 More time to take other roles

2.2.2. Transaction Processing System

 USERS: Employees of functional areas

2.2.3. Management Information System (MIS)

2.2.4. Decision Support System (DSS)

 Problem solving system  choice b/n alternatives

 Overcome the limitations of

 OUTPUT: possible alternatives & predicted

Least Cost financing of

Total cost of all loan

Advertising (DSS- Cont’d)

What-if analysis Sales?  if advertising cut by 10%?

Sensitivity analysis Sales? repeated cut advertising by 1%

Factors DSS MIS

Support decision support techniques information on performance

Approach Direct support interactive Indirect support  regular

System Real time (providing immediate Not immediate 

2.2.5. Executive Support System (ESS)

 Tailored to executives (Top)  Strategic

 PROCESS: analyzing, compare and highlight trends in critical

2.2.6. Enterprise Resource Planning (ERP)

 Collect, store, manage and interpret data from

 Large enterprises – Integrated systems - huge

Finance & Accounting: Human resources processes,

Manufacturing and Sales and marketing

 Quick look-ups at key performance indicators

 Lower Operational Cost:

 Rapid responses to customer requests

 Comply with Regulations

 Data Security Features

2.2.7. Supply Chain Management (SCM)