Laudon ch01

Chapter 1
Information Systems
in Global Business
Today
1.1
Management Information Systems
Chapter 1 Information Systems in Global Business Today
LEARNING OBJECTIVES
• Explain why information systems are so essential

in business today.
• Define an information system from both a

technical and a business perspective.
• Identify and describe the three dimensions of

information systems.
1.2
LEARNING OBJECTIVES (Continued)
• Assess the complementary assets required for

information technology to provide value to a
business.
• Identify the major management challenges to

building and using information systems.
1.3
Smart Systems and Smart Ways of Working Help Toyota Become Number One
• Problem: Tough competition and demanding customers.

• Solutions: Redesigned order and production processes
reduce costs, increase revenue, and improve customer
service.
• Oracle E-Business Suite makes it possible to build cars
to order and forecast demand and production
requirements more accurately.
• Demonstrates IT’s role in analyzing market trends and
monitoring quality, efficiency, and costs.
• Illustrates the emerging digital firm landscape where
businesses can use tools to analyze critical data.
1.4
The Role of Information Systems in Business Today
• How information systems are transforming

business
• Increased technology investments by firms (up-to 50%
of total investments)
• Increased responsiveness to customer demands: A
“Fed-Ex” economy
• Shifts in media and advertising (online newpapers,
Internet adverts)
• New security and accounting laws (e.g. storing
employee e-mails for 5 years) leading to growth of
digital information
1.5
• Globalization opportunities
• Internet has drastically reduced costs of operating on a
global scale
• Customers shop in a worldwide marketplace
• Firms reduce costs by finding low cost suppliers and
managing facilities in other countries
• Small firms can act big
• Large firms can act small (mass customization)
1.6
• The emerging digital firm

– Significant business relationships are digitally enabled
and mediated (external)
– Core business processes are accomplished through
digital networks (internal)
– Key corporate assets (like core competencies,
financial and human assets) are managed digitally
• Digital firms offer greater flexibility in organization and

management
– Time shifting: operating 24 hrs, 7 days
– Space shifting: no geographic boundaries
1.7
Virtual Management at Accenture
Consulting firm, 129 000 employees, 48 countries, no headquarters, no

branches
Read the Interactive Session and then discuss the following questions:
• What are the advantages of working in a virtual

environment like the one created by Accenture? What are
the disadvantages?
• Would you like to work at a company like Accenture? Why
or why not? Explain your answer.
• What kinds of companies could benefit from being run
virtually like Accenture? Could all companies be run
virtually like Accenture?
1.8
• 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
1.9
• Operational excellence:
– Improvement of efficiency to attain higher
profitability
– Information systems, technology an important
tool in achieving greater efficiency and
productivity
– E.g. Wal-Mart’s RetailLink system links
suppliers to its 5289 stores wordlwide for
superior replenishment system
1.10
• 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 are a major
enabling tool for new products, services, business
models
• E.g. Apple’s iPod, iTunes transformed the old business
model of music distribution from CDs into online
• Netflix’s Internet-based DVD rentals vs rental stores
1.11
• Customer and supplier intimacy:

– Serving customers well leads to customers returning,
which raises revenues and profits
• E.g. High-end hotels that use computers to track customer
preferences (room temperature, TV channels) and use IS to
monitor and customize environment
– Intimacy with suppliers allows them to provide vital
inputs, which lowers costs
• E.g. J.C.Penney’s information system which links shirt sales
records at each store to contract manufacturer in Hong
Kong. Supplier produces (quantity, style, color, size) based
on the sales records and delivers directly to stores; no
inventory storage costs for J.C.Penney, lower price to
customer
1.12
• 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
– E.g. Verizon’s (phone company) Web-based digital
dashboard to provide managers with real-time data on
customer complaints, network performance, line
outages, etc. Fast response through immediate
allocation of repair resources
1.13
• Competitive advantage
– Delivering better performance
– Charging less for superior products
– Responding to customers and suppliers in real time
– Often achieved through one of first four strategic
business objectives
– E.g. Dell: Consistent profitability over 25 years; Dell
remains one of the most efficient producer of PCs in
world (mass customization)
– But Dell has lost some of its advantages to fast
followers– HP (competitive advantage is not
sustainable)
1.14
• Survival
– Information systems and technologies as a necessity
for businesses to survive
– Driven by:
• Industry-level changes, e.g. the introduction of ATMs by one
bank forces other banks to follow
• Governmental regulations requiring record-keeping
– E.g. Toxic Substances Control Act (records of emloyee
exposure for 30 years), Sarbannes-Oxley Act (after the Enron
scandal, retain audit papers and records including e-mails for 5
years)
– Firms need IS capability to respond to these requirements
1.15
The Interdependence Between Organizations and

Information Technology
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.
Figure 1-2
1.16
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
• Knowledge?
1.17
• Information system: Three activities

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
1.18
• 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
1.19
Functions of an Information System
Other
environmental
factors?
(t,p,e)
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.
Figure 1-4
1.20
Information Systems Are More Than Computers

Computers are like the
tools and materials
used to make a house
(griders,cement,
hammers, nails), but
these by themselves
do not make a house;
you need the
architectural design,
setting and static
knowledge to build the
house.
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.
Figure 1-5
1.21
• Organizational dimension of
information systems
– Hierarchy of authority, responsibility
• Senior management
• Middle management
• Operational management
• Knowledge workers
• Data workers
• Production or service workers
1.22
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.
Figure 1-6
1.23
• Organizational dimension of information

systems (cont.)
– Separation of business functions
• Sales and marketing
• Human resources
• Finance and accounting
• Production and manufacturing
– Unique business processes
– Unique business culture
– Organizational politics
1.24
• Management dimension of
information system
– Managers set organizational strategy for
responding to business challenges
– Managers control and coordinate
– In addition, managers must act creatively:
• Creation of new products and services
• Occasionally re-creating the organization
1.25
• 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
1.26
UPS Competes Globally with Information Technology
• Read the Interactive Session: Technology, and then

discuss the following questions:
• 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?
1.27
• 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.
1.28
• Business perspective on information

systems:
– Information systems are instruments for creating
value
– Investments in information systems and
technology will result in superior returns:
• Productivity increases
• Revenue increases
• Superior long-term strategic positioning
But not always!!
1.29
• Investing in information technology does not

guarantee good returns (big failures by firms like HP,
Nike, Nestle)
• Considerable variation in the returns firms receive
from systems investments
• Success requires a business perspective:
attention to the organizational and managerial nature
of information systems
• Success Factors:
– Adopting the right business model
– Investing in COMPLEMENTARY ASSETS (organizational
and management capital)
1.30
• Complementary assets:
– Assets required to derive value from a
primary investment
– Firms supporting technology investments
with investment in complementary assets
receive superior returns
– E.g.: invest in technology and the people to
make it work properly
1.31
• Complementary assets include:

– Organizational investments, e.g.
• Appropriate business model
• Efficient business processes
– Managerial investments, e.g.
• Incentives for management innovation
• Teamwork and collaborative work environments
– Social investments, e.g.
• The Internet and telecommunications infrastructure
• Technology standards
1.32
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.
Figure 1-7
1.33
Challenge of Information Systems: Key Management Issues
• Major management challenges:
1. Design competitive and effective systems: rethinking

of business processes, not simple automation
2. Understand system requirements of global business

environment: language, cultural and regulatory barriers
3. Create information architecture that supports

organization’s goal
1.34
Challenge of Information Systems: Key Management Issues
4. Determine the business value of information

systems
5. Design systems people can control,

understand and use in a socially, ethically
responsible manner
1.35

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Chapter 1

• Explain why information systems are so essential

• Define an information system from both a

• Identify and describe the three dimensions of

LEARNING OBJECTIVES (Continued)

• Assess the complementary assets required for

• Identify the major management challenges to

• Problem: Tough competition and demanding customers.

The Role of Information Systems in Business Today

• How information systems are transforming

The Role of Information Systems in Business Today

The Role of Information Systems in Business Today

• The emerging digital firm

• Digital firms offer greater flexibility in organization and

The Role of Information Systems in Business Today

Virtual Management at Accenture

Consulting firm, 129 000 employees, 48 countries, no headquarters, no

• What are the advantages of working in a virtual

The Role of Information Systems in Business Today

• Business firms invest heavily in

The Role of Information Systems in Business Today

The Role of Information Systems in Business Today

• New products, services, and business

The Role of Information Systems in Business Today

• Customer and supplier intimacy:

The Role of Information Systems in Business Today

The Role of Information Systems in Business Today

The Role of Information Systems in Business Today

The Role of Information Systems in Business Today

The Interdependence Between Organizations and

Perspectives on Information Systems

Perspectives on Information Systems

• Information system: Three activities

Perspectives on Information Systems

Perspectives on Information Systems

Functions of an Information System

Perspectives on Information Systems

Information Systems Are More Than Computers

Perspectives on Information Systems

Perspectives on Information Systems

Business organizations are hierarchies consisting of three principal levels: senior

Perspectives on Information Systems

• Organizational dimension of information

Perspectives on Information Systems

Perspectives on Information Systems

• Technology dimension of information

Perspectives on Information Systems

UPS Competes Globally with Information Technology

• Read the Interactive Session: Technology, and then

Perspectives on Information Systems

• Dimensions of UPS tracking system

Perspectives on Information Systems

• Business perspective on information

But not always!!

Perspectives on Information Systems

• Investing in information technology does not

Perspectives on Information Systems

Perspectives on Information Systems

• Complementary assets include:

Perspectives on Information Systems

The Business Information Value Chain

From a business perspective, information systems are part of a series of value-adding

Challenge of Information Systems: Key Management Issues