CHAPTER
ONE: INTRODUCTION TO IS
After completing this chapter, you
will be able to:
Define an information system
·
Distinguish between computer literacy and
information system literacy
·
Explain why information systems are so important
today and how they are transforming organization and management
·
Identify the major management challenges to
building and using information systems in organization
1.1
Why Information System?
The environment of
business has changed from the traditional environment where management processes
are treated as a face-to-face, personal art and not a far-flung, global
coordination process. Information itself
is not treated as an important asset for a firm.
But today, most of
the organization recognizes the importance of information. For individuals, information systems are
needed for entertainment and as an enlighten to their life. Meanwhile for businesses, information systems
are mostly needed to help in decision making and problem solving. Besides that, it is used to gather, store and
manipulate information. There are three
main factors that contribute to the recognition of the importance of
information to any organization.
The first factor
is the emergence and strengthening of the global economy. Globalization of the world’s industrial
economies greatly enhances the value of information to the firm and offers new
opportunities to businesses. Information
system provides the communication and analytical power that firms need for
conducting trade and managing businesses on a global scale.
The second factor
is due to the transformation of industrial economies and societies into
knowledge and information based service economies. In knowledge based economies, knowledge and
information are key ingredients in creating wealth to an organization. Knowledge and information are becoming the
foundation for many new services and products.
Intensification of knowledge utilization in the production of
traditional products has increased as well.
New kinds of knowledge- and information-intense organizations have
emerged that are devoted entirely to the production, processing, and
distribution of information
The third factor
is due to the transforming of the business enterprise. Traditional firms was and still is a
hierarchical, centralized, structured arrangement of specialist that typically
relies on a fixed set of standard operating procedures to deliver a
mass-produced product or services. But
the business enterprises has change into flattened, decentralized, flexible
arrangement of generalists who rely on nearly instant information to deliver
mass-customized products and services uniquely suited to specific markets or
customers
Besides the above
mentioned three main factors, there are also several trends that have made the
use of information systems very important in business:
·
Computers’ power has grown tremendously, while
their prices have dropped.
·
Computer programs’ variety and ingenuity have
increased.
·
Quick and reliable communication lines and
access to the Internet and World Wide Web have become widely available and
affordable.
·
The fast growth of the Internet has opened
opportunities, as well as competition in global markets.
·
An increasing ratio of the workforce is computer
literate.
In this
environment, organizations will quickly lag behind if they do not take
advantage of this progress and use the technologies and skills to meet their
goals.
1.1.1 What is an Information System?
Information system
consists of physical and nonphysical components working together. A computer alone is not an information
system. A computer combines with a
software program may constitute an information system, but only if the program
is designed to produce information that helps an organization or person to
achieve a specific goal. Information
system can be further defined as a set of interrelated components that collect
or retrieve, process, store and distribute information to support decision
making and control in an organization.
Information systems can also help managers and workers to analyze
problems, visualize complex subjects and create new subjects. It may contain information about significant
people, places and things within the organization or in the environment
surrounding it.
All information
systems (IS) operate in the same basic fashion whether they include a computer
or not. However, the computer provides a
convenient means to execute the four main operations of an information
system. The four main activities are
entering data into the IS (input), changing and manipulating the data in the IS
(data processing), getting information out of the IS (output) and storing data
and information (storage). Besides the four main operations, feedback is also
needed to return the output to the appropriate people or activities in the
organization to evaluate and refine the input.
 |
Figure
1.1 Diagram showing the four main operations
The first step in producing information is
collecting and introducing data into the IS, known as input. Input captures or collect raw data from
within the organization or from its external environment. Data are streams of raw facts representing
events occurring in organizations or the physical environment before they have
been organized and arranged into a form that people can understand and
use. An input device is the tools used
to enter data into an IS. Input devices
include the keyboard, infrared devices that sense bar codes, and voice
recognition systems.
The second step in
producing information is processing.
This is the step where computer contributes to the efficiency of the
data processing, which is essential to a robust IS. In this step, computer helps in converting
the raw input into a more meaningful form through various methods like
conversion, manipulation and analysis.
The computer’s speed and accuracy let organizations process millions of
pieces of data in several seconds.
Output is the information an IS
produces and displays on an output device in the format most useful to an
organization. Information is data
that have been shaped into a form that is meaningful and useful to human
beings. A good IS must be able to
produce information that carries the following characteristics:
·
Relevant
– information must pertain to the problem at hand.
·
Complete
– partial information is often worst than no information.
·
Accurate
– erroneous information may lead to disastrous decisions.
·
Current
– decisions are often based upon the latest information available.
·
Economical
– in a business setting, the cost of obtaining information must be considered
as one cost element involved in any decision.
The information needs to be transferred to the people or
activities where it will be used. The
most widely used output device is the video display, or video monitor, which
displays output visually. However,
computers can communicate output through speakers in the form of music of
speech and can also transmit it to another computer or electronic device in
computer-coded form for later interpretation.
One of the greatest benefits of using
computers is their ability to store vast amount of data and information. Computer stores information on both devices
that are internal to the machine and those that are external.
Feedback is output returned to
appropriate people or activities in the organization to evaluate and refine the
input.
The four basic
components of the computer system within an IS:
·
Input device that introduces data into the IS.
·
The computer processes data through the IS.
·
Output device that displays the information
produces by the IS.
·
Storage device to store data and information.
In addition to the above
components, communication also occurs between computers. Communications technology lets users not only
access multiple input, output and storage devices with a single computer, but
access data and resources of more than one computer as well.
1.1.2 A Business Perspective on Information System
From a business
perspective, an information system is an organizational and management
solution, based on information technology, to a challenge posed by the
environment. It emphasizes the organizational
and management nature of information system: To understand information system –
to be information system literate as opposed to computer literate – a manager
must understand the broader organization,
management and information technology dimensions of systems and their
power to provide solutions to challenges and problems in the business
environment
 |
Figure 1-2
The key elements of an organization are its
people, structure and operating procedures, politics and culture. An organization coordinates work through a
structured hierarchy and formal standard operating procedures (SOPs). SOPs are formal rules for accomplishing tasks
that have been developed over a long time.
These rules guide employees in variety of procedures. Most of the procedures are formalized and
written down, but many others are informal work practices. Major organizational functions are
like sales and marketing, manufacturing, finance, accounting and human
resources
Management’s job
is to make sense out of many situations faced by organization and formulate
action plans to solve organizational problems.
A substantial part of management
is creative work driven by new knowledge and information. Information technology can play a powerful
role in redirecting and redesigning the organization. Managerial roles and decisions vary at
different levels of the organization.
·
Senior managers – make long-range strategic
decisions about products and services to produce.
·
Middle managers – carry out the programs and
plans senior management.
·
Operational managers – responsible for
monitoring the firm’s daily activities.
Information technology is one of many
tools available to managers for coping with change which consists of computer
hardware, computer software, storage technology and communication
technology. Computer hardware is
physical equipments used for input, processing and output activities in an
information system. Computer software is
detailed, preprogrammed instructions that control and coordinate the work of
computer hardware components in an IS.
Storage technology is physical media and software governing the storage
and organization of data for use in an IS.
Lastly, communication technology is physical devices and software that
link various computer hardware components and transfer data for use in an
IS. A network links two or more
computers to share data or resources such as printer.
1.2
Contemporary Approaches to Information Systems
Multiple
perspectives on IS shows that the study of information systems is a multidisciplinary
field, where no single theory or perspective dominates. Figure 1.3 shows the major disciplines that
contribute problem, issues and solutions.
In general, the field can be divided into technical, behavioral and
socio-technical approaches.
Technical approach emphasizes
mathematically based, normative models to study information systems as well as
the physical technology and formal capabilities of these systems. Three disciplines that contribute to this
approach are Management Science, Computer Science and Operation Research.
Behavioral approach is more concern
with development and long-term maintenance of information systems, which
emphasizes on issues like strategic business integration, design,
implementation and utilization. Three
disciplines that contribute to this approach are Psychology, Economics and
Sociology.
 |
Figure 1-3
Socio-technical approach avoids a
purely technological approach to information systems. This approach stress the need to optimize the
performance of the system as a whole where both the technical and behavioral
components needs attention, which means that the technology must be changed and
designed in such a way as to fit organizational and individual needs meanwhile
organization and individual must also be changed through training, learning and
planned organizational change in order to allow the technology to operate and
prosper.
1.3 The
New Role of Information Systems in Organization
The new relationship (as
illustrated in Figure 1.4) between organization and IS shows that there is a
growing interdependence between organizational business strategy, rules and
procedures on the one hand and information system software, hardware, databases
and telecommunications on the other. The
changes in strategy, rules and procedures require changes in hardware,
software, databases and telecommunications.
This relationship becomes critical when management plans for the future.
 |
Figure 1-4
A second change in the relationship
of IS and organizations results from the growing complexity and scope of system
projects and applications. Over time,
information systems have come to play a larger role in the life of the
organization. Early information systems
brought about largely technical changes that were relatively easy to achieve
and accomplish and affects few people.
Later systems affected managerial control and behavior (who has what
information about whom, when and how often); ultimately systems influenced
“core” institutional activities (what products and services are produced, under
what conditions and by whom) concerning products, markets, suppliers and
customers.
1.3.1 New Options for Organizational Design: The Networked Enterprise
The explosive
growth in computing power and networks is turning organizations into networked
enterprises, allowing information to be instantly distributed within and beyond
the organization. This capability can be
used to redesign and reshape organizations, transforming their structure, scope
of operations, reporting and control mechanisms, work practices, work flows,
products and services. The following
describes the new ways of conducting business electronically.
Flattening
organizations will results in fewer levels of management, with lower-level
employees being given greater decision-making authority. Those employees are empowered to make more
decisions than in the past are no longer work standard 8 hours and no longer
necessary work in an office and they can be scattered geographically. Contemporary information technology makes
more information available to line workers so they can make decisions that
previously had been made by managers.
Networked computers have made it possible for employees to work together
as a team. Team members can collaborate
closely even from distant locations.
These changes mean that the management span of control has also been
broadened, allowing high-level managers to manage and control more workers
spread over greater distances.
Separating work
from location is possible as organizing globally while working locally is made
possible through technologies like e-mail, the Internet, video
conferencing. Communication technology
eliminates distance as a factor for many types of work in many situations. Collaborative teamwork across thousands of
miles has become a reality designer’s work on the design of a new product
together even if they are located on different continents. Companies are not limited to physical
locations or their own organizational boundaries for providing products and
services. Virtual organization becomes
reality where organization using network linking people, assets and ideas to
create and distribute products and services without being limited by
traditional organizational boundaries or physical location.
Reorganizing work
flows as IS have been progressively replacing manual work procedures with
automated work procedures, work flows and work processes. Improved work flow management enabled many
organizations not only to cut cost significantly but also to improve customer
service at the same time.
Increases
flexibility of organization as companies uses communication technology to
organize in more flexible way, increases their ability to respond to changes in
the marketplace and to take advantage of new opportunities. Large organization can use information
technology to achieve some of the agility and responsiveness of small
organizations like mass customization, the use of software and computer
networks to finely control production so that products can be easily customized
with no added cost for small production runs.
The result is a dynamically responsive environment in which products can
be turned out in a greater variety.
Information
technology is recasting the process of management, providing powerful new
capabilities to help managers plan, organize, lead and control. For example the use of Enterprise Resource
Planning (ERP) is a business management that integrates all facets of the
business, including planning, manufacturing, sales and finance so that they can
become closely coordinated by sharing information with each other.
Reducing
organizational boundaries as networked information system enables transactions
to be exchanged electronically among different companies, hence reducing the
cost of obtaining products and services from outside the firm. An inter-organizational system is a system
that automates the flow of information across organizational boundaries and
links a company to its customers, distributors or suppliers.
CHAPTER TWO: THE STRATEGIC ROLE OF INFORMATION SYSTEMS
After completing this chapter, you
will be able to:
·
Analyze the role played by the six major types
of information systems in organizations
·
Describe the relationship between the various
types of information systems
·
Examine how the competitive forces and value
chain models can be used to identify opportunities for strategic information
systems
·
Explain why strategic information systems are
difficult to build and to sustain
·
Describe how organizations can use information
systems to enhance quality in their operations, products and services
2.1
Key System Applications in the Organization
Due to different
interests, specialties and levels in an organization, there are different kinds
of systems. No single system can provide
all the information an organization needs. Organization and information systems
can be divided into strategic, management, knowledge and operational
level. All the above mentioned levels of
an organization can be further divided into five functional areas: sales and
marketing, manufacturing, accounting, finance and human resources. Figure 2.1 below shows the one way to depict
the kinds of systems found in an organization.
Figure 2-1
2.1.1
Different Kinds of Systems
Strategic level systems help senior
manager with long-term planning. The
principle concern at this level is matching changes in the external environment
with existing organizational capabilities.
It supports the long-range planning activities of senior
management. It also helps the senior
management to tackle and address strategic issues both in the firm and in the
external environment.
Management level systems help middle
managers monitor and control. It
typically provides periodic reports rather than instant information on
operations. It supports the monitoring,
controlling, decision-making and administrative activities of middle
managers. Some of the management level
systems support non-routine decision making where they tend to focus on
less-structured decisions for which information requirements are not always
clear.
Knowledge level systems help
knowledge and data workers design product, distribute information and cope with
paperwork. The main purpose is to help
integrate new knowledge into the business and to help the organization control
the flow of paperwork. Knowledge level
systems, especially in the form of workstations and office systems are the
fastest-growing applications in business today.
Operational level systems help
operational manager keep track of the firm’s day-today activities. The principle purpose is of operational level
system is to answer routine questions and to track the flow of transactions
through the organization.
2.1.2 Six Major Types of Systems
Information
systems are built to serve each of the four levels of an organization based on
the five main functional area of business.
·
Transaction Processing Systems (TPS)
serve the operational level of an organization.
·
Knowledge Work Systems (KWS) and Office
Automation Systems (OAS) serve the knowledge level of an organization.
·
Decision-support Systems (DSS) and Management
Information Systems (MIS) serve the management level of an organization.
·
Executive Support Systems (ESS) serves
the strategic level of an organization.
2.2 The
Strategic Role of Information Systems
2.2.1 What is a Strategic Information System?
Strategic
Information Systems can be defined as computer systems at any level of the
organization that change goals, operations, products, services or environmental
relationships to help the organization gain a competitive advantage. The following describes the eight basic ways
to gain competitive advantage.
|
Initiative
|
Benefit
|
|
Reduce costs
|
A company can gain advantage if
it can sell more units at a lower price while providing quality and
maintaining or increasing its profit margin.
|
|
Raise barriers to market entrants
|
A company can gain advantage if
it deters potentials entrants into the market, leaving less competition and
more market potentials.
|
|
Establish high switching cost
|
A company can gain advantage if
it creates high switching costs; making is economically infeasible for
customers to buy from competitors.
|
|
Create new products or services
|
A company can gain advantage if
it offers a unique product or service.
|
|
Differentiate products or
services
|
A company can gain advantage if
it can attract customers by convincing them its product differs from the
competitors.
|
|
Enhance products or services
|
A company can gain advantage if
its product or service is better than anyone else’s.
|
|
Establish alliances
|
Companies from different industries
can help each other gain advantage by offering combined packages of goods or
services at special prices.
|
|
Lock in suppliers or buyers
|
A company can gain advantage if
it can lock in either suppliers or buyers, making it economically impractical
for suppliers or buyers to deal with competitors.
|
Strategic
information systems should be distinguish from strategic level systems for
senior managers that focus on long-term, decision making systems where
strategic information systems can be used at all levels of an organization and
are far-reaching and deep-rooted than the other kinds of systems. Strategic information systems fundamentally
change a firm’s goals, products, services or internal and external
relationships. In order to use the
strategic information systems as competitive weapons, we must understand where
strategic opportunities for businesses are like to be found based on two models
of a firm and its environment: the Competitive Forces Models and the Value
Chain Model
2.2.2
Countering Competitive Forces (Competitive
Forces Model)
In the competitive
forces model (a model used to describe the interaction of external influences,
specially threats and opportunities, that effects an organization’s strategy
and ability to compete; illustrates in Figure 2.2), a firm faces a number of
external threats and opportunities:
·
The threat of new entrants into its market
·
The pressure from substitute products or
services
·
The bargaining power of customers
·
The bargaining power of suppliers
·
The positioning of traditional industry
competitors
Competitive
advantage can be achieved by enhancing the firm’s ability to deal with
customers, suppliers, substitute products and services, and new entrants to its
market, which in turn may change the balance of power between a firm and other
competitors in the industry in the firm’s favor.
 |
Figure 2-2
Organization can
use four basic competitive strategies to deal with these competitive forces:
·
Product
differentiation
Firms can develop
brand loyalty by product differentiation – creating unique new products and
services that can be easily be distinguished from those of competitors, and
that existing competitors or potential new competitors can’t duplicate. Manufacturers are starting to use information
systems to create products and services that are custom-tailored to fit the
precise of individual customers.
·
Focused
differentiation
Businesses can
create new market niche by focused differentiation – identifying a specific
target for a product or service that it can serve in the superior manner. A firm can provide a specialized product or
service that serves this narrow target market better than existing competitors
and that discourages new competitors. An
information system can give companies advantage by producing data to improve
their sales and marketing techniques.
Sophisticated data-mining software tools find patterns in large pools of
data and infer rules from them that can be used to guide decision making. Data-mining is both a powerful and profitable
tool, but it poses challenges to the protection of individual privacy. Data-mining technology combines information
from many diverse sources to create a detailed “data image” about individuals,
such as the income, hobbies, driving habit, and the question here is whether
companies should be allowed to collect such detailed information about
individuals.
·
Developing
tight linkages to customers and suppliers
Firms can create
ties to customers and suppliers that “lick” customers into the firm’s products
and that tie suppliers into a delivery timetable and price structure shaped by
the purchasing firm. This raises
switching costs (the cost for customers to switch to competitors’ product and
services) and reduces customers’ bargaining power and the bargaining power of
suppliers. This is similar to the just-in-time
delivery or inventory systems which reduce the cost of inventory, the space
required for warehousing and construction time.
·
Becoming
the low-cost producer
To prevent new
competitors from entering their markets, business can produce goods and
services at a lower price than competitors.
Strategically oriented information systems help firms significantly
lower their internal costs, allowing them to deliver products and services at a
lower price (and sometimes with higher quality) then what the competitors can
provide. For example, organizations can
use supply chain management to integrate supplier, distributor and customer’s
logistics requirements into one cohesive process. Information systems make supply chain
management more efficient by integrating demand planning, forecasting,
materials requisition, order processing, inventory allocation, order
fulfillment, transportation services, receiving, invoicing and payment. Supply chain management can not only lower
inventory costs but also can create efficient customer response systems that
deliver the product or service more rapidly to the customer.
The
following show how the above mentioned strategic can be use on the Internet.
|
Strategy
|
Internet
Application
|
|
Product differentiation
|
Virtual banking which allows
customers to view account statements, pay bills, check account balance and
obtain 24-hour customer service through the World Wide Web
|
|
Focused differentiation
|
Hotel room reservation tracking
system which provides electronic information on participating hotels. It can analyze these usage patterns to
tailor hospitality-related products more closely to customer preferences
|
|
Links to customers and suppliers
|
Access through websites to track
or check the status of any shipment
|
|
Low cost producer
|
Uses EDI (electronic data
interchange) to quote any quotation or charge any bills.
|
2.2.3
Leveraging Technology in the Value Chain
(Value Chain Model)
The value chain
model highlights the primary or support activities that add a margin of value
to a firm’s products or services where information systems can best be applied
to achieve a competitive advantage. The
value chain model can supplement the competitive forces models by identifying
specific, critical leverage points where a firm can use information technology
most effectively to enhance its competitive position. This model views the firm as a series or
chain or basic activities that add a margin of value to a firm’s products or
services. These activities can be
categorized as either primary activities or support activities. Primary activities are most directly related
to the production and distribution of the firm’s product and services that
create value for customer which includes inbound logistics, operations,
outbound logistics, sales and marketing, and services. Support activities make the delivery of the
primary activities possible and consist of organization infrastructure
(administration and management), human resources (employee recruiting, hiring
and training), technology (improving products and the production process) and
procurement (purchasing input).
Organizations have a competitive advantage when they can provide more
value to the customers or when they provide the same value to customers at a
lower price. Information systems could
have strategic impacts if it helped the firm provide products or services at a
lower cost than competitors or if it provides the products or services same
cost as competitors but with greater value.
2.2.4
Difficulties in building and sustain
strategic information system
·
Not all strategic information systems make
profit.
·
They can be expensive and risky to build.
·
Many strategic information systems are easily
copied by other firms, so that strategic advantage is not always sustainable.
·
Implementing strategic systems often requires
extensive organizational change and a transition from one socio-technical level
to another. Such changes are called
strategic transitions and are often difficult and painful to achieve.
2.3 How
Information Systems Promote Quality
2.3.1 What is Quality?
Quality can be
defined from both producer and customer perspectives. From the perspective of producer, quality
signifies conformance to specifications or absence of variation form those
specification. From the perspective of customer,
quality means:
·
Concerned with the quality of physical product –
its durability, safety, ease of use and installation.
·
Concerned with the quality of service – the
accuracy and truthfulness of advertising, responsiveness to warranties and
ongoing product support.
·
Concerned with psychological aspects – the
company’s knowledge of its product, the courtesy and sensitivity of sales and
support staff, and the reputation of the product.
Total Quality
Management (TQM) is a concept that makes quality control a responsibility to be
shared by all people in an organization.
TQM holds that the achievement of quality controls is an end in
itself. Everyone is expected to
contribute to the overall improvement of quality. TQM encompasses all of the functions within
an organization.
2.3.2
How Information Systems Contribute to
Total Quality Management
Information systems can help firms
to achieve their goals by:
·
Simplifying the product, the production process
or both
·
Benchmark
·
Use customer demands as a guide to improving
products and services
·
Reduce cycle time
·
Improve the quality and precision of the design
·
Increase the precision of production
CHAPTER THREE: MAJOR TYPES OF
INFORMATION SYSTEMS
After completing this chapter, you
will be able to:
·
Describe the specific categories of systems
serving each organizational level
·
Describe the value of different type of
information systems to organization
·
Describe the feature and characteristics of
different information systems
3.1
Operational Level Information Systems
The
information system that involved at operational level of an organization is Transaction Processing Systems. Transaction processing systems (TPS)
are the basic business systems that serve the operational level of the system.
A transaction processing system is a computerized system that performs and
records the daily routine transactions necessary to the conduct of the
business. A TPS is any system that
records transaction (a business event: a sale, a purchase, the hiring of a new
employee). TPS is the entry point where
data are entered at its source at the time of transactions take place. TPSs are interfaced with applications that
provide clerical workers and operational managers with up-to-date information.
At
the operational level, tasks, resources and goals are predefined and highly
structured. The decision to grant credit
to customer, for instance, is made by a lower-level supervisor according to
predefined criteria. All that must be determined
is whether the customer meets the criteria.
The
following table shows the specific types of application information systems
that correspond to operation level:
|
Functional Area
|
Systems
|
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