Chap 1

AACS3035 Management Information Systems Chapter 1

Chapter 1 The Information Age Information System • A set of interrelated components working together to collect, process, store and

disseminate information to support decision making, coordination, control, analysis and visualization in an organization.

• Information systems can help companies extend their reach to faraway locations,

offer new products and services, reshape jobs and workflows, and perhaps significantly change the way they conduct business.

Functions of an Information System • An information system contains information about an organization and its

surrounding environment. • Three basic activities - input, processing, and output – produce the information

organizations need. • Feedback is output that is returned to appropriate members of organization to help

them evaluate or correct the input stage. • Environmental actors such as customers, suppliers, competitors, stockholders and

regulatory agencies interact with the organization and its information systems.

Input Processing Output

Feedback

INFORMATION SYSTEMORGANIZATION

Environment

Regulatory Agencies

Customers

Stockholders Competitors

Suppliers

Figure 1.1 Functions of an Information System

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1.1 The Need for Information Systems 1.1.1 The Competitive Business Environment and the Emerging Digital Firm (a) Emergence of Global Economy (Globalization) • Countries with advanced industrial economies depend on exports and imports to a

certain extent. Success of firms nowadays depends on their ability to operate globally. • Information systems provide the communication and analytical power that firms need

for conducting trade and managing business on a global scale. • To become competitive participants in international markets, firms need powerful

information and communication systems. • Eg. Because of global communication and management systems, customers now can

shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day.

(b) Transformation of Industrial Economies (Rise of the Information Economy)

* Knowledge-and information-intense products * • Knowledge and information are becoming the foundation for many new services and

products. Information systems are needed to optimise the flow of information and knowledge within the organization and to help management maximise the firm's knowledge resources.

• Since employee's productivity will depend on the quality of the systems serving them, management decisions about information technology are critically important to the firm's prosperity and survival.

• Eg. Knowledge-based products and services of great economic value such as credit cards, overnight package delivery and worldwide reservation systems, are based on new information technologies.

• Knowledge-and information intense products such as computer games require a great deal of knowledge to produce.

(c) Transformation of the Business Enterprise • The traditional business firm uses a hierarchical, centralized, structured arrangement

of specialists that typically relies on a fixed set of standard operating procedures to deliver a mass-produced product (or service).

• The new style of business firm is a flattened (less hierarchical), 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.

• The new manager appeals to the knowledge, to the knowledge, learning and decision making of individual employees to ensure proper operation of the firm.

• Information technology makes this style of management possible.



(d) The Emerging Digital Firm Digital Firm • A digital firm is one in which nearly all of the organization’s significant business

relationships with customers, suppliers and employees are digitally enabled. • Core business processes are through digital networks spanning the entire organization

or linking multiple organizations. Business Processes • Business processes refer to the set of logically related tasks and behaviours that

organizations develop over time to produce specific business results and the unique manner in which these activities are organized and coordinated.

• Eg. Developing a new product, generating and fulfilling an order, creating a marketing plan, hiring an employee, etc.

• In a digital firm, any piece of information required to support key business decisions is available at anytime and anywhere in the firm.

• Digital firms are distinguished from traditional firms by their near total reliance on a set of information technologies to organize and manage.

• For managers of digital firms, information technology is not simply an enabler, but rather it is the core of the business and the primary management tool.

Digital firms

Sense and respond to their environments far more rapidly than traditional firms, giving more flexibility to survive.

It offers extraordinary opportunities for global organization and management. Have the potential to achieve unprecedented levels of profitability and

competitiveness.



1.1.2 A Business Perspective on Information Systems Information systems are more than computers. Using information systems effectively requires an understanding of the organization, management and information technology shaping the systems. All information systems can be described as organizational and management solutions to challenges posed by the environment.

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Figure 1.2 Using IS effectively requires an understanding of the organization, management and IT shaping the systems.

(a) Organizations

Information systems are an integral part of organizations. For some companies, such as credit reporting firms, without the information system there would be no business.

Example: Standard Operating Procedures (SOPs) • A formal rule for accomplishing tasks that have been developed to cope with

expected situations. • An organization coordinates work through a structured hierarchy and formal standard

operating procedures (SOPs). SOPs guide employees in a variety of procedures, from writing an invoice to responding to customer complaints.



• The firm's business processes are based on its SOPs. Many business processes and SOPs are incorporated into information systems, such as how to pay a supplier or how to correct an erroneous bill.

(b) Management • A substantial part of management responsibility is creative work driven by new

knowledge and information. Information technology can play a powerful role in redirecting and redesigning the organization.

• Each level of management has different information needs and information system requirements as the managerial roles and decisions vary at different levels of the organization.

• Examples: Senior managers - make long-range strategic decisions about what products and

services to produce. Middle managers - carry out the programs and plans of senior management. Operational managers - responsible for monitoring the firm’s daily activities.

c) Technology Information Technology Infrastructure • The information technology infrastructure provides the foundation, or the platform,

on which the firm can build its specific information systems. • Each organization must carefully design and manage its information technology

infrastructure so that it has the set of technology services it needs for the work it wants to accomplish with information systems.

Example: • The United Parcel Service’s (UPS) tracking system is an information system solution

to the business challenge of providing a high level of service with low prices so as to be able to do better than its competitors.

• Through its automated package tracking system, UPS can monitor packages throughout the delivery process. Anyone with a package to ship can access the UPS Web site to track packages, check delivery routes, calculate shipping rates, determine time in transit and schedule a pickup.



1.2 The New Roles of Information Systems in Organizations Information systems have become integral, on-line, interactive tools deeply involved in the minute-to-minute operations and decision making of large organizations. 1.2.1 Information Technology Infrastructure and Information Technology Services

(Organizing the IT function) • Today’s new IT infrastructure is designed to make information flow across the

enterprise and includes links to customers, vendors, and public infrastructures, including the Internet.

• Each organization determines how its infrastructure will be configured. • In the early years, the information systems group was composed mostly of

programmers and performed very highly specialized but limited technical functions. • Today, a growing proportion of staff members are systems analysts and network

specialists, with the information systems department acting as a powerful change agent in the organization.

• The ISs department suggests new business strategies and new information-based products and services and coordinates both the development of the technology and the planned changes in the organization.

• In the past, firms, generally built their own software and managed their own computing facilities.

• Today, many firms are turning to external vendors to provide services and are using information systems departments to manage service providers.

1.2.2 How Information Systems Affect Organizations (How Information Systems Impact Organizations and Business Firms) Information systems can affect organizations from the following aspects: • Information technology can be viewed as factor of production that can be freely

substituted for capital and labour.

As the cost of information technology falls, it is substituted for labour, which historically has been a rising cost.

Therefore, in models of firms which views information technology as a factor of production, information technology should result in a decline of the number of middle managers and clerical workers as information technology substitutes for their labour.

• Information technology also helps firms contract in size because it can reduce

transaction costs - the costs incurred when a firm buys on the marketplace what it cannot make itself.

Information technology, especially the use of networks, can help firms lower the

cost of market participation (transaction costs), making it worthwhile for firms to contract with external supplier instead of using internal sources.

Eg. By using computer links to external suppliers, Chrysler Corporation can achieve economies by obtaining more than 70 percent of its parts from outside.



As transaction costs decrease, firm size (the number of employees) should shrink because it becomes easier and cheaper for the firm to contract for the purchase of goods and services in the marketplace rather than to the product of offer the service itself.

• Information technology can help reduce internal management costs

Information technology, by reducing the costs of acquiring and analyzing information, enables organizations to reduce labour costs, because it becomes easier for managers to oversee a greater number of employees.

By reducing overall management costs, information technology allows firms to increase revenues while shrinking the number of middle managers and clerical workers.

In smaller firms, information technology can expand the power and scope of small organizations by allowing them to perform coordinating activities, such as processing orders or keeping track of inventory with very few clerks and managers.

• Information technology can change the hierarchy of decision making in organizations

by lowering the cost of information acquisition and broadening the distribution of information.

Information technology could bring information directly from operating units to

senior managers, thereby eliminating middle managers and their clerical support workers.

IT pushes decision-making rights lower in the organization because lower-level employees receive the information they need to make decisions without supervision.

Because managers can now receive so much accurate information on time, they become faster at making decisions, so fewer managers are required.

• Information technology may encourage more virtual organizations and more

networked teams of “task-force” to be set-up.

Virtual organization

An organization that uses networks to link people, assets and ideas to create and distribute products and services without being limited to traditional organizational boundaries.

More firms may operate as virtual organizations, where work is no longer tied to its geographic location.

Eg. Clayx and Corolla is a networked virtual organization selling fresh flowers directly to customers, bypassing traditional florists. The firm takes orders over the telephone or from its Web site and transmits them to grower farms, which ship flowers using FedEx directly to its customers.

Information technology may encourage adhocracies and “task force” networked organizations in which groups of professionals come together – face-to-face or electronically – for short periods of time to accomplish a specific task (e.g. designing a new automobile); once the task is accomplished, the individuals join other task forces.



1.2.3 The Internet and Organizations

• The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations, which in turn can result in significantly lowering the transaction costs and employee costs facing most organizations.

• Eg. Brokerage firms and banks in New York can now “deliver” their internal operations procedures manuals to their employees at distant locations by posting them on the corporate Web site, saving millions of dollars in distribution costs.

• A global sales force can receive instant price product information updates using the Web or via e-mail.

• Vendors of some large retailers can access retailers’ internal Web sites directly for up-to-the-minute sales information and to initiate replacement orders instantly.

1.3 Roles and Goals of Information SystemsAs a general rule, information systems should have the following characteristics: • They are flexible and provide many options for handling data and evaluating

information. • They are capable of supporting a variety of styles, skills and knowledge. • They are powerful in the sense of having multiple analytical and intuitive models for

the evaluation of data and the ability to keep track of many alternatives and consequences.

• They reflect understanding of group and organizational processes of decision making. • They are sensitive to the bureaucratic and political requirements of systems. 1.4 Challenges of IS posed to a manager There are five key challenges faced by managers:

(i). The Strategic Business Challenge: What complementary assets are needed to use information technology effectively?

• To fully benefit from information technology, realize genuine creativity, and take

advantage of digital firm capabilities, many organizations actually need to be redesigned.

• Organizations will have to make fundamental changes in organizational behaviour, develop new business models, retire obsolete work rules and eliminate the inefficiencies of outmoded business processes and organizational structures.

• If organizations merely automate what they are doing today, they are largely missing the potential of information systems.

(ii). The Globalization Challenge: How can firms understand the business and system requirements of a global economic environment?

• The rapid growth in international trade and the emergence of a global economy call for information systems that can support both producing and selling goods in many different countries.



• To develop integrated, multinational, information systems, businesses must develop global hardware, software and communications standards; create cross-cultural accounting and reporting structures; and design trans-national business processes.

• Failure to create an integrated, multinational information systems, as was the case in the past, can result in chaos and the failure of central management controls because of the language, cultural and political differences among countries.

(iii). The Information Technology Infrastructure Challenge: How can organizations develop an information technology infrastructure that can support their goals when business conditions and technologies are changing so rapidly ?

Information Architecture

• The particular design that information technology takes in a specific organization to achieve its selected goals or functions.

• Meeting the business and technology challenges of today’s digital economy requires redesigning the organization and building a new information architecture and information technology infrastructure.

• Information architectures are increasingly being designed around business processes and clusters of system applications spanning multiple functions and organizational levels.

• Because managers and employees directly interact with these systems, it is critical for organization success that the information architecture meet business requirements now and in the future.

(iv). The Information Systems Investment Challenge: How can organizations

determine the business value of information systems? • Using information technology to design, produce, deliver and maintain new products

and making money spent on information systems, are two entirely different matters. • Organizations would want to obtain a significant payoff from their investment in

information systems and therefore management would need to ensure that information systems contribute to corporate value.

• Understanding the costs and benefits of building a single system is already a difficult task; however having to consider whether the entire systems effort is “worth it” becomes more complex and difficult. Therefore senior management can be expected to ask these questions:

How can we evaluate our information systems investment as we do or other investments?

Are we receiving the kind of return on our investment from our systems that we should be receiving?

Do our competitors get more?

(v). Ethics and Security: The Responsibility and Control Challenge: How can organizations ensure that their information systems are used in an ethically and socially responsible manner?

• A major management challenge is making informed decisions that are sensitive to the

negative consequences of information systems as well as to the positive ones. • Managers will also be faced with ongoing problems of security and control.



• Information systems are so essential to business, government and daily life that organizations must take special steps to ensure their security, accuracy and reliability.

• Information systems must be designed to that they function as intended and so that humans can control the process. A firm invites disaster if it uses systems that do not work as intended or do not deliver information in a form that people can interpret correctly and use.

Managers will need to ask: • Can we apply high-quality assurance standards to our information systems, as well as

to our products and services? • Can we design information systems that respect people’s rights of privacy while still

pursuing our organizational goals? • Should information systems monitor employees? • What do we do when an information system designed to increase efficiency and

productivity eliminates people’s jobs? 1.5 Information, Management and Decision Making Information – Data that have been shaped into a meaningful form or a form that is useful to human beings. Management – A process to make sense out of many situations faced by organizations, making decisions, formulate action plans to solve organizational problems and difficulties. Decision Making – A process of choosing among alternative courses of action for the purpose of attaining a goal or goals. • To determine how information systems can benefit managers, we must first consider

what managers do and what information they need for their decision making and other functions.

Classical Descriptions of Management: Classical Model of Management • Most popular method since 1920s by Henri Fayol. • Traditional description of management that focused on its formal functions of

planning, organizing, coordinating, deciding and controlling. • Disadvantages: - Just describe formal managerial functions

- Unable to describe what managers actually do Behavioral Models • By Kotter (1982) • Description of management based on behavioral- scientists’ observations of what

manager’s actually do in their jobs. • To describe the morning activities of the president of an investment management

firm.



• 5 attributes of managerial behavior: Unrelenting working pace – managers engage in more than 600 different

activities each day, with no break in their pace. Fragmented activities – most activities last for less than 9 minutes, only 10%

of the activities > 1 hr. Speculation, hearsay and gossip – prefer current, specific and ad hoc

information. Oral form of communication – great flexibility and faster response. High priority given - on maintaining various web contacts.

• Disadvantages: – Less systematic, informal, less reflective, more reactive, less well-organized, more frivolous, etc.

Mintzberg’s 10 Managerial Roles • Expectations of the activities that managers should perform in an organization. • Managerial Roles fall into 3 categories (according to Mintzberg): Interpersonal Roles • Managers act as figureheads for the organization and representing companies to the

outside world and perform symbolic duties such as giving out employee awards, motivation and counselling.

• Managers act as leaders, attempting to motivate, counsel and support subordinates. • Managers also act as liaisons between various organizational levels, and also serve as

liaisons among the members of the management team. Informational Roles • Managers act as the nerve centers of their organizations, receiving the most concrete,

up-to-date information and redistributing it to those who need to be aware of it. • Managers are, therefore, information disseminators and spokespersons for their

organizations. Decisional Roles Managers make decisions when they:

• act as entrepreneurs by initiating new kinds of activities • handle disturbances arising in the organization • allocate resources to staff members who need them • negotiate conflicts and mediate between conflicting groups in the organization.



Role Behavior Support Systems Interpersonal Roles

Figurehead None Exist Leader None Exist Liaison

Interpersonal

Electronic Communication Systems

Information Roles Nerve Center MIS, ESS Disseminator Mail, Office Systems Spokesperson

Information

Processing Office and professional systems, workstations

Decision Roles Entrepreneur None Exist Disturbance handler None Exist Resource allocator DSS Negotiator

Decision Making

None Exist

Table 1.1 Managerial Roles and Supporting Information Systems



Additional References: Decision-Support Systems (DSS) • Helps managers make decisions by analyzing data from a database and providing the

results of the analysis to the manager • Help managers make decisions that are unique, rapidly changing, and not easily

specified in advance. • Interactive users can change assumptions, ask new questions and include new

data. Executive Support Systems (ESS) / Executive Information System (EIS). • Provides support for the information needs of strategic managers at the highest level

of management • Usually used by senior managers who often have little direct contact with computers,

therefore these systems usually have easy-to-use graphic interfaces. • Address the non-routine decisions requiring judgement, evaluation, and insight

because there is no agreed-on procedure for arriving at a solution. • Questions ESS can assist in answering include:

In what business should we be? What are the competitors doing? What new acquisitions would protect us from cyclical business swings? Which units should we sell to raise cash for acquisitions?

Management Information Systems • Provide information to managers in the form of reports and query responses. • Supports management decision making by providing information in the form of

reports and responses to queries to managers at different levels of an organization • Helps managers make decisions by providing information from a database with little

or no analysis


Documents

Chap 1