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CHAPTER 2 : Information Systems
Concepts and Management
Chapter Outline
2.1
Types of Information Systems
2.2
Competitive Advantage and Strategic Information Systems
2.3
Why Are Information Systems Important to Organizations and Society?
2.4
Managing Information Resources
Teaching Tips and Strategies
In this chapter, the student is introduced to the basic concepts of information systems in
the organization and we explore how businesses use information systems in every facet
of their operations.
The role of information systems in helping a company to obtain and maintain a
competitive edge is explained. Examples of failed IS efforts are given. It is very
important for students to make the connection between information systems and a
company’s success. Mentioning that companies have failed when they do not keep state
of the art information systems is a point that helps to get the student’s attention.
One way to exemplify this is to illustrate how universal Information Technology is in
companies today. Students will work with companies that utilize a variety of
technologies at various levels of the organization. Instructors might want to open the
lecture with a class discussion about the universal use of information technologies in
many aspects of American life. Some examples are:
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ATM machines and banks in general.
Grocery store checkout line cash registers with bar code scanners and the ability to
use bank cards and credit cards for purchases.
Educational institutions rely on IT. The registrar’s office, financial aid office and the
library are just a few examples.
You might want to explain to students that the University/College at which you teach
uses information technology in different ways. Use examples of how the office that
handles registration/grades is on a different network, because this helps limit the number
of users that can modify grades or view students’ records. A discussion could be
introduced regarding computer labs and how and when they are used. Students can get to
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software programs such as Microsoft Word and check email. You could let them know
that faculty gets access to different programs and different parts of the campus network
that they cannot access and the reasons for that. Explain that it would cost much more to
have the IT department install Microsoft Office, and other programs on every machine,
not to mention the complications that would happen when students or faculty would
change or install other programs on the computer. By utilizing a network, the school
saves money and has the ability to control what information or programs students and
faculty members can access. One method companies have used to manage information
through the use of IT is to limit access. For example in most organizations, each user has
a pass code and linked to that pass code is a level of security clearance which limits what
information the employee can access. That access is based on a user’s need which
ensures that they can accomplish the work that they need to complete, yet cannot access
other parts of the system.
Many tasks performed by an employee are the same every week (such as payroll) and
that process can be automated including time sheets etc. Mentioning payroll often gets
students interested in information systems since it has a universal interest for all
employees, whether they are an MIS major or not.
In today’s interconnected world, we have access to so much data that it is often
overwhelming for managers to know where the best data resides, and how to access it.
With the advent of sophisticated computer systems, managers can now view a worker’s
Internet use by the click of a button. Managers can see what products are selling and
what products are not. This information can be used to better help management run the
day-to-day operations of a business. For example: A hotel manager finds that he is
almost sold out of rooms for the month of May. It might behoove him/her to raise the
prices of the vacant rooms left to increase revenue for the hotel. This strategy can also be
implemented when the manager notices vacancies are running at a higher rate than
normal.
This chapter is a very important one that sets the foundation for the importance of
information systems. Students should begin to realize that this is important for them to
understand and use in their careers. Once students start to understand that information
technologies not only change the way business is done in organizations, but also help
organizations to share information and make better-educated decisions that help their
companies thrive in a competitive environment, they can apply this knowledge to their
specific major.
The phrase “information technology systems in an organization” is composed of three
distinct parts: (1) an organization and its structure, (2) the data and information in an
organization, and (3) information technology hardware software and connectivity in an
organization. What is less clear about information technology is how business executives
can ensure that their organizations benefit from new opportunities afforded by
information technology and avoid its well-known, often-repeated pitfalls. Some of the
pitfalls or some of the problems companies have had as a result of utilizing IT are:
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botched development projects
escalating costs with no apparent benefits
organization disruption
support problems
technical glitches.
Managing information technology is not an easy task. The information systems function
has implementation problems in many organizations. In many documented cases, the
promised benefits of information technology have not occurred.
It is important for students to understand that there is a great need for businesses to
understand what is involved with IT because of the interdependence that exists between
business and technology. IT is now being used in all aspects of business. There are very
few transactions in business that are not in one way or another directly affected by IT.
It is also important to emphasize that technology has slowly evolved into open systems.
This means that industries now expect information technology solutions to be seamlessly
interconnected and upgradeable. Businesses that can upgrade their systems can save
millions of dollars not just on equipment costs, but save money by not having to retrain
customers or employees on new system interfaces when they are implemented.
Does the reader remember when new computer programs would come out and most
computer users would have to buy a new computer to take advantage of the new
programs features? In the new millennium, most computer owners no longer have to buy
new computers to run the latest programs. They may not have to do anything, or only
have to upgrade their memory, video card, modem or processor to take advantage of
these new programs/new technologies. By upgrading instead of buying new computer
systems, this helps to keep costs lower. It also helps businesses/consumers to adapt to
new technology quicker.
This chapter is one of the most important in the book for students. This chapter helps
students to realize that when looking at adapting or changing technology in a company it
is not as easy as just installing a new software program. They must analyze future needs
and make sure that the programs/technologies they are implementing will not only work
today, but be able to work in the future with new technologies.
Review Questions
Section 2.1 – Before you go on…
1. What is the difference between applications and computer-based information
systems?
An application is one or more computer programs (software) designed to support
a specific task or business process, such as payroll. A computer-based
information system is a broader term which includes the hardware and software
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that collects, processes, stores, analyzes, and disseminates information for a
specific purpose using computer technology to perform some or all of its tasks.
Generally, a CBIS contains many different applications and includes the hardware
and networking needed to support the functions.
2. Explain how information systems provide support for knowledge workers.
Knowledge workers make decisions about situations that can significantly change
the manner in which business is done. Information systems provide the databases,
communications, and applications which allow them to store critical data used in
analysis and tactical decision making.
3. As we move up the organization’s hierarchy from clerical workers to executives,
how does the type of support provided by information systems change?
At the lower organizational levels, systems are used primarily to automate routine
tasks. Moving up in the organization, systems are used to analyze information for
decision making purposes.
Section 2.2 - Before you go on…
1. What are strategic information systems?
Any information system which helps an organization gain a competitive
advantage or reduce a competitive disadvantage is a strategic information system.
2. According to Porter, what are the five forces that could endanger a firm’s
position in its industry or marketplaces?
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The threat of entry of new competitors.
The bargaining power of suppliers
The bargaining power of customers
The threat of substitute products or services
The rivalry among existing firms in the industry
3. Describe Porter’s value chain model. Differentiate between Porter’s competitive
forces model and his value chain model.
Porter’s competitive forces model is focused on analyzing the company’s external
environment and how competitive the industry is. The value chain model is
focused on the internal operations of the company and is a model to allow the
firm to analyze its own processes.
4. What strategies might companies use to gain competitive advantage?
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Cost leadership
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Differentiation
Innovation
Operational effectiveness
Section 2.3 - Before you go on…
1. Why do SISs support many corporate strategies?
Strategic information systems are generally integrated across departments in the
organization which means that they support many of the corporate functions,
initiatives and goals within the organization.
2. Besides our inability to predict the future, what are other reasons that IT projects
might fail?
Answers will vary, but can include:
Lack of understanding of the business problem
Lack of user involvement
A schedule which is too aggressive
Inadequate testing
Trying to make too many changes at one time
Section 2.4 – Before you go on…
1. How important are end users to the management of the organization’s
information resources?
End users are very important to the management of the organization’s information
resources because they are the key users of those resources. Generally speaking,
end users are closest to the data, and are therefore often given responsibility over
departmental information resources.
2. Where do you think the IT staff should be located? Should they be decentralized
in the functional areas? Centralized at corporate level? A combination of the
two? Explain your answer.
There is not a single recommendation that fits all organizations. In many
organizations today, however, a combination approach is used. In order to
improve understanding and responsiveness to the end users, some IT staff is
placed within the functional areas. In order to provide centralized planning and
control, some IT staff is centralized.
“IT’s About Business” Questions
2.1 – Information Technology and the National Football League
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1. Identify the various computer-based information systems used by the NFL
Key information technologies are in place to support the NFL’s business model,
their broadcasts, merchandize sales, marketing and box office revenue. These
include global positioning systems (GPS), electronic commerce, wired and
wireless networking, voice over Internet Protocol (VoIP), data security, storage,
and project management.
2. What is the NFL’s biggest competitive advantage over other major sports, both
amateur and professional? Is this advantage related to information systems?
Support your answer.
The NFL is a monopoly in professional football, and any competition needs to
have to set up capabilities and infrastructure that is very expensive. NFL has a
very centralized interaction with its fans through their customer relationship
management systems and various marketing arrangements with other companies.
Other leagues are behind in this centralized approach and lack the IS capabilities
that have helped the NFL create a “brand” over and above the identity of their
teams.
3. Can the NFL sustain its competitive advantage? Why or why not? Hint: What
are the barriers to entry for the NFL?
They should be able to sustain a competitive advantage because there are very
high capital startup costs for anyone entering the NFL. That alone helps NFL
maintain its edge, along with their state of the art Information Systems.
2.2– Under Armour Moves into Running Shoes
1. Is Under Armour pursuing a viable strategy in moving into the running shoe
business? Analyze Under Armour’s risk with this strategy. Discuss the impact of
information technology on the level of risk that Under Armour is assuming.
Under Armour is targeting an underserved segment of the market. They are using
technology to design and build a better product and bring it to market quicker.
By shipping directly from manufacturing shops to retail shops it can reduce
inventory and accommodate the large variety in sizes, styles that their target
market demands. The strategic use of IT is minimizing their risk.
2. Will Under Armour’s use of information technology in developing a running shoe
line of products lead to a competitive advantage? Why or why not? Support your
answer.
They are not the only ones using this technology. Other bigger running shoe
makers are entrenched and using similar IT to support their operations.
Their
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use of IT to develop a running shoe may not lead to a competitive advantage as it
already being done by competitors. .
3. What should Under Armour do to decide if the recession caused its weak financial
results in January 2009 or its other factors (such as the company’s running shoe
strategy) contributed?
Several answers are possible. Cross marketing is a possibility. Under Armour‘s
clothing brand has a great following perhaps marketing shoes and promoting
together may be of benefit.
2.3– The Chubb Group
1. Describe how Chubb’s information systems have enhanced the relationship
among the company, agents, and customers.
Chubb has relied on information technology to increase its ability to speed claims
processing and develop a closer relationship with agents. They also built a system
to claims management system to enable the company to share information with
agents. They built an online collaboration system for documents, claims, and
real-time data that provides customizable data feeds to agents and brokers. A
proprietary collaborative platform offers the firm’s agents and brokers the ability
to automatically view personal and commercial claim information. Agents who
use the system are able to provide more responsive claims service to
policyholders throughout the entire claims process – from loss to final resolution.
The systems provide automatic updates, including initial loss notifications,
payments, and key status updates. Agents and brokers receive near real-time
(updated every two hours) information about important claim activities, including
loss notifications, status information, and changes in adjustor assignments. The
systems also reduce phone calls, faxes, and written exchanges between the
company’s service center and agents.
2. What strategies can Chubb use to encourage agents to adopt the company’s
information systems?
Many answers are possible. Perhaps encourage training, help them set up their
systems to get what information they want. Use early adopters as champions for
the late adopters.
3. Can Chubb’s information systems also be an example of the customer orientation
strategy (discussed next)? Support your answer.
By allowing the agents to better serve their customer, Chubb is following a
customer orientation strategy.
2.4– Pitney Bowes
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1. Describe the role of Pitney Bowes’ IT department. Is the IT department of
strategic importance to the company? Support your answer.
The centralized IT organization supports all the business units. The goals of the IT
organization were to provide internal customers with reliable, efficient delivery of
services; to find ways to solve more business problems; and to use IT to offer
more value to its external customers. Yes. It is a strategic importance to the
company as it partners with other departments to support their business strategies.
2. What is the relationship between Pitney Bowes’ IT department and Wipro? Is
Wipro of strategic importance to Pitney Bowes? What is the role of Pitney
Bowes’ IT department with regard to Wipro?
Wipro has provided PB with cost savings, access to a larger pool of labor and
skills, and a higher-quality end product. Wipro also made PB adopt more
stringent software quality measures. Wipro is providing skilled talent that
supports PB’s IT needs. Wipro is strategic to PB. They understand PB’s IT
Infrastructure and systems; hence it will be difficult to replace Wipro with another
vendor. PB’s IT department collects the needs of the systems and manages the
projects that are delivered by Wipro.
DISCUSSION QUESTIONS
1. Discuss the logic of building information systems in accordance with the
organization’s hierarchical structure.
Information systems must be designed to provide a match between the needs of
organizational entities and the support provided by IT. Information systems can be
classified according to organizational structure. The vast majority of organizations
still have a traditional hierarchical structure. Therefore, the most common
arrangement of information systems is one that follows the hierarchical structure.
There are information systems and applications built for headquarters, for divisions,
for departments, and for specific teams. Other systems are enterprise-wide, interorganizational, and global (international). Information systems can be either standalone or inter-connected.
2. Knowledge workers comprise the largest segment of the workforce in U.S. business
today. However, many industries need skilled workers who are not knowledge
workers. What are some examples of these industries? What (people, machines, or
both) might replace these skilled workers? When might the U.S. economy need more
skilled workers than knowledge workers?
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The auto industry and computer part manufacturers need skilled workers as well as
restaurants, hair salons and other types of service industries. There are some skilled
workers that can be replaced by robots and other computerized solutions. As
functions such as securing a loan can be accomplished over the internet, we can
eliminate the knowledge workers that work at banks and provide that service now.
In the near future many more of those types of jobs will be eliminated and therefore
create a situation where more skilled workers will be needed.
3. Using Figure 2.2 as your guide, draw a model of a supply chain with your university
as the central focus. Keep in mind that every university has suppliers and customers.
Students will submit their own version of a model. They should include such things
as hard supplies like office supplies, equipment, etc. and soft products like the
registration for classes.
4. Is IT a strategic weapon or a survival tool? Discuss.
It is both. Used to establish a competitive advantage in an industry, IT helps an
organization implement its strategic goals and increase its performance and
productivity. As a survival tool, it is used to fend off various threats such as new
entrants, suppliers and customers bargaining power, substitute products or services,
and rivalries among existing firms in the industry.
5.
Why might it be difficult to justify a strategic information system?
SISs are often very complex and very expensive to develop and outcomes may take
years to observe and measure.
6.
Describe the five forces in Porter’s competitive forces model and explain how the
Internet has affected each one.
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The threat of entry of new competitors.
In the CarMax case we saw how the use of communications and the Internet allow
a company to gain an advantage by providing access to its inventory.
The bargaining power of suppliers
Companies can find potential suppliers and compare prices giving buyers a better
chance to negotiate terms.
The bargaining power of customers
Customers’ power has increased tremendously with the availability of information
on the Internet. Much the same as suppliers above, they have a much more
information about sources of goods and services and pricing to help them when
they are making purchasing decisions. (The demon customer case drives this
point home)
The threat of substitute products or services
Any industry which is primarily based on digitized information is at risk, and
must take the threat of Internet delivered products and services seriously.
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
7.
The rivalry among existing firms in the industry
The Internet makes competition more intense.
Keeping anything secret is impossible once it is available on the Internet.
Competitors can see the systems and match their features to remain competitive.
Describe Porter’s value chain model. What is the relationship between the
competitive forces model and the value chain model?
The competitive forces model is useful for identifying general strategies,
organizations us the value chain model to identify specific activities where they can
use competitive strategies for greatest impact.
8.
Why has the Internet been called the creator of new business models?
The Internet has provided companies with the flexibility to structure its
divisions/departments in almost any way they would like. It is no longer necessary to
structure a company in a hierarchical fashion or to provide expertise at each major
location. Experts can collaborate across the globe using groupware tools.
9.
Discuss the idea that an information system by itself can rarely provide a
sustainable competitive advantage.
Information Technology is a tool. It is management’s responsibility to use it to the
best advantage that will help to sustain a competitive advantage.
10. Discuss the reasons why some information systems fail.
Answers will vary, but can include:
Lack of understanding of the business problem
Lack of user involvement
A schedule which is too aggressive
Inadequate testing
Trying to make too many changes at one time
.
PROBLEM SOLVING ACTIVITIES
1. Characterize each of the following systems as one (or more) of the IT support
systems:
a.
A student registration system in a university.
TPS, MIS
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b.
c.
d.
e.
A system that advises physicians about which antibiotics to use for a
particular infection. EIS
A patient-admission system in a hospital. TPS,MIS
A system that provides a human resources manager with reports regarding
employee compensation by years of service. MIS
A robotic system that paints cars in a factory. EIS
2. Compare and contrast the two companies, Google and Amazon, on their
strategies, their business models, their IT infrastructures, their service offerings,
and their products. After you have finished with your analysis, explain why
Google has a larger market capitalization than Amazon and is more profitable.
Google and Amazon started out in two different areas, Google as a search engine,
Amazon as an Internet retailer primarily selling books. Now, each as adjusted
their strategies and business models as discussed in Chapter 1. Their IT
infrastructures are more similar today with excess capacity being used to offer
other companies the ability to use their resources. Students’ responses will vary
regarding capitalization and profitability.
3. Apply Porter’s Value Chain Model to Costco (www.costco.com). What is
Costco’s competitive strategy? Who are Costco’s major competitors? Describe
Costco’s business model. Describe the tasks that Costco must accomplish for
each primary value chain activity. How would Costco’s information systems
contribute to Costco’s competitive strategy, given the nature of its business?
Costco’s business model is to sell premium merchandize at a lower price to
members (captive group of shoppers). Sam’s club is their biggest competitor.
They need to procure the right merchandise mix targeting their members by
building a strong understanding of their base of members. They need to have an
efficient supply chain and then be able to track the success of their promotions
and marketing efforts.
4. Apply Porter’s Value Chain Model to Dell (www.dell.com). What is Dell’s
competitive strategy? Who are Dell’s major competitors? Describe Dell’s
business model. Describe the tasks that Dell must accomplish for each primary
value chain activity. How would Dell’s information systems contribute to
Costco’s competitive strategy, given the nature of its business?
Dells strategy is to offer high end computers with premium features and
components at a lower price and allow for customers to customize their systems
using a web based interface. Dell must support a highly efficient supply chain
system and reduce their inventory costs. They need to track new components and
offer them to their customers and then track the quality of their components as
they are introduced into their systems.
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5.
The market for optical copiers is shrinking rapidly. It is expected that by
2010 as much as 90 percent of all duplicated documents will be done on computer
printers. Can a company such as Xerox Corporation survive?
a. Read about the problems and solutions of Xerox from 2000-2010 at
www.fortune.com, www.findarticles.com, and www.google.com
b. Identify all the business pressures on Xerox.
c. Find some of Xerox’s response strategies (see www.xerox.com,
www.yahoo.com, and www.google.com).
d. Identify the role of IT as a contributor to the business technology pressures (for
example, obsolescence).
e. Identify the role of IT as a facilitator of Xerox’s critical response activities.
Xerox needs to identify new business models and new ways to introduce their
technology into products that can support their customers.
6. Enter www.dell.com, and find the current information systems used by the
company. Explain how the systems’ innovations contribute to Dell’s success.
Dell has state of the art supply chain management systems and place stringent
requirements for JIT delivery of computer components on their suppliers.
7. Access Truste (www.truste.org), and find the guidelines that Web sites displaying
its logo must follow. What are the guidelines? Why is it important for Web sites to
be able to display the Truste logo on their sites?
Truste has several programs that certify the information privacy and security
policies of the web site. It is an important certification that can build user trust in
their web sites.
Below is the information from the truste website
__________________________________________________________________
ALL TRUSTe®-licensed sites must provide:
User controls, including:
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An email unsubscribe function
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An opt-out function limiting the sharing of personally identifiable
information (PII) with outside parties
•
Access management permitting users to update stored PII or have it
changed by the Licensee
Security measures, ensuring:
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Secured Socket Layers (SSLs), or other comparable technology, that
encrypts pages collecting sensitive information such as credit card numbers
A complaint resolution process, providing:
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Comprehensive contact information for appropriate Web site employees
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A link to the TRUSTe Watchdog site for third-party dispute resolution
A privacy statement, including the following disclosures:
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What PII is collected and how it will be used
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Identity of the party collecting PII
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•
Whether PII is shared with third parties
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The use of any tracking technology
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Whether PII is supplemented with information from other sources
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Choice options available to consumers
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How consumers can access PII they have provided
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That there are security measures in place
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Procedures for filing and addressing consumer complaints
In addition, the privacy statement must:
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Be linked from the home page and from every page where PII is collected
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Bear the TRUSTe "Click to Verify" link so consumers know whether the
company is a TRUSTe licensee or not
__________________________________________________________________
Companies benefit from this association because it builds customer confidence
and drives revenue up by letting customers know that they can trust you with their
personal information.
8. Enter www.cio.com and find recent information on the changing role of the CIO
and the ISD. What is the role of the CIO in organizations today?
The CIO role has changed to be a strategic role. The CIO is required to be a
partner with business units and be in strategy and planning together. They need to
understand aspects of the business and be able to suggest how technology can be
used to support those business activities.
TEAM ASSIGNMENTS
1. Observe your local Wal-Mart checkout counter. Find material on the Web that
describes how the scanned code is translated into the price that the customers pay. Hint:
Look at www.howstuffworks.com.
a.
Identify the following components of the Wal-Mart system: inputs, processes, and
outputs.
Scanners, cash registers, belt, optical reader, key pad, display, printer, etc.
b.
What kind of a system is the scanner (TPS, DSS, EIS, ES, etc.)? Why did you
classify it as you did?
TPS
c.
Having the information electronically in the system may provide opportunities for
additional managerial uses of that information. Identify such uses.
Data mining, inventory control
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d.
Checkout systems are now being replaced by self-service checkout kiosks and
scanners. Compare the two in terms of speed, ease of use, and problems that may arise
(for example, an item that the scanner does not recognize).
Customer can experience problems scanning, finding the bar code, size of the item,
coupons and discounts, etc.
2.
Assign group members to UPS (www.ups.com), FedEx (www.fedex.com), DHL
(www.dhl.com), and the U.S. Postal Service (www.usps.com). Have each group study the
e-commerce strategies of one organization. Then have members present the organization,
explaining why it is the best.
Student answers will vary. Put emphasis on identifying the forces on each organization
and what type of strategy is used.
3.
Divide the class into teams. Each team will select a country government and visit
its official Web site (for example, try the United States, Australia, New Zealand,
Singapore, Norway, Canada, the United Kingdom, the Netherlands, Denmark, Germany,
and France). For example, the official Web portal for the U.S. government is
www.firstgov.gov. Review and compare the services offered by each country. How does
the United States stack up? Are you surprised at the number of services offered by
countries through Web sites? Which country offers the most services? The least?
Students will come up with a report comparing the different countries.
CLOSING CASE – Innovation with Information Technology at New
York Life
The Business Problem:
New York Life has three business problems:
(1)
How to use information technology to effectively support agents;
(2)
How to use information technology to support and collaborate with
existing customers, as well as to engage prospective customers;
(3)
How to use information technology to manage legacy technologies when
employees knowledgeable about those technologies are beginning to retire.
Questions:
1. Is the Web portal at New York Life a strategic information system? Why or why
not? Support your answer.
New York Life has a dedicated agency workforce to sell its products. The
insurer’s agents are provided with information technology to help them run their
businesses. The latest technology for the agents is a Web portal system developed
exclusively for them.
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The Web portal gives agents access to many applications that provide a wide
range of information, such as ledger data, sales rankings, news, and e-mail. The
portal also contains a collaboration platform. The agents use the platform to
access and send documents, conduct electronic meetings, and share business
cases. Everything in the platform has an audit trail and is authenticated. In
addition, the Web portal provides a Web-based contact and calendar system for
U.S. agents. The web portal is sophisticated knowledge management system,
which is strategic to their business.
2. Discuss the reasons why there is so much work to be done in giving international
agents the technology that U.S. agents have.
IT literacy in international locales; local business practices may not be conducive
to technology use and the available of suitable internet infrastructure may be
barriers to non US agents use of the technology.