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CHAPTER 2 : Information SystemsConcepts 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 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 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 when they are used. Students can get to software programs such as Microsoft Word, and check email. You could let them know

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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 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 then 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

botched development projects

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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 worktoday, but be able to work in the future with new technologies.

Review Questions

Section 1.1 – 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 that collects, processes, stores, analyzes, and disseminates information for a

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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 in the organization’s hierarchy, from clerical workers to executive, how does the 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?

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. What strategies might companies use to gain competitive advantage?

Cost leadership Differentiation Innovation Operational effectiveness

Section 2.3 - Before you go on…

1. Why do SISs support many corporate strategies?

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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 why It projects might fail?.

Answers will vary, but can include:Lack of understanding of the business problemLack of user involvementA schedule which is too aggressive Inadequate testingTrying to make too many changes at one time

1. As we move up in the organization’s hierarchy, from clerical workers to executive, how does the 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.

Section2.4 – 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.

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“IT’s About Business” Questions

2.1 – No Haggling, No Hassle, at Car Max

1. Identify the various computer-based information systems used by CarMax

Through the use of RFID technology, CarMax built an inventory control and tracking system which allows the company and customers to locate a particular car, to know how long it has been in inventory, how much interest there has been in test driving it and to transfer it to a different location if necessary. In addition, buyers can access the data to appraise cars. This aids in understanding the optimal combination of inventory and pricing.

2. What is CarMax’s biggest competitive advantage? Is this advantage related to information systems? Support your answer.

The access to information is what differentiates CarMax from its competitors. Customers can view the information nationwide in a non-threatening environment. Showroom computers give customers access to the catalog of over 20,000 cars.

3. Can CarMax sustain its competitive advantage? Why or why not? Hint: What are the barriers to entry for a used-car dealership (Section 1.2)

They should be able to sustain a competitive advantage because there are very high capital startup costs for anyone entering the auto industry. That alone helps CarMax maintain its edge,along with their state of the art Information Systems.

2.2–Norfolk Southern Railway

1. Would you classify Norfolk Southern’s new system as a strategic information system?

Yes, it provides a competitive advantage by helping the organization implement its strategic goals and increase its performance and productivity.

2. Why did Norfolk Southern decide to sell its software to other railroads? Wouldn’t this strategy diminish, rather than strengthen the company’s competitive advantage? Hint: What is the relationship between the railroad industry and the trucking industry?

Norfolk and Southern’s system was so far ahead of other railroads’ systems that it was able to sell its software and help to ensure the viability of the railroad industry as a whole. The newly deregulated trucking industry was capturing many of its customers and the move to sell to competitors enabled the railroad industry as a whole to overcome its reputation of bad service.

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2.3–TIAA-CREF Has Problems with Upgrade

1. What are the problems (there are many) associated with the implementation of TIAA-CREF’s new information system? Which problem is the most fundamental?

Some of the problems are, integration issues with the new system and the old legacy system., customer service team not adequately trained, customers lost access to their funds, major delays in transactions.

2. Is TIAA-CREF’s new information a strategic information system? Why or why not? Hint: Look back at the definition of an SIS in this chapter.

Yes, it is intended that the system will give the company a competitive advantage in the area of individual retirement options to its academic customers.

2.4–Can Architects be Offshored?

1. Has the emergence of the global, Web-based platform affected the offshoring of architectural work? If so, explain how.

Yes,It is much easier to work remotely due to the availability of technology tools and high bandwidth communication networks.

2. If you were majoring in architecture, how would you prepare in order to reduce the chance that your job would be offshored? Hint: Think about the characteristics of work that is offshored versus the characteristics of work that “stays Home”. Now, extend your answer to the field of MIS.

To ensure that you have the best chance of being able to do the work that you enjoy, students should concentrate their work in the area of complete design rather than just drawing certain portions of a project.

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Discussion Questions

1. Discuss the logic of building information systems in accordance with the organizational 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, inter-organizational, and global (international). Information systems can be either stand-alone 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 might replace these skilled workers? When might the U.S. economy need more skilled workers than knowledge workers?

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.

2. Describe how IT architecture and information infrastructure are interrelated.

The IT architecture is a high level map or plan of the information assets in an organization. The IT infrastructure is the actual manifestation of specific computing resources in the organization, including how those resources are arranged, operated, and managed.

3. Is the Internet an infrastructure, an architecture, or an application program? Why? If none of the above, then what is it?

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The Internet is a collage of networks that are interconnected together. Therefore it is an infrastructure with internal divisions that promote the exchange of information with other users. Internet features are based upon application programs such as FTP, Gopher, Web, WAIS and Lists. Internet architecture is based upon ways in which businesses can access Internet services. Elements of the overall architecture allow a company to purchase as much or as little Internet connectivity assistance as it deems appropriate.

4. Explain how office automation systems, management information systems, and decision support systems can support multiple levels of the organization.

Office automation systems support many levels by providing word processing capabilities and communications capabilities of email. Management information systems contain data and reporting capabilities that can be used by line workers, as well as supervisors and upper management levels to see what activity is happening in a real time mode. Decision support systems aid many levels of the organization to provide retrospective comparisons of different groups of data and different time periods such as summaries of current quarter sales compared with the same quarter in the previous year to see how well the business is doing.

5. 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.

6. Why might it be difficult to justify a strategic information system?

SISs are often very complex and very expensive to develop.

7. Describe the five forces in Porter’s competitive forces model, and explain how the Internet has affected each one.

The threat of entry of new competitors.In the CarMax case we saw how the use of communications and the Internet allowa company to gain an advantage by providing access to its inventory.

The bargaining power of suppliersCompanies can find potential suppliers and compare prices giving buyers a better chance to negotiate terms.

The bargaining power of customersCustomers’ 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

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they are making purchasing decisions. (The demon customer case drives this point home)

The threat of substitute products or servicesAny industry which is primarily based on digitized information is at risk, and must take the threat of Internet delivered products and services seriously.

The rivalry among existing firms in the industryThe 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.

8. 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.

9. 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.

10. 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.

11. Discuss the reasons why some information systems fail.

Answers will vary, but can include:Lack of understanding of the business problemLack of user involvementA schedule which is too aggressive Inadequate testingTrying to make too many changes at one time

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CLOSING CASE – Can IT Save Albertson’s from Wal-Mart?

The Business Problem:Todd Pacific Shipyard needed to replace its old traditional time card system

because it was slow, inaccurate, and it took too many clerical people to use it while not providing enough information.

Questions:1. If you are the CIO at Todd Pacific, to what other applications could you link the

Time and Tracking application?The time and attendance system could be linked to an activity scheduling system, a productivity reporting system, customer billing and a payroll system

2. Skilled union workers typically have a degree of autonomy. If you are a skilled worker at Todd Pacific, do you have any privacy concerns about being wirelessly monitored? Why or why not?

While employees might have some concerns initially, once they see the 50 percent reduction in workplace injuries and other benefits to having the new system, they should realize the tradeoff.

3. Would the new system at Todd Pacific improve or damage the company’s relationship with its unions? Support your answer.

It would improve the relationship. In addition to the safety issues, wages were considered. The shipyard incorporated the logic for the union wage payment rules into the PDA so that extra pay can be awarded without any extra paperwork.

PROBLEM SOLVING ACTIVITIES1. Characterize each of the following systems as one (or more) of the IT support

systems:a. A student registration system in a university. TPS,MISb. A system that advises physicians about which antibiotics to use for a

particular infection. EISc. A patient-admission system in a hospital. TPS,MISd. A system that provides a human resources manager with reports regarding

employee compensation by years of service. MISe. 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 you 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

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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.

WEB ACTIVITIES

1. The market for optical copiers is shrinking rapidly. It is expected that by 2008 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 in 2000-2003 at www.fortune.com, www.findarticles.cocm and www.goggle.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.After visiting the sites listed above students responses will vary but should include a discussion of some of the strategies Xerox us using and the role of IT in their solutions.

2. Enter the site of Dell.com and find the current information systems used by the company. Explain how the systems’ innovations contribute to Dell’s success

Responses will vary. Dell has perfected the mass customization technique and their web ordering systems support this very effectively.

3. 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?

Below is the information from the truste website________________________________________________________________________

ALL TRUSTe®-licensed sites must provide:

User controls, including:

An email unsubscribe function

An opt-out function limiting the sharing of personally identifiable information (PII) with

outside parties

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Access management permitting users to update stored PII or have it changed by the

Licensee

Security measures, ensuring:

Secured Socket Layers (SSLs), or other comparable technology, that encrypts pages

collecting sensitive information such as credit card numbers

A complaint resolution process, providing:

Comprehensive contact information for appropriate Web site employees

A link to the TRUSTe Watchdog site for third-party dispute resolution

A privacy statement, including the following disclosures:

What PII is collected and how it will be used

Identity of the party collecting PII

Whether PII is shared with third parties

The use of any tracking technology

Whether PII is supplemented with information from other sources

Choice options available to consumers

How consumers can access PII they have provided

That there are security measures in place

Procedures for filing and addressing consumer complaints

In addition, the privacy statement must:

Be linked from the home page and from every page where PII is collected

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.

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4. 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 in an organization today is no longer just a technical expert. The CIO must know the business and be a part of the high-level decision making activities in the organization.

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.b. What kind of a system is the scanner (TPS, DSS,EIS, ES, etc.)? Why did you

classify it as you did?c. Having the information electronically in the system may provide

opportunities for additional managerial uses of that information. Identify such uses.

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 arise (for example, an item that the scanner does not recognize)/

2. Assign group members to UPS (www.ups.com), FedEx (www.fedex.com), DHL (www.dhl.com), and the U.S. Postal Serive (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.

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 servies offered by countries through Web sites? Which country offers the most services? The least?