Chapter 1

Information
Systems in Global
Business Today

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Chapter 1 Information Systems in Global Business Today

The Role of Information Systems in Business Today

• How information systems are transforming

business
• Increase in wireless technology use, Web sites
• Shifts in media and advertising
• New federal security and accounting laws
• Globalization opportunities
• Internet has drastically reduced costs of operating
on global scale
• Presents both challenges and opportunities

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The Role of Information Systems in Business Today

Information Technology Capital Investment

Information technology investment, defined as hardware, software, and communications

equipment, grew from 32% to 51% between 1980 and 2008.
Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income
and Product Accounts, 2008.

Figure 1-1
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Chapter 1 Information Systems in Global Business Today

The Role of Information Systems in Business Today

 In the emerging, fully digital firm

¡ Significant business relationships are digitally enabled
and mediated
¡ Core business processes are accomplished through
digital networks
¡ Key corporate assets are managed digitally

 Digital firms offer greater flexibility

in organization and management
¡ Time shifting, space shifting

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The Role of Information Systems in Business Today

Virtual Meetings: Smart Management

Read the Interactive Session and then discuss the following questions:

• What are the advantages of using videoconferencing

technologies? What are the disadvantages?
• What is telepresence and what sorts of companies are
best suited to use it as a communications tool?
• What kinds of companies could benefit from using
videoconferencing? Are there any companies that
might not derive any benefits from this technology?

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Chapter 1 Information Systems in Global Business Today

The Role of Information Systems in Business Today

 Growing interdependence between ability to use

information technology and ability to implement
corporate strategies and achieve corporate goals

 Business firms invest heavily in information

systems to achieve six strategic business
objectives:

¡ Operational excellence
¡ New products, services, and business models
¡ Customer and supplier intimacy
¡ Improved decision making
¡ Competitive advantage
¡ Survival
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The Role of Information Systems in Business Today

 Operational excellence:
¡ Improvement of efficiency to attain higher profitability
¡ Information systems, technology an important tool in
achieving greater efficiency and productivity
¡ Wal-Mart’s RetailLink system links suppliers to
stores for superior replenishment system

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The Role of Information Systems in Business Today

 New products, services, and

business models:
¡ Business model: describes how company produces,
delivers, and sells product or service to create wealth
¡ Information systems and technology a major enabling
tool for new products, services, business models
÷ Examples: Apple’s iPod, iTunes, and iPhone, Netflix’s
Internet-based DVD rentals

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The Role of Information Systems in Business Today

 Customer and supplier intimacy:

¡ Serving customers well leads to customers returning,
which raises revenues and profits
÷ Example: High-end hotels that use computers to track customer
preferences and use to monitor and customize environment

¡ Intimacy with suppliers allows them to provide vital

inputs, which lowers costs
÷ Example: J.C.Penney’s information system which links
sales records to contract manufacturer

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The Role of Information Systems in Business Today

 Improved decision making

¡ Without accurate information:
÷ Managers must use forecasts, best guesses, luck
÷ Leads to:
¢ Overproduction, underproduction of goods and services
¢ Misallocation of resources
¢ Poor response times
÷ Poor outcomes raise costs, lose customers
¡ Example: Verizon’s Web-based digital dashboard to
provide managers with real-time data on customer
complaints, network performance, line outages, etc.

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The Role of Information Systems in Business Today

 Operational excellence:
¡ Improvement of efficiency to attain higher profitability
 New products, services, and business models:
¡ Enabled by technology
 Customer and supplier intimacy:
¡ Serving customers raises revenues and profits
¡ Better communication with suppliers lowers costs
 Improved decision making
¡ More accurate data leads to better decisions

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The Role of Information Systems in Business Today

 Competitive advantage
¡ Delivering better performance
¡ Charging less for superior products
¡ Responding to customers and suppliers in real time
¡ Example: Toyota and TPS (Toyota Production System) enjoy
a considerable advantage over competitors – information
systems are critical to the implementation of TPS

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The Role of Information Systems in Business Today

 Survival
¡ Information technologies as necessity of business
¡ May be:
÷ Industry-level changes, e.g. Citibank’s introduction of ATMs
÷ Governmental regulations requiring record-keeping
¢ Examples: Toxic Substances Control Act, Sarbanes-Oxley Act

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The Role of Information Systems in Business Today

The Interdependence Between Organizations and
Information Technology

In contemporary systems there is a growing interdependence between a firm’s information systems

and its business capabilities. Changes in strategy, rules, and business processes increasingly
require changes in hardware, software, databases, and telecommunications. Often, what the
organization would like to do depends on what its systems will permit it to do.
Figure 1-2
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Chapter 1 Information Systems in Global Business Today

Perspectives on Information Systems

 Information system:
¡ Set of interrelated components
¡ Collect, process, store, and distribute information
¡ Support decision making, coordination, and control
 Information vs. data
¡ Data are streams of raw facts
¡ Information is data shaped into meaningful form

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Data and Information

Figure 1-3
Raw data from a supermarket checkout counter can be processed and organized to
produce meaningful information, such as the total unit sales of dish detergent or the
total sales revenue from dish detergent for a specific store or sales territory.

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Perspectives on Information Systems

 Information system: Three activities

produce information organizations need
¡ Input: Captures raw data from organization or external
environment
¡ Processing: Converts raw data into meaningful form
¡ Output: Transfers processed information to people
or activities that use it

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Perspectives on Information Systems

 Feedback:
¡ Output returned to appropriate members of
organization to help evaluate or correct input stage
 Computer/Computer program
vs. information system
¡ Computers and software are technical foundation
and tools, similar to the material and tools used to
build a house

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Perspectives on Information Systems

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
returned to appropriate people or activities in the organization to evaluate and refine the input. Environmental
actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the
organization and its information systems.
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Figure 1-4
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Chapter 1 Information Systems in Global Business Today

Perspectives on Information Systems

Information Systems Dimentions

Using information systems effectively requires an understanding of the organization, management,

and information technology shaping the systems. An information system creates value for the firm as
an organizational and management solution to challenges posed by the environment.
Figure 1-5
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Perspectives on Information Systems

 Organizational dimension of
information systems
¡ Hierarchy of authority, responsibility
÷ Senior management
÷ Middle management
÷ Operational management
÷ Knowledge workers
÷ Data workers
÷ Production or service workers

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Perspectives on Information Systems

Levels in a Firm

Business organizations are hierarchies consisting of three principal levels: senior

management, middle management, and operational management. Information
systems serve each of these levels. Scientists and knowledge workers often work
with middle management.
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Figure 1-6
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Chapter 1 Information Systems in Global Business Today

Perspectives on Information Systems

 Organizational dimension of
information systems (cont.)
¡ Separation of business functions
÷ Sales and marketing
÷ Human resources
÷ Finance and accounting
÷ Manufacturing and production
¡ Unique business processes
¡ Unique business culture
¡ Organizational politics

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Perspectives on Information Systems

 Management dimension of information

systems
¡ Managers set organizational strategy for responding
to business challenges
¡ In addition, managers must act creatively:
÷ Creation of new products and services
÷ Occasionally re-creating the organization

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Perspectives on Information Systems

 Technology dimension of
information systems
¡ Computer hardware and software
¡ Data management technology
¡ Networking and telecommunications technology
÷ Networks, the Internet, intranets and extranets, World
Wide Web
¡ IT infrastructure: provides platform that system is
built on

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Perspectives on Information Systems

 Business perspective on
information systems:
¡ Information system is instrument for creating value
¡ Investments in information technology will result in
superior returns:
÷ Productivity increases
÷ Revenue increases
÷ Superior long-term strategic positioning

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Perspectives on Information Systems

 Business information value chain

¡ Raw data acquired and transformed through stages
that add value to that information
¡ Value of information system determined in part by
extent to which it leads to better decisions, greater
efficiency, and higher profits

 Business perspective: Calls attention

to organizational and managerial nature
of information systems

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The Business Information Value Chain

From a business perspective, information systems are part of a series of value-adding activities
for acquiring, transforming, and distributing information that managers can use to improve
decision making, enhance organizational performance, and, ultimately, increase firm profitability.
Figure 1-7
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Perspectives on Information Systems

 Investing in information technology does

not guarantee good returns

 Considerable variation in the returns

firms receive from systems investments

 Factors:
¡ Adopting the right business model
¡ Investing in complementary assets
(organizational and management capital)

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Perspectives on Information Systems

 Complementary assets:
¡ Assets required to derive value from a primary
investment
¡ Firms supporting technology investments with
investment in complementary assets receive superior
returns
¡ E.g.: invest in technology and the people to make it work
properly

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Perspectives on Information Systems

 Complementary assets include:

¡ Organizational investments, e.g.
÷ Appropriate business model
÷ Efficient business processes
¡ Managerial investments, e.g.
÷ Incentives for management innovation
÷ Teamwork and collaborative work environments
¡ Social investments, e.g.
÷ The Internet and telecommunications infrastructure
÷ Technology standards

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