Management Information System

Chapter One
Fundamentals of Information Systems and their
Relationship in Business Applications

Lecture 2: Business Processes and

Information Systems

Ketema A. Gemeda (PhD)

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 Business Processes
 Routines, business processes, and Firms
• Routines: standard operating procedures
– Precise rules, procedures, and practices developed to cope with
virtually all expected situations
• Business processes: collections of routines
– At the heart of every business
– The collection of activities required to produce a product or
service
– Workflows of material, information, knowledge
– Sets of activities that performed in some steps
– May be tied to functional area or be cross-functional
• Businesses Firm: can be seen as collection of business processes
• New IS applications require that individual routines and business
processes change to achieve high levels of organizational performance.
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 Business Processes
 Routines, Business Processes, and Firms
• All organizations are composed of individual routines and behaviors, a collection
of which make up a business process.
• A collection of business processes make up the business firm.

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 Business Processes
 Functional business processes
– Finance and accounting: creating financial statements
– Human resource: hiring employees
– Sales and marketing: identifying customers
– Manufacturing and production: assembling the product
Example: Customer Order Process: involves a set of steps that requires the close
coordination of the sales, accounting, and manufacturing functions.

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 Management Information System

Types of Information Systems

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Types of Information Systems
 In the past, IT managers divided systems into categories based on the
user group the system served:
– Office Systems  Administrative Staff
– Operational Systems Operational Personal
– Decision Support Systems  Middle Managers, and Knowledge
Workers
– Executive Information Systems  Top Managers
 Today, it makes more sense to identify a system by its functions,
rather than by users, because the technology and new modern
companies/firms, users need more functions to be more flexible and to
do their jobs more efficient.
 Types of Information Systems by functionality:
– Transaction Processing Systems (TPS)
– Management Information Systems (MIS)
– Decision Support Systems (DSS)
– Systems for Business Intelligence
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 Types of Information Systems
 TPS: systems serving operational management, such as payroll or order
processing, that track the flow of the daily routine transactions necessary to
conduct business.
 MIS: produce reports serving middle management by condensing information
from TPS, and these are not highly analytical (supporting middle managers )
 DSS: support management decisions that are unique and rapidly changing using
advanced analytical models (supporting middle managers)
 ESS: support senior management by providing data in the form of graphs, charts,
and dashboards delivered via portals using many sources of internal and external
information (supporting executives managers)
 All of these types of systems provide business intelligence that helps managers
and Enterprise employees make more informed decisions.
 Relationship of systems to one another
– TPS: Major source of data for other systems
– ESS: Recipient of data from lower-level systems
– Data may be exchanged between systems
– In reality, most businesses’ systems are only loosely integrated (but they are
getting better!) 7
 Types of Information Systems
 Enterprise Applications
– Systems for linking the enterprise
– Span functional areas
– Execute business processes across firm
– Include all levels of management
– Four Major Enterprise Applications:
a) Enterprise systems
b) Supply chain management systems
c) Customer relationship management systems
d) Knowledge management systems

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 Types of Information Systems
 Alternative tools that increase integration and expedite the flow of
information.
 Intranets and extranets:
– Intranets: internal company web sites accessible only by employees
– Extranets: company web sites accessible externally only to vendors
and suppliers.
– Used to coordinate supply chain.
– By using Internet technology to communicate internally to employees,
allow employees to communicate with each other and share
documents, and to help communication with vendors.
– Example: universities have a web site with different levels of access
for the general public, registered students, faculty and administrators.
 E-business: use of digital technology and Internet to drive all business
processes.
 E-commerce: subset of e-business.
– Buying and selling goods and services through Internet.
 E-government: using IT to deliver information and services to citizens,
employees, and businesses. 9
Example 1
Purchase
Order-
Traditio
nal

Example 2 Purchase Order – E-Commerce

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 Technology for collaboration and teamwork
 Internet-Based Collaboration Environments
• Social Networking: such as MySpace and Facebook, which feature
tools to help people share their interests and interact.
• Wikis: tools for storing and sharing company knowledge and insights.
– Such as Wikipedia, the largest collaboratively edited reference
project in the world
• Virtual meeting systems (Tele-presence)
– Videoconferencing and Web conferencing technologies
• Google Apps/Google sites:
– One of the most widely used “free” online services for collaboration
– Such as:
 Google Calendar
 Google Gmail
 Google Talk
 Google Sites
 Google Video and
 Google Groups 11
The Role of Information Systems in Business

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 Business Processes and Information Systems
 IT enhances business processes in two main ways:
1. Increasing efficiency of existing processes
• Automating steps that were manual
2. Enabling entirely new processes that are capable of
transforming the businesses
• Change flow of information
• Replace sequential steps with parallel steps
• Eliminate delays in decision making
• New IT frequently changes the way a business works and supports
entirely new business models.
• Example
– Downloading an E-book from Amazon.
– Buying a computer online at eBay.
– Downloading a music track from iTunes are entirely new business
processes.
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 The Role of Information Systems in Business
 Uses of Information in a Business
 In today’s very dynamic world, information is one of the most important
and valuable goods in making wise decision, problem solving, and for
personal improvement for individual as well as organization.
 Businesses and other organizations need information for many purposes:
planning, recording, controlling, measuring and decision-making
 How information systems are transforming business
– Increasingly used in wireless technology
– Cloud computing, mobile digital platform allow more distributed
work, decision-making, and collaboration.
 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
 Emerged fully digital firms:
– The organization’s significant business relationships with customers,
suppliers, and employees are digitally enabled and mediated.
– Core business processes are accomplished through digital networks
– Key corporate assets: intellectual property, core competencies, and
financial and human assets are managed digitally
• Digital firms offer greater flexibility in organization and management
– Time and Space shifting
– Time shifting and space shifting are connected to globalization
• Why a digital firm is more likely to benefit from globalization than a
traditional firm?
– By allowing business to be conducted at any time (time shifting) and
any place (space shifting), digital firms are ideally suited for global
operations which take place in remote locations and very different
time zones.
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 The Role of Information Systems in Business
 Business perspective on IS:
 Information system is an instrument for creating value of the firm.
 Information Systems enable the firm to increase its revenue or
decrease its costs by providing information that helps managers make
better decisions or that improves the execution of business processes.
 Example: the IS for analyzing supermarket checkout data:
– Increase firm profitability by helping managers make better
decisions on which products to stock & promote in retail
supermarkets
 Investments in IT will result in superior returns:
– Productivity increases
– Revenue increases: increase the firm’s stock market value
– Superior long-term strategic positioning: produce superior
revenues in the future.
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 The Role of Information Systems in Business
 Business Information value chain
– It is one way to visualize the relationship between information
activities, business processes, and management activities.
– 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.
 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.

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 The Role of Information Systems in Business
 Business Information Value Chain
– Business perspective: calls attention to organizational and managerial nature
of Information Systems

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 The Role of Information Systems in Business
 Variation in Returns on
IT Investment
 Each quadrant of the
graph represents a
different type of firm:
 Quadrant 1: firms that
invest much less in IT
but still receive strong
returns.
 Quadrant 2: firms that
invest a great deal in IT
and receive a great deal
in returns.
 Quadrant 3: firms that
invest much less in IT
and receive poor
returns.
 Quadrant 4: firms that
invest a great deal in IT
but receive poor returns.

 IT investments alone cannot make organizations and managers more effective

unless they are accompanied by supportive values, structures, and behavior
patterns in the organization and other complementary assets. 19
 The Role of Information Systems in Business
 Although, on average, investments in IT produce returns far above
those returned by other investments, there is considerable variation
across firms.
 Investing in IT 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)
 Discuss why companies experience a wide variety of outcomes in their
efforts to invest in IT?
– Consider the factors we use in this course: Organizational and
Management factors.

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 The Role of Information Systems in Business
 Complementary assets include:
– Organizational assets: e.g.
• Appropriate business model
• Efficient business processes
– Managerial assets: e.g.
• Incentives for management innovation
• Teamwork and collaborative work environments
– Social assets: e.g.
• The Internet and telecommunications infrastructure
• Technology standards
• Firms that make significant investment in complementary assets tend to
derive greater benefit from IT investment than those do not.
• Consideration of complementary assets should be a part of any firm’s
broader view of how to create and implement their information systems.
• Managers must consider dimensions like complementary assets in order
to derive benefit from information systems and be successful.
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 The Role of Information Systems in Business

MIS IN YOUR POCKET

 What are the advantages of using mobile handheld devices?
What are the disadvantages?
 What features are needed in a mobile to make it a business
solution?
 What business functions can be performed by using handhelds
alone? How do other companies utilize handhelds?

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 The Role of Information Systems in Business
 Strategic Business Objectives of Information Systems
 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:
1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival

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 The Role of Information Systems in Business Today
 The Interdependence Between Information Technology and Business
Firm: highly growing
– Changes in strategy, rules, and business processes increasingly require
changes in hardware, software, databases, and telecommunications.
– What the organization would like to do depends on what its systems
will permit it to do.

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 The Role of Information Systems in Business
1. Operational excellence:
– Improvement of efficiency to attain higher profitability
– Information systems and technologies are the most important tools
available to managers for achieving higher levels of efficiency and
productivity in business operations.
2. 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
– Example: Apple Inc. transformed an old business model of music
distribution based on: records, tapes, and CDs into an online, legal
distribution model based on its own iPod technology platform.
– Including: the iPod, the iTunes music service, the iPad, and the
iPhone.

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 The Role of Information Systems in Business
3. Customer and supplier intimacy:
– Serving customers well leads to customers returning, which raises
revenues and profits
– Suppliers: the more a business engages its suppliers, the better the
suppliers can provide vital inputs, which lowers costs.
• The benefits of information systems-enabled supplier intimacy.
– How to really know your customers, or suppliers, is a central
problem for businesses with millions of offline and online
customers.
• Example: High-end hotels that use computers to track customer
preferences and use to monitor and customize environment.

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 The Role of Information Systems in Business
4. Improved decision making
– Without accurate information, Managers must use forecasts, best
guesses and luck
• This Leads to:
– Over or underproduction of goods and services
– Misallocation of resources
– Poor response times
• Poor outcomes raise costs and lose customers
– However, information systems and technologies have made it
possible for managers to use real-time data from the marketplace
when making decisions.
– Example: Verizon Corporation, Telecommunication Companies,
uses Web-based digital dashboard to provide managers with real-time
data on customer complaints about network performance, line outages
or storm-damaged lines.

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 The Role of Information Systems in Business
 Operational excellence: improve 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
5. Competitive advantage
– When firms achieve one or more of the above mentioned four
business objectives, the firms have already achieved a competitive
advantage.
• Delivering better performance
• Charging less for superior products
• Responding to customers and suppliers in real time

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 The Role of Information Systems in Business
6. Survival
– Business firms also invest in information systems and technologies
because they are necessities of doing business.
– Sometimes these “necessities” are driven by industry-level changes.
– For instance, after Citibank introduced the first ATMs to attract
customers through higher service levels, its competitors rushed to
provide ATMs to their customers to keep up with Citibank
– Governmental regulations requiring that create a legal duty for
companies and their employees to retain records, including digital
records.

“It is not the strongest species that survive,

nor the most intelligent, but the ones
responsive to change”
- Charles Darwin

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 Management Information System

Organization and Information

Systems

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 Organizations and Information Systems
 What is an organization?
 Technical def.: stable and formal social structure that takes resources
from environment and processes them to produce outputs.
– A formal legal entity with internal rules and procedures, as well as a
social structure
 Example: technical microeconomic definition:
– Capital and Labor: primary input provided by the environment
– Products and Services: outputs to the environment
– Products and services are consumed by the environment, which supplies
additional capital and labor as inputs in the feedback loop.

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 Organizations and Information Systems
 Behavioral def.: a collection of rights, privileges, obligations, and
responsibilities that is delicately balanced over a period of time through
conflict and conflict resolution
– Behavioral view of organizations emphasizes group relationships,
values, and structures.

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 Organizations and Information Systems
 IT and organizations influence one another
– Complex relationship influenced by organization’s
– The complex two-way relationship is mediated by many factors:
organizational culture, structure, politics, environment, business
processes and management decisions

Two-way
relationship
between
organizations
and IT

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 How Information Systems Impact Organizations and
Business Firms
 Economic impacts
– IT changes relative costs of capital and the costs of information
– Information systems technology is a factor of production, like
capital and labor
– IT figures to replace the function of more middle managers as
time passes, as well as reduce the need for other forms of
capital (buildings and machinery).
– IT affects the cost and quality of information and changes
economics of information.
– IT helps firms contract in size because it can reduce transaction
costs (the cost of participating in markets)
• Outsourcing

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How Information Systems Impact Organizations and Business Firms
 Transaction cost theory
– Firms seek to economize on transaction costs (the costs of
participating in markets)
• Traditionally: vertical integration, hiring more employees,
buying suppliers and distributors
• Firms traditionally grew in size to reduce market transaction
costs.
– IT potentially reduces the firms market transaction costs.
• Making it worthwhile for firms to transact with other firms
rather than grow the number of employees.
• Firms can outsource work using the market, reduce their
employee head count and still grow revenues, relying more on
outsourcing firms and external contractors.
– Example: Internet can make participating in markets less
expensive than before.
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How Information Systems Impact Organizations and Business Firms
 Agency theory:
– Firms experience agency costs (the cost of managing and
supervising) which rise as firm grows
– As firms grow in size and complexity, traditionally they
experience rising agency costs.
– Agency costs rise as firms take on more employees.
– IT can reduce agency costs:
• Making it possible for firms to grow without adding to the
costs of supervising, and without adding employees.

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How Information Systems Impact Organizations and Business Firms
 Organizational and behavioral impacts
– IT flattens organizations
• Decision making pushed to lower levels
• Fewer managers needed (IT enables faster decision making and
increases span of control)
• IT can reduce the number of levels in an organization by
providing managers with information to supervise larger
numbers of workers and by giving lower-level employees more
decision-making authority.
– Postindustrial organizations
• Organizations flatten because in postindustrial societies,
authority increasingly relies on knowledge and competence
rather than formal positions.

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 How Information Systems Impact Organizations and Business Firms

Flattening
Organizatio
ns

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How Information Systems Impact Organizations and Business Firms
 Organizational resistance to change
– Information systems become bound up in organizational politics
because they influence access to a key resource – information
– IS potentially change an organization’s structure, culture, politics, and
work.
– Most common reason for failure of large projects is due to
organizational and political resistance to change.
• Implementing IS
technology has
consequences for task
arrangements, structures,
and people.
• To implement change, all
four components must be
changed simultaneously.
– Structure, Technology,
People and Task

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How Information Systems Impact Organizations and Business Firms
 Internet and organizations
– Internet increases the accessibility, storage, and distribution of
information and knowledge for organizations
– Internet can greatly lower transaction and agency costs
• Example: Large firm delivers internal manuals to employees
via a corporate Web site, saving millions of dollars in
distribution costs
 Central organizational factors to consider when planning a new
system:
– Environment
– Structure: hierarchy, specialization, routines, business processes
– Culture and politics
– Type of organization and style of leadership
– Main interest groups affected by system: attitudes of end users
– Tasks, decisions, and business processes the system will assist
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THANK YOU!!

Q&A?

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