Chapter :1

Managing the Digital Firm

THIS CHAPTER WILL HELP YOU
UNDERSTAND
• HOW INFORMATION TECHNOLOGY IS BEING USED BY MANY BUSINESSES
WORLDWIDE TO INCREASE OPERATIONAL EFFICIENCY
• IMPROVES EFFECTIVE MANAGEMENT
• SAVE MONEY AND
• CREATE BETTER RELATIONSHIPS BETWEEN SUPPLIERS AND CUSTOMERS.
Digital firm and Information system

 Digital firm is a digitally enabled environment for the

interaction and processing of information among
customers, employees, employer and the
stakeholders.
 Information system is a set of interrelated
elements or components that collect (input),
manipulate (process), and disseminate (output)
data and information and provide a feedback
mechanism to meet an objective.
Schematic model of an information
system

Feedback

Input Processing Output

IPO

 Input  Feedback
 The activity of gathering and capturing
data
 Output that is used to
 Whatever goes into the computer make changes to input or
 Processing processing activities
 Converting or transforming data into
useful outputs
 Forecasting
 Output A proactive approach to
 Useful information, usually in the form feedback
of documents and/or reports
 Anything
 Use for estimating future
that comes out of a computer
sales or inventory needs
Management Information Systems

An MIS is…

An organized collection of people,
procedures, software, databases,
and devices used to provide
routine information to managers
and decision makers
Why information system?

 If we ask managers to describe their most important resources and they'll list
 money capital, equipment, raw materials, and people — not necessarily in
that order.
It's very unusual for managers to consider information as an important resource,
and yet it is because it helps in:
 Capital Management : A lot of money is spent on a relatively new
component of many organizations. The business world has come a long way
very rapidly in the last twenty years in terms of the amount of dollars spent on
technology. Unfortunately, many companies haven't made the same advances
in learning how to properly manage all these new corporate assets.
 Foundation of Doing Business :Take a look around you and see if
you can find a business that does not depend on information
technology in one form or another. The local restaurant probably
manages their lunch-time crowds using hand-held devices that allow
the waiter or waitress to communicate menu orders directly to the
kitchen. The rental car company uses information technology to track
not only customer orders but may also use global positioning systems
that relay the exact position of every car wherever it is. Your local
drycleaners may also use information technology to keep track of all
their chemical processes to ensure regulatory compliance. In short,
there are very few businesses and organizations that do not currently
use some form of information technology.
 Productivity :Simply put, effectively managing your organization's
information technology and resources will increase the productivity and
effectiveness of your company. With the right technology workers can
increase the amount of work they are able to accomplish in less time
than ever before.
 Strategic Opportunity and Advantage :Businesses and
organizations simply can't stick their heads in the sand and ignore all of
the improvements and inventions that are available nowadays. If they
choose to do so, chances are their competition won't. It's not just the
improvements in current processes that are available but the
opportunities for new products or services that businesses can take
advantage of with information technology.
CONTEMPORARY APPROACHES
TO INFORMATION SYSTEMS

 The study of information systems is a

multidisciplinary field.
 The field can be divided into technical and behavioral
approaches
 Information systems are sociotechnical systems
 Itis composed of machines, devices, and “hard”
physical technology, they require substantial social,
organizational, and intellectual investments to make
them work properly.
The major disciplines that con-
tribute problems, issues, and
solutions in the study of information
systems
 TECHNICAL APPROACH 

emphasizes mathematically based models to

study information systems(calculations and
computation)
the physical technology (what are used in
system)
formal capabilities of the systems( what system
can do)
Technical approach consists of :

 computer science:
establishing theories of computability, methods of
computation, and methods of efficient data storage and access
 management science:
the development of models for decision making and
management practices
 operations research:
for optimizing selected parameters of organizations, such
as transportation, inventory control, and transaction
costs.
BEHAVIORAL APPROACH 

concerned with  behavioral issues that arise in

the development and long-term maintenance
of information systems (strategic business
integration, design, implementation,
utilization, and management cannot be
explored usefully with the models used in the
technical approach)
 Behavioral approach consists of :

 Sociologists:study information systems with an eye toward how

groups and organizations shape the development of systems and
also how systems affect individuals, groups, and organizations
 Psychologists:study information systems with an interest in how
human decision makers perceive and use formal information
 Economists: study information systems with an interest in
understanding the production of digital goods, the dynamics of 
digital markets, and how new information systems change the
control and cost structures within the firm
 Roles of Information Systems in an
Organization

Information system helps to perform :

Simple transaction
 Processing at the operational level
Difficult tasks
 Making important and competitive decisions
at the strategic level of the organization.
Roles :

support business processes and

operations.
support decision making of employees
and managers
support strategies for competitive
advantage
 IS in Business processes and
operations
 Information systems support business processes and
operations of an organization in many ways.
 In a hotel for instance, customer check - ins and check-outs
are done by computers and software which makes work easy
unlike the traditional method of using notebooks and paper to
record such information.
 Customers can now even make their own bookings through
the hotels website instead of visiting the hotel in person to do
so(reduces pressure of office staff )
Continued…

 Systems have now been developed to gather customer

information easily and quickly. Now, because of
information systems, the various departments of an
organization work together with ease.
 The housekeeping department of a hotel can now
inform the front office about which rooms are ready for
use and which are not, without personal interactions of
staff as a result of information systems.
Continued……

The running of an organization has now

become smoother with well integrated
information systems.(Information is
instantly shared to all the departments of
the organization.)
Information system in decision making of
employees and managers

 Information systems also help employees and

managers of a business to make well informed
decisions. This is because
 Information systems have the capability of
analyzing data that has been collected from both
within the organization and from external sources
into useful information which can be used by
employees and managers in their decision making
process.
CONTINUED….

Note: Decision-making is an integral part of

management and occurs in every function
and at all levels.
 Decisionsare better made when accurate
information is available which aids the decision
maker in making an objective decision
CONTINUED….

 Management Information System (MIS), Decisions Support

Systems (DSS) and Executive Information Systems (EIS) are
specially designed to help management of an organization
in their decision making process.
 These systems generate typical reports and graphs on
issues such as trend of orders, customer analysis, product
profitability, finished stock positions and forecasts, accident
and absentee reports, job evaluation reports and many
more.
CONTINUED….

 Managers and employees use these reports and

graphs as a basis for their decisions.
For example, decisions on which meals that need
to be added or removed from a hotel menu may
be taken by the food and beverage manager after
a typically analysis is made by the help of a
Decisions Support System.
Information System to set strategies for
competitive advantage

 Competition in today’s business is keen and what will

become important is how quickly companies can
convert their set of information they collect into
knowledge so that they can provide services and
products that are ahead of their competitors.
 Strategicinformation systems can help provide
hospitality operations with the innovative mediums
they need to provide products and services that will
give them comparative advantage over their
 Continued…

 Example :
In the hospitality industry, competitive advantages may result
in increased room sales ( through efficient reservation systems
and organizational websites), decreased cost of goods ( through
reduction in operating cost and less expensive distribution
channels), brand awareness (through effective advertising
campaigns targeted at the appropriate customer and delivered
through the most appropriate cost effective medium), good
customer-organisation relationship (by keeping database of
customers and their needs) and effective decisions making that
are timely.
LEARNING TO USE INFORMATION
SYSTEMS: NEW OPPORTUNITIES
WITH TECHNOLOGY
 systems are creating many exciting opportunities and
 are also a source of new problems, issues, and
challenges for managers

We can well learn to use information system if we can have

answers for several wh questions……
(what,how,when,where,why,which,who etc)
THE QUESTIONS MIGHT INCLUDE:

 What are the components of the information system?

 Who uses each component?
 What information is available?
 What information is not available?
 How reliable is the information?
 How readily, and how quickly, is it available?
 How hard is it to modify data?
An information system can be used well, if
we get answers for the following:

 The information systems investment challenge

 The strategic business challenge
 The globalization challenge
 Theinformation technology infrastructure
challenge
 Ethics and security
The information systems investment
challenge:

 what the organization gets after investing in IS? How the investments should be
made?
 It is obvious that one of the greatest challenges facing managers today is ensuring
that their companies do indeed obtain meaningful returns on the money they spend
on information systems.
 It’s one thing to use information technology to design, produce, deliver, and maintain
new products. It’s another thing to make money doing it.
 Executives are likely to have trouble determining how much they actually spend on
technology or how to measure the returns on their technology investments.
 Most companies lack a clear-cut decision-making process for deciding which
technology investments to pursue and for managing those investments
NOTE : Information systems should be part of the solution and not part of the problem.
The strategic business challenge:

 To benefit fully from information technology, realize genuine

productivity, and become competitive and effective, many
organizations actually need to be redesigned.
 They will have to make fundamental changes in employee and
management behavior, develop new business models, retire obsolete
(outdated) work rules, and eliminate the inefficiencies of old-fashioned
business processes and organizational structures.
 New technology alone will not produce meaningful business benefits.
The globalization challenge:

 How can firms understand the business and system requirements of a global
economic environment?
 The rapid growth in international trade and the emergence of a global economy
call for information systems that can support both producing and selling goods in
many different countries.
 In the past, each regional office of a multinational corporation focused on solving
its own unique information problems.
 Language, cultural, and political differences among countries frequently resulted
in disorder and the failure of central management controls. To develop integrated,
multinational, information systems, businesses must develop global hardware,
software, and communications standards; create cross-cultural accounting and
reporting structures; and design transnational business processes.
Ethics and security: 

 It is the responsibility and control challenge

 How can organizations ensure that their information systems are used in an
ethically and socially responsible manner?
 How can we design information systems that people can control and understand?
 Although information systems have provided enormous benefits and efficiencies,
they have also created new ethical and social problems and challenges.
 Several ethical and social issues are also raised by information systems, such as
threats to individual privacy and intellectual property rights, computer-related
health problems, computer crimes etc.
 A major management challenge is to make informed decisions that are sensitive
to the negative consequences of information systems as well to the positive ones.