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Unit 1 Mca
Unit 1 Mca
FIGURE
1-1
INFORMATION
TECHNOLOGY
CAPITAL
INVESTMENT
Information technology capital investment, defined as hardware, software, and communications equipment,
grew
from
34%
to
50%
between
1980
and
2004.
Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income and
Product Accounts, 2006.
Information systems are transforming business and the visible results of this include the increased use
of cell phones and wireless telecommunications devices, a massive shift toward online news and
information, booming e-commerce and Internet advertising, and new federal security and accounting
laws that address issues raised by the exponential growth of digital information. The Internet has also
drastically
reduced
the
costs
of
businesses
operating
on
global
scale.
These changes have led to the emergence of the digital firm, a firm in which:
Most of the firm's significant business relationships with customers, suppliers, and
employees are digitally enabled and mediated.
Key corporate assets (intellectual property, core competencies, and financial and
human assets) are managed through digital means
Information systems are essential for conducting day-to-day business in the U.S. and most other
advanced countries, as well as achieving strategic business objectives. Some firms, such as Amazon
and E*Trade, would be nonexistent without information systems. Some service industries, such as
finance, insurance, and real estate industries, could not operate without information systems. The
ability of a firm to use IT is becoming intertwined with the firm's ability to implement corporate
strategy.
Figure 1-2
There is a growing interdependence between a firms 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.
Business firms invest heavily in information systems to achieve six strategic business
objectives:
1. Operational excellence: Efficiency, productivity, and improved changes in business
practices and management behavior
2. New products, services, and business models: A business model describes how
a company produces, delivers, and sells a product or service to create wealth.
Information systems and technologies create opportunities for products, services,
and new ways to engage in business.
3. Customer and supplier intimacy: Improved communication with and service to
customers raises revenues, and improved communication with suppliers lowers costs.
4. Improved decision making: Without accurate and timely information, business
managers must make decisions based on forecasts, best guesses, and luck, a
process that results in over and under-production of goods, raising costs, and the
loss of customers.
5. Competitive advantage: Implementing effective and efficient information systems
can allow a company to charge less for superior products, adding up to higher sales
and profits than their competitors.
6. Survival: Information systems can also be a necessity of doing business. A necessity
may be driven by industry-level changes, as in the implementation of ATMs in the
retail banking industry. A necessity may also be driven by governmental regulations,
such as federal or state statutes requiring a business to retain data and report
specific information.
or
raw
facts,
shaped
into
useful
form
for
humans.
Figure 1-3
FIGURE
1-3
DATA
AND
INFORMATION
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.
Input, processing, and output are the three activities in an information system that produce
the information an organization needs. Input captures or collects raw data from within the
organization or from its external environment. Processing converts this raw input into a
meaningful form. Output transfers the processed information to the people who will use it or
to the activities for which it will be used. Information systems also require feedback, which
is output that is returned to appropriate members of the organization to help them evaluate
or correct the input stage.
Figure 1-4
FIGURE
1-4
FUNCTIONS
OF
AN
INFORMATION
SYSTEM
An information system contains information about an organization and its surrounding environment. Three
basic activitiesinput, processing, and outputproduce 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.
FIGURE
1-5
INFORMATION
SYSTEMS
ARE
MORE
THAN
COMPUTERS
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
1-6
LEVELS
IN
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.
Senior management makes long-range strategic decisions and ensures the firm's financial
performance. Middle management carries out the plans of senior management andoperational
management monitors the firm's daily activities. Knowledge workers such as engineers and
scientists design products and create and distribute new knowledge for the
organization. Data workers such as secretaries process the organization's
paperwork. Production or service workers produce the products or services.
Experts are employed for the major business functions: the specialized tasks performed by
organizations, which consist of sales and marketing, manufacturing and production, finance
and accounting, and human resources.
An organization coordinates work through its hierarchy and business processes. These
processes may be documented and formal, or informal, unwritten work processes, such as
how to handle a telephone call.
Each organization has a unique culture, or fundamental set of assumptions, values, and
ways of doing things, that are accepted by most of its members. Parts of an organization's
culture can be found in its information systems. For example, UPS's organizational focus on
customer service can be found in the package tracking system available to customers.
Information systems may also reflect the organizational politics or conflicts that result from
differing views and opinions in an organization.
Information systems are also a key component in the ability of management to make sense
of the challenges facing a company and in management's ability to create new products and
services, manage the company, and even re-create the organization from time to time.
Information technology is one of the many tools used by management to cope with change.
A firm's information technology (IT) infrastructure is a technology platform or foundation on
which a firm can build its information systems. IT infrastructure consists of:
Computer hardware: The physical equipment and computing devices used for input,
storage, processing, output, and telecommunications
The Internet is the world's largest and most widely used network. The Internet is a global
network that uses universal technology standards to connect many private and public
networks. The universal standards and technologies used in the Internet are also used in
systems and networks within the firm. Intranets are internal corporate networks based on
Internet technology, and extranets are corporate networks extended to authorized users
outside of the firm.
The World Wide Web is a service provided by the Internet that uses universally accepted
standards for storing, retrieving, formatting, and displaying information in a page format on
the Internet. Web pages contain text, graphics, animations, sound, and video and are linked
to other Web pages. The Web can serve as the foundation for new kinds of information
systems such as UPS's Web-based package tracking system
From a business perspective, an information system is an important instrument for creating
value for 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.
Every business has an information value chain in which raw data is systematically acquired
and then transformed through various stages that add value to that information. The value
of an information system to a business, as well as the decision to invest in any new
information system, is, in large part, determined by the extent to which the system will lead
to better management decisions, more efficient business processes, and higher firm
profitability.
Figure 1-7
FIGURE
1-7
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.
The business perspective calls attention to the organizational and managerial nature of
information systems. An information system represents an organizational and management
solution based on information technology to a challenge or problem posed by the
environment.
Some firms achieve better results from their information systems than others. Studies of
returns from information technology investments show that there is considerable variation in
the returns firms receive. Reasons for lower return on investment include failure to adopt
the right business model that suits the new technology or seeking to preserve an old
business model that is doomed by new technology.
Figure 1-8
investments,
there
is
considerable
variation
across
firms.
Source: Erik Brynjolfsson and Lorin M. Hitt, "Beyond Computation: Information Technology, Organizational
Transformation and Business Performance." Journal of Economic Perspectives14, no. 4 (Fall 2000).
Managerial assets: These include strong senior management support for change,
incentive systems that monitor and reward individual innovation, an emphasis on
teamwork and collaboration, training programs, and a management culture that
values flexibility and knowledge.
Social assets: These are not made by the firm but by the society at large, other
firms, governments, and other key market actors, such as the Internet, educational
systems, network and computing standards, regulations and laws, and the presence
of technology and service firms.
Research indicates that firms that support their technology investments with investments in
complementary assets, such as new business processes or training, receive superior
returns. These investments in organization and management are also known
as organizational and management capital.
CONTEMPORARY APPROACH TO INFORMATION SYSTEM
FIGURE
1-9
CONTEMPORARY
APPROACHES
TO
INFORMATION
SYSTEMS
The study of information systems deals with issues and insights contributed from technical and behavioral
disciplines.
FIGURE
1-10
SOCIOTECHNICAL
PERSPECTIVE
ON
INFORMATION
SYSTEMS
In a sociotechnical perspective, the performance of a system is optimized when both the technology and the
organization mutually adjust to one another until a satisfactory fit is obtained.
USE
INFORMATION
SYSTEMS:
NEW
OPPORTUNITIES
WITH
Although information systems are creating many exciting opportunities for both businesses
and individuals, they are also a source of new problems, issues, and challenges for
managers. In this course, you will learn about both the challenges and opportunities
information systems pose, and you will be able to use information technology to enrich your
learning experience.
The Challenge of Information Systems: Key Management Issues
humans can control the process. Chapter 10 treats these issues in detail. Managers
will need to ask: Can we apply high-quality assurance standards to our information
systems, as well as to our products and services? Can we build systems with tight
security that are still easy to use? Can we design information systems that respect
peoples rights of privacy while still pursuing our organizations goals? Should
information systems monitor employees? What do we do when an information
system designed to increase efficiency and productivity eliminates peoples jobs?
This text is designed to provide future managers with the knowledge and understanding
required to deal with these challenges. To further this objective, each succeeding chapter concludes
with a Management Opportunities, Challenges, and Solutions section that outlines the key issues of
which managers should be aware.
Return to Top
Integrating Text with Technology: New Opportunities for Learning
In addition to the changes in business and management that we have just described, we believe that
information technology creates new opportunities for learning that can make the MIS course more
meaningful and exciting. We have provided a series of hands-on projects, a student Web site, and an
interactive
multimedia
CD-ROM
for
integrating
the
text
with
leading-edge
technology.
Application software exercises require students to use spreadsheet, database, Web browser,
and other application software in hands-on projects related to chapter concepts. Students can apply
the application software skills they have learned in other courses to real-world business problems. You
can find these exercises following the Discussion Questions at the end of each chapter, and both the
exercises
and
their
data
files
can
be
found
at
the
Laudon
Web
site.
A running case study based on a simulated company called Dirt Bikes U.S.A. enables students
to learn about a specific business and develop information system solutions for that business. Each
chapter of the text contains a running case scenario and project where students can apply their
analytical skills and chapter concepts. Many of these projects require extensive use of the Web or
spreadsheet and database software. You can find a Dirt Bikes U.S.A. project following the Application
Software Exercise at the end of every chapter. A complete description of each running case project and
any data files required by the project can be found at the Laudon Web site and on the Laudon
interactive
multimedia
CD-ROM.
For each chapter, you will also find an Electronic Commerce or Electronic Business project for
which you can use Web research and interactive software at various company Web sites to solve
specific business problems. The project is described at the end of each chapter after the running case
and
additional
details
can
be
found
at
the
Laudon
Web
site
for
that
chapter.
As you read each chapter of the text, you can visit the Prentice Hall Laudon Web site at
www.prenhall.com/Laudon and use the Internet for additional interactive learning and management
problem solving. You will find an Internet Connection margin note in every chapter directing you to
Web sites for which we have provided additional exercises and projects related to the concepts and
organizations described in that particular chapter. A graded online Interactive Study Guide contains
questions to help you review what you have learned and test your mastery of chapter concepts. Also
at the Laudon Web site are links to additional online case studies and international resources.
The interactive CD-ROM multimedia version of the text features audio/video overviews
explaining key concepts, bullet text summaries of key points in each chapter, full color graphics and
photos, Web links to the companion Web site, interactive quizzes, Dynamic Blackboard, a hyperlinked
digital glossary, and the complete running case, along with any files or materials required by each
running case project. You can use the CD-ROM as an interactive study guide or as an alternative to the
traditional
text.
Longer, comprehensive projects conclude each major section of the text. These projects
require students to apply what they have learned to more demanding problems, such as analyzing
enterprise system requirements, developing an Internet business model, designing a corporate
knowledge intranet, and redesigning business processes for a new system. Some of these projects
require use of the Web.
ON
THE
ORGANIZATION
Firms traditionally grew in size to reduce transaction costs. IT potentially reduces the costs for a given size,
shifting the transaction cost curve inward, opening up the possibility of revenue growth without increasing
size, or even revenue growth accompanied by shrinking size.
Agency theory views the firm as a nexus of contracts among self- interested individuals, who
must be carefully supervised to ensure they pursue the interests of the organization.
Information technology can help reduce agency costs, the costs of coordinating many
different people and activities, so that each manager can oversee a larger number of
employees.
Figure 3-7
FIGURE 3-7 THE AGENCY COST THEORY OF THE IMPACT OF INFORMATION TECHNOLOGY ON
THE
ORGANIZATION
As firms grow in size and complexity, traditionally they experience rising agency costs. IT shifts the agency
cost curve down and to the right, enabling firms to increase size while lowering agency costs.
FIGURE
3-8
FLATTENING
ORGANIZATIONS
Information systems 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 decisionmaking authority.
Postindustrial theories also support the idea that IT should flatten hierarchies by allowing
professionals to be self-managing, by decentralizing decision making, and by encouraging
formation of ad-hoc, temporary "task forces" that address specific tasks.
FIGURE
3-9
ORGANIZATIONAL
RELATIONSHIP
BETWEEN
RESISTANCE
TECHNOLOGY
AND
THE
AND
MUTUALLY
THE
ADJUSTING
ORGANIZATION
Implementing information systems has consequences for task arrangements, structures, and people.
According to this model, to implement change, all four components must be changed simultaneously.
Source: Leavitt (1965).
The Internet and World Wide Web are increasing the accessibility, storage, and distribution
of information and knowledge for organizations, dramatically lowering transaction and
agency costs. Businesses are rapidly rebuilding some key business processes based on
Internet
technology.
To deliver genuine benefits, information systems must be built with a clear understanding of
the organization in which they will be used, and consideration of the firm's environment,
structure, culture, politics, organization and leadership, business processes, as well as the
principle interest groups affected by the system.
In all but the smallest of firms, the information systems department is the formal
No single system can provide all the information an organization needs. Even small
firms have a collection of different systems: e-mail systems, sales tracking
systems, etc. Different systems can be described through:
There are four main types of information systems that serve different functional
systems:
1. Sales and marketing information systems help the firm with marketing
business processes (identifying customers for the firm's products or
services, developing products and services to meet their needs, promoting
products and services) and sales processes (selling the products and
services, taking orders, contacting customers, and providing customer
support).
Figure 2-2
FIGURE
2-2
EXAMPLE
OF
SALES
INFORMATION
SYSTEM
This system captures sales data at the moment the sale takes place to help the business monitor
sales transactions and to provide information to help management analyze sales trends and the
effectiveness of marketing campaigns.
Figure 2-3
FIGURE
2-3
OVERVIEW
OF
AN
INVENTORY
SYSTEM
This system provides information about the number of items available in inventory to support
manufacturing and production activities.
Finance and accounting information systems keep track of the firm's financial
assets and fund flows.
Figure 2-4
FIGURE
2-4
AN
ACCOUNTS
RECEIVABLE
SYSTEM
An accounts receivable system tracks and stores important customer data, such as payment
history, credit rating, and billing history.
Figure 2-5
FIGURE
2-5
AN
EMPLOYEE
RECORD
KEEPING
SYSTEM
This system maintains data on the firms employees to support the human resources function.
THE
ORGANIZATIONS
TPS
In the system illustrated by this diagram, three TPS supply summarized transaction data to the
MIS reporting system at the end of the time period. Managers gain access to the organizational
data through the MIS, which provides them with the appropriate reports.
FIGURE
2-7
SAMPLE
MIS
REPORT
This report showing summarized annual sales data was produced by the MIS in Figure 2-6.
Figure 2-8
FIGURE
2-8
VOYAGE-ESTIMATING
DECISION-SUPPORT
SYSTEM
This DSS operates on a powerful PC. It is used daily by managers who must develop bids on
shipping contracts.
Figure 2-9
FIGURE
2-9
MODEL
OF
AN
EXECUTIVE
SUPPORT
SYSTEM
This system pools data from diverse internal and external sources and makes them available to
executives in an easy-to-use form.
FIGURE
2-10
INTERRELATIONSHIPS
AMONG
SYSTEMS
The various types of systems in the organization have interdependencies. TPS are major
producers of information that is required by many other systems in the firm, which, in turn,
produce information for other systems. These different types of systems are loosely coupled in
most business firms, but increasingly firms are using new technologies to integrate information
that resides in many different systems.
FIGURE
2-1
THE
ORDER
FULFILLMENT
PROCESS
Fulfilling a customer order involves a complex set of steps that requires the close coordination of
the sales, accounting, and manufacturing functions.
Enterprise applications are systems that span functional areas, focus on executing
business processes across the business firm, and include all levels of management.
Enterprise applications help businesses become more flexible and productive by
coordinating
their
business
processes
more
closely.
There are four major enterprise applications:
1. Enterprise systems
2. Supply chain management systems
3. Customer relationship management systems
4. Knowledge management systems
Each of these enterprise applications integrates a related set of functions and
business processes to enhance the performance of the organization as a whole.
Figure 2-11
FIGURE
Enterprise
2-11
applications
ENTERPRISE
automate
processes
APPLICATION
that
span
multiple
ARCHITECTURE
business
functions
and
Figure 2-12
FIGURE
2-12
ENTERPRISE
SYSTEMS
Enterprise systems integrate the key business processes of an entire firm into a single software
system that enables information to flow seamlessly throughout the organization. These systems
focus primarily on internal processes but may include transactions with customers and vendors.
Supply chain management (SCM) systems help businesses manage relationships with
their suppliers. These systems provide information to help suppliers, purchasing
firms, distributors, and logistics companies share information about orders,
production, inventory levels, and delivery of products and services so that they can
source,
produce,
and
deliver
goods
and
services
efficiently.
SCM systems increase firm profitability by lowering the costs of moving and
making products and by enabling managers to make better decisions about how to
organize
and
schedule
sourcing,
production,
and
distribution.
Supply chain management systems are one type of interorganizational system
because they automate the flow of information across organizational boundaries.
Firms that skillfully manage their supply chains get the right amount of products
from their source to point of consumption with the least amount of time and the
lowest
cost.
Figure 2-13
FIGURE
2-13
EXAMPLE
OF
SUPPLY
CHAIN
MANAGEMENT
SYSTEM
Customer orders, shipping notifications, optimized shipping plans, and other supply chain
information flow among Haworths Warehouse Management System (WMS), Transportation
Management System (TMS), and its back-end corporate systems.
Extranets expedite the flow of information between the firm and its
suppliers and customers. They can allow different firms to work
collaboratively on product design, marketing, and production.
UNIT 2
INFORMATION SYSYTEMS AND ORGANIZATION
Organizations and Information Systems
Organizations and information systems have a mutual influence on each other. The
information needs of an organization affect the design of information systems and an
organization must be open itself to the influences of information systems in order to more
fully benefit from new technologies. The organization's environment, culture, structure,
standard operating procedures, politics and management decisions are mediating factors
that influence the interaction between information technology and organizations.
Figure 3-1
From a technical view, an organization is a formal, legal, social structure that processes
resources, or inputs, to produce outputs. The firm is seen as infinitely malleable, with capital
and
labor
substituting
for
each
other
quite
easily.
Figure 3-2
FIGURE
3-3
THE
BEHAVIORAL
VIEW
OF
ORGANIZATIONS
The behavioral view of organizations emphasizes group relationships, values, and structures.
The technical and behavioral views of organizations complement one another. The technical
definition describes how thousands of firms in competitive markets combine capital and
labor with information technology, whereas the behavioral model describes how technology
affects
the
organization's
inner
workings.
All modern organizations can be seen as bureaucracies which share some essential
characteristics: clear division of labor, hierarchy, explicit rules and procedures, impartial
judgments, technical qualifications for positions, and maximum organizational efficiency.
Additionally, all organizations develop routines and business procedures, politics, and
cultures.
FIGURE
3-4
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. New information system
applications require that individual routines and business processes change to achieve high levels of
organizational performance.
Organizational politics reflects the political struggles due to divergent concerns and
perspectives of individuals and groups within the organization. Political resistance is one of
the
great
difficulties
of
bringing
about
organizational
change.
Organizational culture is the set of fundamental assumptions about what products the
organization should produce, how it should produce them, where, and for whom.
Organizational culture is a powerful unifying force that restrains political conflict. However,
technological change that threatens commonly held cultural assumptions usually meets
great
resistance.
No two organizations are identical. Organizations have different structures, goals,
constituencies, leadership styles, tasks, and surrounding environments. Differences in these
characteristics will affect the type of information systems used by the organization.
Organizations have different social and physical environments, which exert a powerful
influence on the organization's structure. Information systems help organizations respond to
their surrounding environments, from which they draw resources and to which they supply
goods and services. Information systems are key tools for environmental scanning, helping
managers identify external changes that might require an organizational response.
Figure 3-5