Unit 2

BUSINESS STRATEGY WITH INFORMATION SYSTEM

Information Management

Information is one of the main resources available to the manager. Information can be managed just
as any other resources. It is characterized by the phrase of 'Getting the right information to the right
person at the right place at the right time'. Information management is the collection and
management of information from one or more sources and the distribution of that information to one
or more audiences. This sometimes involves those who have a stake in, or a right to that information.

Management means the organization of and control over the structure, processing and delivery of
information. The manager uses many reports or information displays to reflect the physical condition
of the firm.

Main types of resources managed by manager:

 Personnel
 Material
 Machines
 Money
 Information (and Data)

The task of the manager is to manage these resources in order to use them in the most effective
way. The first four resource types are tangible; they exist physically and can be touched. We use
the term physical resource to describe them. The fifth resource type, information, is not valuable
for its tangible form but for what it represents. We use the term conceptual resource to describe
information and data. Managers use Conceptual resources to manage Physical resource.

Management of the Resources: Resources are acquired and assembled to be available for use
when needed. Very often the assembly process entails an essentially raw material into a refined
form, such as training an employee or constructing a piece of special machinery. Once these
resources have been assembled, the manager strives to maximize their use. He or she minimizes
their idle time and keeps them functioning at peak efficiency. Finally, the manager replaces these
resources at a critical time - before they become inefficient or obsolete.

How Information is Managed: It is easy to see how a manager manages physical resources, but
management applies equally well to conceptual resources. The manager ensures that the necessary
raw data is gathered and then processed into usable information. He or she then ensures that
appropriate individuals receive the information in the proper form at the proper time so that it can
be used. Finally, the manager discards information that has outlived its usefulness and replaces it
with information that is current and accurate. All of this activity acquiring information, using it in
the most effective way, and discarding it at the proper time is called information management.
Factors Stimulating Interest in Information Management

1. Increasing complexity of business activity

a) International Economy: Firms of all sizes are subject to economic influences. Such
influences can be seen in the relative values of the currencies of each nation. Buyers make
purchases in those countries where their currencies have the greatest value.

b) Worldwide Competition: Firms no longer compete in only their own geographic area.
Rather, competition exists on a world wide scale. The effects of the competition can be seen
in the imports from foreign countries.

c) Increasing Complexity of technology: We see examples of technology in business every

day- bar code scanners in supermarkets, computer based airline reservation, automated teller
machine, closed-circuit television in parking garages. There is also much behind the scenes
technology that we do not see factory robots and automated merchandise storages and
handling equipment.

d) Shrinking Time frames: All phases of business operations are performed more rapidly than
ever before. Sales representative engage in telemarketing to contact their customers within
seconds by telephone, sales orders are transmitted electronically from one computer to
another, and manufacturers schedule raw material deliveries to arrive “Just-In-Time”.

e) Social Constraints: Plant expansion, new products, new sales outlets and similar actions
must all be weighted in terms of their environmental impact.

2. Improved computer capabilities

a) Size: The large computers of the 1950 and 1960 were straight out of the scene. Users never
came in direct contact with the hardware. In most cases, users did not know how to use the
computers, and many were afraid to learn.

b) Speed: Most users today have keyboard terminals or microcomputers in their offices to speed
up. They do not regard the computer as something special as a necessary piece of office
equipment, just like a desk, a telephone or a copying machine.

Who are the Users?

 Managers
 Non-managers
 Persons & organizations in the firm’s environment

The first users of computer output were clerical employees in the accounting area, where the
computer performed such application as payroll, inventory and billing. Users also existed outside the
firm. Customers received invoices and statements, stock holders received dividend checks, and the
federal government received tax reports.

Where Managers are found?

 Management levels
 i. Operational Control level –Lower level managers are responsible for the day-to-day
operation, activities and transactions of an organization.

ii. Management Control level – Middle managers, who co-ordinate, control and
monitor various activities in an organization and act as liaison between operational
managers and top managers.
iii. Strategic Planning level– Top managers, establishes the vision and the long term
goals of the organization.

Management level can influence information

Above figure shows that managers on the strategic planning level place greater emphasis on
environmental information than do managers on the lower levels, and those managers on the
operational control level regard internal information as vital. The lower graph shows that
strategic planning level managers prefer information in a summary format, where as operational
control level managers prefer detail.

 Business Areas: Managers are in the business areas of the firm, where resources are
segregated according to the work performed. Areas are;

i. Marketing
ii. Manufacturing
iii. Finance
iv. Human resources
v. Information services
 Management Information System – B.E (Inforamtion Technology) 7th Semester

Managers Can Be Found on All Levels in the firm

What Managers do?

 Management functions: early in this century, around 1914, the French management theorist
Henri Fayol recognized that managers perform five major management functions. Figure 2.3
shows the functions performed by managers at each level.

 Managerial roles: Henry Mintzberg decided that Fayol’s functions did not tell the whole
story. He developed a more detailed framework consisting of 10 managerial roles that
managers play. Table 2.1 shows the roles of the managers.

Management Functions

Mintzberg’s Managerial Roles

Interpersonal Roles

Figurehead: The manager performs ceremonial duties, such as giving visiting dignitaries tours of the
facilities.
 Management Information System – B.E (Inforamtion Technology) 7th Semester

Leader: The manager maintains the unit by hiring and training the staff and providing motivation
and encouragement.

Liaison: The manager makes contacts with persons outside the managers own unit – peers and others
in the unit’s environment, for the purpose of attending to business matters.

Informational Roles

Monitor: The manager constantly looks for information bearing on the performance of the unit. The
manager’s sensory preceptors scan both the internal activity of the unit and its environment,

Disseminator: The manager passes valuable information along to others in the unit.

Spokesperson: The manager passes valuable information along to those outside the unit superiors
and persons in the environment.

Decisional Roles

Entrepreneur: The manager makes rather permanent improvements to the unit, such as changing the
organizational structure.

Disturbance Handler: The manager reacts to unanticipated events, such as the devaluation of the
dollar in a foreign country where the firm has operations.

Resource Allocator: The manager controls the purse strings of the unit, determining which subsidiary
units get which resources.

Negotiator: The manager resolves disputes both within the unit and between the units and its
environment.

Management Skills

 Communications skills: Managers receive and transmit information in both written and oral
forms. Figure shows how these media can originate either internally or in the environment, as
well as how managers use the information in problem solving.

 Problem solving kills: We define problem solving as all activities that lead to the solution of
a problem. During the process of problem solving, managers engage in decision making,
which is the act of selecting from alternative courses of action.
 Management Information System – B.E (Inforamtion Technology) 7th Semester

Problem Solving Information

Management Knowledge

 Computer literacy: The basic working knowledge of the computer necessary to function in
today’s world is called computer literacy. This knowledge includes;

o An understanding of computer terminology

o A recognition of the strengths and weaknesses of the computer
o An ability to use the computer

 Information literacy: Information literacy consists of understanding

o How to use information at each step of the problem solving process?

o Where that information can be obtained?
o How to share information with others?

Manager and Systems

What is a system?

System is a set of interacting or interdependent elements that are integrated with the common
purpose of achieving an objective.

System elements

 Input element
 Output element
 Transformation element
  Control mechanism

The resources flow from the input element, through the transformation element, and to the output
element. A control mechanism monitors the transformation process to ensure that the system meets
its objectives. The control mechanism is connected to the resource flow by means of a feedback loop,
which obtains information from the system output and makes it available to the control mechanism.
The control mechanism compares the feedback signals to the objectives and directs signals to the
input element when it is necessary to change the system operation.

Closed -Loop System

A system with the three control elements (Control Mechanism, Feedback loop, and Objective) is
called a Closed -loop system.

Closed -Loop System

Open-Loop System

A system without the control mechanism, feedback loop, and objective elements is called an Open-
loop system.

Open -Loop System

Open versus Closed Systems

Open system: An open system usually interacts with some entities in their environment.

Closed system: A closed system is isolated from its environment.

What is a Sub-System?

A Subsystem is a set of elements, which is a system itself, and a part of a larger system. An
automobile is a system composed of subsidiary systems such as the engine system, body system and
frame system.
What is a Super system?

When a system is a part of a larger system, the larger system is the Supers system. For example, a
town’s government is a system, but it is also part of a larger system- the government of a state or
province.

Systems can be composed of Subsystems

The Firm is a Sub system within larger Systems

The Business System

The system of the firm exists in one or larger environmental systems or super systems. If the firm is a
bank, for example, it is part of the financial community. It is also part of the business community, the
local community, and the global community.

Physical and Conceptual Systems

 Physical system
o The business firm
o Composed of physical resources
 Conceptual system
o It represents a physical system
o Uses conceptual resources
 Information
 Data

A Systems View

Business operations are embedded within a larger environmental setting

 Reduces complexity
 Requires good objectives
 Emphasizes working together
 Acknowledges interconnections
 Values feedback

Data versus Information

 Data consists of facts and figures that are relatively meaningless to the user. For example,
data may be the number of hours worked for each employee in the company. When this
data is processed, it can be converted into information. When the hours worked by each
employee are multiplied by the hourly rate, the product is the gross earnings. Information
is the processed data.

 One person’s data is other person’s information. For example, the gross earnings figures
for a firm’s employees provide an illustration. The separate figures are information to
each of the employees. But to the company’s owner, these figures are data. The owner
wants to know the total payroll for the firm, and the individual figures must be processed
to produce this information.

 Data is the raw material transformed into information. This transformation is performed
by an information processor. The information processor is one of the key elements in the
conceptual system and can include computer components, non-computer components, or
some combination of the two.

Computer Based Information System (CBIS)

 A Computer-Based Information System (CBIS) is an information system that uses computer

and often telecommunications technology to perform some or all of its intended tasks.
  The first major computer application was used to process accounting data. That application
was followed by four others management information systems (MIS), Decision Support
Systems (DSS), the Virtual Office and Knowledge based system.

Evolution of Computer Based Information System

The initial efforts to apply the computer in the business area focused on data. Then an emphasis on
information and decision support came. Today, communication and consultation are receiving the
most attention.

 The initial focus on Data: During the first half of the 20 th century, when punched card and
key driven bookkeeping machines were used, firms generally ignored the information needs
of managers. The name given to these early computer-based accounting applications was
Electronic Data Processing (EDP). Later, we use the term Accounting Information System
(AIS) to describe the system that processes the firm’s data.

 The focus on information: In 1964, a new generation of computing equipment was

introduced. The new computers were the first to use silicon chip circuitry, and they offered
opportunities for more processing power per dollar. The concept of using the computer as a
MIS was promoted by the computer manufacturers. The MIS concept recognized that
computer applications should be implemented for the primary purpose of producing
management information.

 The revised focus on Decision Support: In 1971 information scientists formulated a

different approach. Their concept was named the Decision Support System (DSS). A DSS is
an information producing system aimed at a particular problem that a manager must solve
and at decisions that the manager must take. The manager can be located anywhere in the
organization on any level and in any business area.

 The current focus on communication: Office automation got its start in 1964. Office
automation-which facilitates communication and increase productivity among managers and
office workers through the use of electronic devices. Office automation grew to include a
wide variety of applications such as video conferencing, voice mail, electronic mail,
electronic calendaring. We use the term Virtual Office to describe the modern setting for
office work, made possible by the office automation and other electronic applications.

 The potential focus on consultation: Artificial intelligence got its start in 1990. The
computer can be programmed to perform some of the logical reasoning tasks as a human, an
application called Artificial Intelligence (AI), expert systems, is receiving much attention in
business. An Expert System (ES) is one that functions as specialists in an area. We can use
the term Knowledge-Based Systems that apply artificial intelligence to problem solving.

Model of CBIS

 Managers make decisions to solve problems, and information is used in making the decisions.
 Information is presented in both oral and written forms by an information processor.
 The computer portion of the information processor contains each of the computer-based
application areas- AIS, MIS, DSS, the Virtual Office and Knowledge-Based Systems.
 We use the collective term CBIS to describe the five subsystems that utilize the computer.
 CBIS Model

Information Service Organization

The first computer-using firms recognized the necessity of establishing separate organizational units
of specialists who would be responsible for implementing the systems.

Information Specialists:

Information specialists have full-time responsibility for developing and maintaining computer-based
systems.

There are five main categories of information specialists:

 System Analyst: Work with the Users in developing new systems and in improving existing
systems. System analysts are expert at defining problems and at preparing written
documentation on how the computer will assist in solving the problem.

 Database Administrators: Work with the Users and Systems Analysts to create databases
that contain the data needed to produce the user’s information. A Database is an integrated
collection of computer data, organized and stored in a manner that facilitates easy retrieval.
Once the databases are created, database administrators frequently manage these important
resources.

 Network Specialists: Work with the Systems Analysts and Users to establish the data
communications networks that tie together widespread computing resources. Network
specialists combine expertise from the fields of computing and telecommunications.

 Programmers: Use the documentation prepared by the Systems Analysts to encode the
instructions that cause the computer to transform the data into information needed by the
user.
  Operators: They handle the large-scale computing equipment such as mainframe computers
and minicomputers. The operators monitor the Consoles, change Paper forms in the printers,
manage libraries of tape and disk storage, and perform other similar duties.

Traditional Communication Chain

Trend to End User Computing

 Information specialists do not always participate in the development of computer-based

systems. That is the traditional approach, the way all systems were developed during the
1950, 1960 and early 1970.

 The late 1970 saw the beginning of a trend that had a big influence on computer use. The
trend was a growing interest on the part of users in developing their own computer
applications.

 This approach to system development was named End-User Computing. End user is
synonymous with User; he or she used the end product of a computer-based system.

 End-user computing (EUC) is the development by users of all or part of their computer-
based systems.

What simulated the End-user Computing?

End-user computing evolved because of four main influences.

 Increased computer literacy: During the early 1980s, good computer education
programs at both the college and pre-college level began to have an impact. Management
ranks, especially on the lower levels, began to fill with computer literate people.

 Information Services backlog: Information specialists have always had more work than
they can handle. The situation became critical during the early 1980s, when users began
making demands on information services for additional systems support. Information
 services could not respond quickly enough, and backlogs built up. Some users had to wait
two or three years for their jobs to work their way through the backlog.

 Low-cost hardware (The PC): During this period, the market became flooded with low-
cost microcomputers. Users could obtain their own hardware by placing an order at the
local computer store by telephone and making payment from the petty cash fund.

 Prewritten software (Electronic Spreadsheets): Both hardware and software firms

produced software that would perform basic accounting tasks as well as provide
information for decision making. This prewritten software offered enhancer support and
ease of use, and it enabled firms and individual users with little or no computer expertise
to implement computer-based systems.

End-User Computing Communication Chain

Justifying the CBIS

The CBIS should be justified in the same manner as any other large investment of the firm.

 Cost reduction: During the Electronic Data Processing (EDP) era, firms attempted to justify
their computers on the basis of displaced clerical cost. As things worked out, few of the
clerical workers lost their jobs. Although the computer did not cut clerical costs as planned,
substantially more success was achieved through increased efficiency or increased return on
investment.

 Reduced inventory investment: One of the first computer applications was inventory
control, and firms often reduced their inventory investment by computerizing their inventory
records.

 Increased productivity (CAD/CAM): Productivity is increased due to the use of advanced

technology.

Computer justification became more difficult with the emergence of information-oriented

systems. An MIS or a DSS can produce a valuable report, but how valuable is it? The value of a
piece of information is difficult to assess. Because of the difficulty of measuring CBIS value,
firms approach the decision to implement such systems very cautiously. Much managerial and
staff time is spent evaluating the impact that the system will have on the organization.
Achieving the CBIS

 Each subsystem of the CBIS is like a living organism: it is born, it grows and matures, it
functions, and eventually it dies.

Circular Pattern of the System Life Cycle

 This evolutionary process is called the System Life Cycle (SLC), and consists of the
following phases:

o Planning

 The first and the most important step are to provide a statement of
organizational objectives, for the proposed CBIS. This is primarily a
responsibility of the top management.

 The next step is to examine the feasibility of the proposed system. This
involves evaluating the costs and benefits of the system. Initially a rough cost-
benefit analysis will be sufficient for the top management to take a decision
either in favor of or against the proposed CBIS.

 Costs include costs of design, development, implementation and maintenance

of the system. Benefits will be realized from the timely and accurate
generation of required information to meet the stated objectives of the
organization.

 It is to be realized that a data base created for a particular CBIS application

usually serves other applications a well to certain extent. For, example, a
database for pay roll accounting can be used for applications such as Provident
Fund.
 o Analysis:

 Systems analysis is the next stage in the life cycle of CBIS. This step involves
the following;

 Understanding the organization to identify the flow of information

between different levels in the organization.

 A detailed examination of the proposed system (Application area) for

CBIS.

 Identifying alternative approaches to meet the stated objectives on the

system.

 Evaluating the costs and benefits of each alternative in detail.

 Choosing the most appropriate alternative.

 Systems analysis involves team work and a considerable amount of

time. A clearer picture of costs and benefits of alternative approaches
will emerge from a detailed study of the proposed system. Involvement
of ultimate users of CBIS is very crucial at this stage itself, so that the
acceptance of CBIS upon implementation will be relatively easy.

o Design

Logical System Design: Providing a logical system design for the chosen alternative involves:

 Understanding user requirements.

 Identifying data requirements.

 Suggesting a logical organization of data.

 Suggesting a logical procedure to produce the desired outputs from available

inputs.

 It is very important that we understand the requirements of various users in the

organization. Users at different levels in an organization have different
information requirements for decision making. Information requirement can
be broadly classified into their groups as follows.

 Monitoring and control decisions

 Planning decisions
 Policy and strategy decisions

 Detailed discussions between system designers and ultimate users are very
essential to estimate user’s requirements clearly. This includes identifying
report contents frequency of reporting, formatting of reports and presentation
of reports for each user.
  After estimating users’ requirements, a system designer works backwards to
identify data requirements. This includes identifying data sources, the nature
and type of data that is available, and data gaps.

 The next step is to establish a processing logic to produce the desired outputs
from the available inputs. This step involves a data flow analysis and a data
processing analysis. Data flow analysis helps us to arrive at logical
organization of data into computer files. A file is collection of similar records;
each record has a number of data items of records, each record carrying the
necessary data items of information of an employee, like name, designation,
department, basic salary. Etc.

 A logical representation of data flow analysis and data processing analysis in a

CBIS can be effectively provided through structured system design tools.
These are:

 Data flow diagrams

 Data dictionary for data flow analysis
 Decision tables
 Structured English for data processing analysis.

 These tools are highly recommended to present a well documented and self
explained logical system design.

Physical System Design: While a logical design provides an estimate of processing requirements, a
physical design involves mapping the logical design on to the physical hardware of a computer
system. Upgrading the existing hardware and/or acquiring a new computer system if required to meet
the processing requirements is also undertaken at this stage.

 Subsequently, file organization details are worked out and appropriate file
organization methods established for processing and storing data. File
organization methods can be broadly classified into two types- serial access
organization and random access organization.

 A system flow chart is commonly used to present the physical system design.
It is to be realized that system flow chart is different from program flow chart.

o Implementation

 An actual programming is undertaken at this stage to implement the proposed

CBIS in the available hardware. This activity includes:

 Program development

 Debugging of program :i.e. spotting and correcting errors in programming

 Testing of individual program modules on sample data.

 Implementing the entire system on the computer

  Getting acceptance of the CBIS from its users

 Providing user training

 Preparing user manuals and documentations

 This is the most time consuming activity in the life cycle of a CBIS; and is
also the costliest activity. Systems analysts have a tendency to lose interests
once all the programs are developed and tested to their own satisfaction, and
not necessarily to the satisfaction of the users. This tendency is dangerous and
should be avoided at all cost. It is the responsibility of systems analysts to
properly document their programs. Prepare user manuals; provide user training
and getting acceptance for the CBIS from its users.

o Use & Maintenance

 Along with using the system, Maintenance follows a successful

implementation of CBIS. As users develop faith in CBIS, their demands on the
system will grow. The system design should be flexible enough to
accommodate future request, refinements, modifications, and changes to suit
users’ requirements. Well documented logical and physical designs of a CBIS
will facilitate its maintenance considerably.

 The life cycle of a particular computer based system might last only a few months, or it might
last several years.

 When a system outlives its usefulness and must be replaced, a new life cycle is initiated,
beginning with the planning phase.

Managing the CBIS

Even though many people may contribute their specialized skills to the development of a computer-
based system, it is the user who is responsible for the system life cycle. In keeping with our emphasis
on the manager as the user, we assign the manager the responsibility for managing the CBIS. He or
she is the manager of the organizational unit where the computer is being applied and he or she can
be located anywhere in the firm.

As the CBIS evolves, the manager plans the life cycle and controls the information specialists who
are involved. After implementation, the manager controls the CBIS to ensure that it continues to
provide the desired support.

When the manager elects to make use of the support of information specialists, both parties work
together to identify and define the problem, identify and evaluate alternative solutions, select the
best solution, assemble appropriate hardware and software, create the database, and keep the
system current. When the manager elects to pursue end-user computing in its purest form, the
manager performs all of these tasks.

Roles Played by the Manager and the Information Specialists

The CBIS Putting

 During the early years of the computer- firms had a choice as to whether they would use it.
 The managers of the early computer- using firms were visionaries; they recognized that the
computer gave them some edge over their competitors.
 As the cost of computing hardware and software decreased, the applications used by the early
firms became available to practically all firms.
 Today’s manager really does not have much choice concerning computer use. The question is
not whether to use it but how extensively to use it.
 Most firms have become completely dependent on their computer-based accounting
information systems and could not handle a day’s transactions without them.
 Some firms have also achieved systems that provide problem solving information, speed the
flow of communications and make available expertise of the richest sort.

Strategic Information System

 The concept of Strategic Information Systems or "SIS" was first introduced into the field
of information systems in 1982-83 by Dr. Charles Wiseman.

 A Strategic Information System (SIS) is a system that helps companies change or otherwise
alter their business strategy and/or structure. It is typically utilized to streamline and quicken
the reaction time to environmental changes and aid it in achieving a competitive advantage.
 Key features of the Strategic Information Systems are the following:

o Decision Support Systems that enable to develop a strategic approach to align

Information Systems (IS) or Information Technologies (IT) with an organization's
business strategies.

o Primarily Enterprise Resource Planning solutions that integrate/link the business

processes to meet the enterprise objectives for the optimization of the enterprise
resources.

o Database systems with the "Data Mining" capabilities to make the best use of
available corporate information for marketing, production, promotion and innovation.
The SIS systems also facilitate identification of the data collection strategies to help
optimize database marketing opportunities.

o The Real-Time Information Systems that intend to maintain a rapid-response and the
quality indicators.

 Strategic information systems are those computer systems that implement business strategies;
they are those systems where information services resources are applied to strategic business
opportunities in such a way that the computer systems have an impact on the organization’s
products and business operations.

 Strategic information systems are always systems that are developed in response to corporate
business initiative.

 Most information systems are looked on as support activities to the business. They mechanize
operations for better efficiency, control, and effectiveness, but they do not, in themselves,
increase corporate profitability. They are simply used to provide management with sufficient
dependable information to keep the business running smoothly, and they are used for analysis
to plan new directions.

 Strategic information systems, on the other hand, become an integral and necessary part of
the business, and directly influence market share, earnings, and all other aspects of
marketplace profitability. They may even bring in new products, new markets, and new ways
of doing business. They directly affect the competitive stance of the organization, giving it an
advantage against the competitors.

 Strategic systems are those that link business and computer strategies. They may be systems
where a new business thrust has been envisioned and its advantages can be best realized
through the use of information technology.

 Strategic systems may be systems where new computer technology has been made available
on the market, and planners with an entrepreneurial spirit perceive how the new capabilities
can quickly gain competitive advantage.

 Strategic systems may be systems where operational management people and Information
Services people have brainstormed together over business problems, and have realized that a
new competitive thrust is possible when computer methods are applied in a new way.
 Strategic system, thus, attempt to match Information Services resources to strategic business
opportunities where the computer systems will have an impact on the products and the
business operations.

 Planning for strategic systems is not defined by calendar cycles or routine reporting. It is
defined by the effort required to impact the competitive environment and the strategy of a
firm at the point in time that management wants to move on the idea.