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1 The Systems Concept

Definition
 A set of interrelated components designed to work together towards achieving one or more common
objectives by accepting input and producing out in an organized transformation process.
 Examples: blood circulatory system; Education System; Transport system; Business Systems
Characteristics
1. Purpose
 Created to achieve a desired set of objectives for the organization.
2. Components and subsystems
 Consists of interrelated components.
 Interrelationship and interdependence must exist amongst the components.
 A complex system may be broken down into subsystems.

3. Boundary
 It defines the limits of the system.
 It defines what is inside and outside the system.

4. Environment
 Constitutes entities outside the system that interacts with it.

5. Interaction with the environment

 Gets input and outputs to and fro the environment

6. Control Mechanism
 Monitors the output to check that it conforms to the expected goals and objectives.
 Variations from the goals or output are fed back into the system in order to adjust the system towards
the set goals.
Classification of Systems
 Can be classified based on:
(i) Interaction with the environment
a) Open systems
b) Closed systems

(ii) Nature of output

a) Deterministic (Mechanistic) systems
b) Probabilistic (Stochastic) systems
c) Self-controlling systems

Open systems

 Is a system that interacts with and exchanges information with the outside environment i.e. systems that interact
with the environment.
 All Business systems are open system
Closed systems

 Is that which does not interact with the environment.

 Such system correct or self-control itself.
 More common to scientific than social systems.
Deterministic (Mechanistic) Systems
 Systems whose outputs are precisely known from their input.
 The prediction of the output is error-free

Probabilistic (Stochastic) Systems

 Systems whose output can only be predicted but not precisely.
 The output is governed by change and not rules but so many influencing factors.

Cybernetic (Self-controlling) Systems

 These are self-controlling system which adapt to the environment and regulate their own behavior by assessing
the feedback.
 They assess their output and adjust the input.

1.2 Information Systems

Definitions
 Data items - refer to an elementary description of things, events, activities, and transactions that are
recorded, classified, and stored but are not organized to convey any specific meaning. Data items can
be numbers, letters, figures, sounds, or images. Examples of data items are a student grade in a class
and the number of hours an employee worked in a certain week.
 Information - refers to data that have been organized so that they have meaning and value to the
recipient. For example, a grade point average (GPA) is data, but a student’s name coupled with his or
her GPA is information. The recipient interprets the meaning and draws conclusions and implications
from the information.
 Knowledge consists of data and/or information that have been organized and processed to convey
understanding, experience, accumulated learning, and expertise as they apply to a current business
problem. For example, a company recruiting at your school has found over time that students with grade
point averages over 3.0 have had the most success in its management program. Based on its experience,
that company may decide to interview only those students with GPAs over 3.0. Organizational
knowledge, which reflects the experience and expertise of many people, has great value to all
employees.
 Information systems - is an arrangement of people, data, processes, communications, and information
technology that interact to support and improve day-to-day operations in a business as well as support
the problem-solving and decision making needs of management and users.
 Computer Based Information Systems (CBIS) - Information systems that use computer hardware,
software communication network and other information technologies to collect, transform, and
disseminate information in an organization.
Components of Information Systems
1. Hardware - is electronic components such as the processor, monitor, keyboard, and printer. Together,
these devices accept data and information, process them, and display them.
2. Software is a program or collection of programs that enable the hardware to process data.
3. A database is a collection of related files or tables containing data.
4. A network is a connecting system (wireline or wireless) that permits different computers to share
resources.
5. Procedures are the set of instructions about how to combine the above components in order to process
information and generate the desired output.
6. People are those individuals who use the hardware and software, interface with it, or use its output.

Major Capabilities of Information Systems

1. Perform high-speed, high-volume, numerical computations.
2. Provide fast, accurate communication and collaboration within and among organizations.
3. Store huge amounts of information in an easy-to-access, yet small, space.
4. Allow quick and inexpensive access to vast amounts of information, worldwide.
5. Interpret vast amounts of data quickly and efficiently.
6. Increase the effectiveness and efficiency of people working in groups in one place or in several
locations, anywhere.
7. Automate both semiautomatic business processes and manual tasks.
Information Systems Activities
1. Input of data resources
 Input typically takes the form of data entry activities such as recording and editing.
 End users enter data directly into the computer system or record data about transactions into a physical
medium e.g. paper.
2. Processing of data into information
 Data are subjected to processing activities such as calculating, comparing, sorting, classifying and
summarizing.
 These activities organize, analyze and manipulate data, thus converting them into useful information
for the end user.
 The quality of any data stored in an information system must also be maintained by a continual
process of correcting and updating activities.
3. Output of information products
 Information in varies forms is transmitted and made available to them.
 The goal of information systems is the production of appropriate information products to end users.
 Common information products include messages, reports, forms and graphical images.
 They are conveyed through video displays, audio responses, paper and multimedia.
4. Storage of data resources
 An activity in which data and information are retained in the organization for later use.
 Is a basic component of an information system
5. Control of system performance
 An important information system activity is the control of its performance.
 An information system should produce feedback about its input, processing, output, and storage
activities.
  This feedback must be monitored and evaluated to determine whether the system is meeting
established performance standards.

Information Quality
 Quality of an information product can be viewed in three dimensions: time, content and form dimensions
1. Time Dimension
a) Timeliness – Information should be provided when needed
b) Currency - Information should be up-to-date when it is provided
c) Frequency - Information should be provided as often as needed
d) Time Period - Information should be provided about past, present, and future time periods
2. Content Dimension
(i) Accuracy - Information should be free from errors
(ii) Relevance - Information should be related to the information needs of a specific recipient for a
specific situation.
(iii) Completeness – all information that is needed should be provided
(iv) Conciseness – only information that is needed should be provided
(v) Scope – information can have a broad or narrow scope; an internal or external focus.
(vi) Performance – information can reveal performance by measuring activities accomplished,
progress made, or resources accumulated.
3. Form Dimension
(i) Clarity - Information should be provided in a form that is easy to understand.
(ii) Detail - Information should be provided in detail or summary form.
(iii) Order - Information should be arranged in a predetermined sequence
(iv) Presentation - Information should be presented in a narrative, numeric, graphic, or other forms.
(v) Media - Information can be provided in the form of printed paper documents, video displays, or
other media.
Roles of Information Systems in Business
 There are three vital roles that information systems can perform for a business enterprise:
1. Support of its business processes and operations
2. Support of decision making by its employees and managers.
3. Support of its strategies for competitive advantage

Classification of Information Systems

 Can be classified into two broad classes :
a) Operations support systems
(i) Transaction Processing Systems
(ii) Process Control Systems
(iii) Enterprise Collaboration Systems
b) Management support systems
(i) Management Information Systems
(ii) Decision Support Information Systems
(iii) Executive Information Systems

1. Transaction Processing Systems (TPS)

c) Systems that capture and process data resulting from business transactions.
 d) Transaction – business event that generates data.
e) Example: Point-of-Sale (POS) terminals in retail stores.
2. Process Control Systems(PCS)
 Monitor and control physical processes.
 Example: Petroleum refineries use electronic sensors connected to computers that continually
monitors chemical processes and make instant adjustments that control the refinery process.
3. Enterprise Collaboration Systems
 Enhance team and workgroup communications and productivity.
 Also called Office Automation Systems (OAS).
 Example: email, videoconferencing systems
4. Management Information Systems (MIS)
 Is an information system application that provides for management-oriented reporting.
 These reports are usually generated on a predetermined schedule and appear in a prearranged
format.
 Example: sales analysis
5. Decision Support Systems(DSS)
 Is an information system application that provides its users with decision-oriented information
whenever a decision-making situation arises.
 Provides interactive ad hoc support for decision making processes for managers and other business
professionals.
 Examples: product pricing; profitability forecasting; and risk analysis systems
6. Executive Information Systems
 Provides critical information from many sources tailored to the information needs of executives
 Examples: systems that provide easy access to analyses of business performance, actions of
competitors, and economic developments to support strategic planning.

Other Categories of Information Systems

7. Expert Systems
 Knowledge-based systems that provide expert advice and act as expert consultants to users.
 Examples: Credit application advisor; process monitor; and diagnostic maintenance systems.
8. Knowledge Management Systems
 Knowledge based systems that support the creation, organization and dissemination of business
knowledge within the enterprise.
 Examples: sales proposals and customer problem resolution systems
9. Strategic Information Systems
 Supports operations or management processes that provides a firm with strategic products, services,
and capabilities for competitive advantage.
 Examples: online stock trading, shipment tracking, and e-Commerce Web systems
10. Functional Information Systems
 Supports a variety of managerial and operational applications of the basic business functions of an
organization.
 Examples: accounting, finance, marketing , and human resource management systems
11. Cross Functional Information Systems
 Integration of different functional information systems into one.
  Designed to provide information and support decision making process for various levels of
management and business functions.

1.3 Competitive Advantage and Strategic Information Systems

Definitions
 Competitive advantage – a company’s ability to outperform its competitors in some measure
such as cost, quality, or speed.
 Competitive advantage helps a company control a market and generate larger-than-average
profits.
 Competitive strategy - is a statement that identifies a business’s strategies to compete, its goals,
and the plans and policies that will be required to carry out those goals.
 Through its competitive strategy, an organization seeks a competitive advantage in an industry.
 Strategic information system - is any information system that uses IT to help an organization
gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic
enterprise objectives.
Porter’s Competitive Forces Model
 The best-known framework for analyzing competitiveness.
 Model identifies five major forces that could either endanger or enhance a company’s position in
a given industry.

1. The threat of entry of new competitors

 The threat of new competitor entry is high when it is easy to enter your market and low when
significant barriers to entry exist.
 An entry barrier is a product or service feature that customers have learned to expect from
organizations in a certain industry. This feature must be offered by a competing organization for it
to survive in the marketplace. For example, the threat of entry into automobile manufacturing is very
low because the auto industry has major entry barriers, particularly the enormous capital costs for
the manufacturing facility and equipment.
 For most firms, the Web increases the threat that new competitors will enter the market by sharply
reducing traditional barriers to entry, such as the need for a sales force or a physical storefront to
sell goods and services.
2. The bargaining power of suppliers

 Supplier power is high when buyers have few choices from whom to buy and low when buyers have
many choices. Therefore, organizations would rather have more potential suppliers to be able to
better negotiate price, quality, and delivery terms.
 The Internet’s impact on suppliers is mixed. On the one hand, buyers can find alternative suppliers
and compare prices more easily, reducing the supplier’s bargaining power. On the other hand, as
companies use the Internet to integrate their supply chains, participating suppliers prosper by locking
in customers.
3. The bargaining power of customers (buyers)
  Buyer power is high when buyers have many choices from whom to buy and low when buyers have
few choices. For example, in the past, students had few places from which to buy their textbooks
(typically, one or two campus bookstores). As a result, students had low buyer power. Today, students
have a multitude of choices to choose from, and as a result, student buyer power has greatly
increased.
 The Web also significantly increases a buyer’s access to information about products and suppliers.
Internet technologies can reduce customers’ switching costs, which are the costs, in money and time,
of a decision to buy elsewhere. In addition, buyers can more easily buy from other suppliers. In these
ways the Internet greatly increases customers’ bargaining power.

4. The threat of substitute products or services

 If there are many substitutes for an organization’s products or services, then the threat of substitutes
is high. If there are few substitutes, then the threat is low.
 Today, new technologies create substitute products very rapidly. For example, customers today can
purchase wireless telephones instead of land-line telephones, Internet music services instead of
traditional CDs, and ethanol instead of gasoline in cars.
 Information-based industries are in the greatest danger from substitutes. Any industry in which
digitized information can replace material goods (e.g., music, books, software) must view the Internet
as a threat because the Internet can convey this information efficiently and at low cost.
5. The rivalry among existing firms in the industry

 The threat from rivalry is high when there is intense competition among many firms in an industry.
The threat is low when the competition is among fewer firms and is not as intense.
 The visibility of Internet applications on the Web makes proprietary systems—systems that belong
exclusively to a single organization—more difficult to keep secret. The result is fewer differences
among competitors.
 Internet-based systems are changing the nature of competition and even industry structure in many
other ways. Companies that have both online and offline sales operations are termed click-and-
mortar firms because they combine both “brick-and-mortar” and e-commerce operations.
 Competition also is being affected by the extremely low variable cost of digital products. That is,
once the product has been developed, the cost of producing additional “units” approaches zero.
Consider the music industry as an example. The costs in a physical distribution channel are much
higher than the costs involved in delivering the songs over the Internet in digital form.

Strategies for Competitive Advantage

 Among the strategies organizations continually try to develop to counter Porter’s five competitive
forces are the following:
1. Cost leadership strategy

 Produce products and/or services at the lowest cost in the industry.

 A firm can also find ways to help its suppliers and customers reduce their costs or increase the
cost of their competitors.
  An example is Wal-Mart’s automatic inventory replenishment system, which enables Wal-Mart to
reduce inventory storage requirements. As a result, Wal-Mart stores use floor space only to sell
products, and not to store them, thereby reducing inventory costs.

2. Differentiation strategy

 Offer different products, services, or product features that differentiate a firm from its competitors’
or reduce the differentiation advantage of competitors.
 For example, Dell has differentiated itself in the personal computer market through its mass-
customization strategy.

3. Innovation strategy

 Introduce new products and services, add new features to existing products and services, or
develop new ways to produce them.
 May also involve making radical changes to the business processes for producing or distributing
products and services.
 A classic example is the introduction of automated teller machines (ATMs) by Citibank. The
convenience and cost-cutting features of this innovation gave Citibank a huge advantage over
its competitors.
4. Growth strategies
 Significantly expanding a company’s capacity to produce goods and services,
expanding into global markets, diversifying into new products and services, or
integrating into related products and services.

5. Alliance strategies
 Establish new business linkages and alliances with suppliers, customers, competitors,
consultants and other companies.
 These alliances may involve mergers, acquisitions, joint ventures, forming of virtual
companies, or other marketing, manufacturing, or distribution agreements between a
business and its trading partners.
Strategic Uses of Information Technology
1. Lower cost
 Use IT to substantially reduce cost of doing business.
 Use IT to lower the costs of customers or suppliers.
2. Differentiate
 Develop new IT feature to differentiate products and services.
 Use IT features to reduce the differentiation advantage of competitors.
 Use IT features to focus products and services at selected market niches.
3. Innovate
  Create new products and services that include IT components
 Develop unique new markets or market niches with the help of IT
 Make radical changes to business processes with IT that dramatically cut costs, improve quality,
efficiency, or customer service, or shorten time to market
4. Promote growth
 Use IT to manage regional and global business expansions.
 Use IT to diversify and integrate into other products and services.
5. Develop alliances
 Use IT to create virtual organizations of business partners.
 Develop inter-enterprise information systems linked by Internet and extranets that support strategic
business relationships with customers, suppliers, subcontractors, and others.
Other competitive strategies
6. Locking in customers and suppliers
 Investment in IT can allow a business to lock in customers and suppliers (and lock out
competitors) by building valuable new relationships with them.
7. Building switching costs
 Develop inter-enterprise information system whose convenience and efficiency create switching
cost that lock in customers and suppliers.
8. Raising barriers to entry
o By increasing the amount of investment or complexity of IT, a company can discourage or delay
new entrants in the industry because of the level of technology required to compete in the market.
9. Leverage investment in IT
o Leverage investment in IS people, hardware, software, databases, and networks from
operational uses into strategic applications.
10. Lock out substitute products
o Include IT components in the products and services to make substitution of competing products
or services more difficult.

Strategies for Building Competitive Advantage Using IT

1. Building a Customer-Focused Business.
• Customer focused business :
 Keeps customers loyal
 Anticipates their future needs
 Responds to customer concerns
 Provides top-quality customer service
o Customer-focused companies use Internet, intranet, and extranet e-commerce Web sites and
services to keep track of their customers' preferences; to supply products, services, and
 information anytime, anywhere; and to provide services tailored to the individual needs of the
customers.
2. Reengineering Business Processes.
o Information technology is a key ingredient in reengineering business operations because it
enables radical changes to business processes that dramatically improve their efficiency and
effectiveness.
o Internet technologies can play a major role in supporting innovative changes in the design of
workflows, job requirements, and organizational structures in a company.
3. Becoming an Agile Company.
• Agility is the ability to prosper……..
 In rapidly changing, continually fragmenting global markets
 By selling high-quality, high-performance, customer-configured products and services
 By using Internet technologies
• An agile company profits in spite of
 Broad product ranges
 Short model lifetimes
 Individualized products
 Arbitrary lot sizes
Strategies for Agility
 An agile company…
 Presents products as solutions to customers’ problems
 Cooperates with customers, suppliers, competitors
 Brings products to market quickly and cost-effectively
 Organizes to thrive on change and uncertainty
 Leverages the impact of its people and the knowledge they possess
 Provides incentives for employees responsibility, adaptability, innovation

1.4 Data and Knowledge Management

Definition
 Knowledge consists of data and/or information that have been organized and processed to convey
understanding, experience, accumulated learning, and expertise as they apply to current business
problem.
 For example, a company recruiting at your school has found over time that students with grade point
averages over 3.0 have had the most success in its management program. Based on its experience,
that company may decide to interview only those students with GPAs over 3.0. Organizational
knowledge, which reflects the experience and expertise of many people, has great value to all
employees.
 Knowledge is information that is contextual, relevant, and actionable.
 Knowledge workers are professional employees such as financial and marketing analysts,
engineers, lawyers, and accountants. All knowledge workers are experts in a particular subject area.
 They create information and knowledge, which they integrate into the business.
 Knowledge workers act as advisors to middle managers and executives.
Types of Knowledge
1. Explicit knowledge
 Deals with more objective, rational, and technical knowledge.
 In an organization, explicit knowledge consists of the policies, procedural guides, reports,
products, strategies, goals, core competencies of the enterprise, and the IT infrastructure.
In other words, explicit knowledge is the knowledge that has been codified (documented) in
a form that can be distributed to others or transformed into a process or strategy.
 A description of how to process a job application that is documented in a firm’s human
resources policy manual is an example of explicit knowledge.
2. Tacit knowledge
 Is the cumulative store of subjective or experiential learning.
 In an organization, tacit knowledge consists of an organization’s experiences, insights,
expertise, know-how, trade secrets, skill sets, understanding, and learning. It also
includes the organizational culture, which reflects the past and present experiences of
the organization’s people and processes, as well as the prevailing values.
 Tacit knowledge is generally slow, imprecise, and costly to transfer.
 It is also highly personal.
 Because it is unstructured, it is difficult to formalize or codify.
 This knowledge is typically not recorded. It resides in workers
 For example, salespersons who have worked with particular customers over time know
the needs of those customers quite well. In fact, it might be difficult for the salesperson
to put into writing.
Knowledge Management Systems (KMS)
 Refer to the use of modern information technologies to systematize, enhance, and expedite
intrafirm and interfirm knowledge management.
 Is an integration of both explicit and tacit knowledge into a formal information system.
 Business knowledge includes processes, procedures, patents, reference works, formulas, best
practices, forecasts, and fixes.
 The Internet, intranets, extranets, groupware, data warehouses, knowledge bases are some of
the key technologies used in KMS.
 KMSs are intended to help an organization cope with turnover, rapid change, and downsizing by
making the expertise of the organization’s human capital widely accessible.

Benefits of KMS
1. They make best practices, which are the most effective and efficient ways of doing things, readily
available to a wide range of employees. Enhanced access to best-practice knowledge improves
overall organizational performance. For example, account managers can now make available their
tacit knowledge about how best to handle large accounts.
2. Can be used to train/orientate new employs.
3. Better customer service.
4. More efficient product development.
5. Improved employee morale and retention.