Chapter 1 MIS

CHAPTER 1
Managing the digital firm

CHAPTER1:MANAGING THE DIGITAL FIRM
1.1 WHY INFORMATION SYSTEM?
1.2 DATA, INFORMATION, AND INFORMATION SYSTEMS

1.3 PERSPECTIVES ON INFORMATION SYSTEM
1.4 CONTEMPORARY APPROACH TO INFORMATION SYSTEM
1.5 TYPES OF INFORMATION SYSTEMS
1.6 INFORMATION SYSTEMS IN BUSINESS FUNCTIONS
WHAT IS INFORMATION SYSTEM?
 An information system (IS) is an
arrangement of people, data, processes,
Woldetsadik Kagnew(Assist.prof.)
and information technology that interact
to collect, process, store, and provide
as output the information needed to
support an organization.
 A management information system
(MIS) is an information system that
provides for management-oriented
reporting based on transaction processing 3
and operations of the organization.
1.1 WHY INFORMATION SYSTEM?
• How information systems are transforming
business?
Globalization opportunities
•
• The emerging digital firm

• Strategic business objectives of Information
systems
• Operational excellence
• New products, services, and business models
• Customer and supplier intimacy
• Improved decision making
• Competitive advantage
• Survival 4
 Globalization:
• Management and control in a global
marketplace
• Competition in world markets
• Global workgroups
• Global delivery systems
5
Emergence of the Digital Firm:
• Digitally enabled relationships with customers, suppliers, and
employees
• Core business processes accomplished using digital networks
• Digital management of key corporate assets
6
1.2. Data, Information, and Information Systems
Data are streams of raw facts representing events occurring in organizations or
the physical environment before they have been organized and arranged into a
form that people can understand and use.
Three activities in an information system produce the information that
organizations need to make decisions, control operations, analyze problems,
and create new products or services. These activities are input, processing, and
output.
Input captures or collects raw data from within the organization or from its
external environment.
Processing converts this raw input into a meaningful form.
Process: A set of logically related tasks performed to achieve a
defined outcome.
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
7
organization to help them evaluate or correct the
input stage.
Information: A collection of facts organized in such a
way that they have additional value beyond the
value of the facts themselves.
Information system can be defined technically as a set of
interrelated components that collect (or retrieve), process, store, and
distribute information to support decision making and control in an
organization.
In addition to supporting decision making, coordination, and
control, information systems may also help managers and workers
analyze problems, visualize complex subjects, and create new
products.
Information systems contain information about significant people,
places, and things within the organization or in the environment
surrounding it. 8
Knowledge: An awareness and
understanding of a set of information
and ways that information can be made
useful to support a specific task or reach a
decision
A system is a set of elements or components
that interact to accomplish goals.
9
1.3 Perspectives on Information Systems
 An information system is a set of interrelated

components that collect (or retrieve), process,
store, and distribute information to support
decision making and control in an organization
10
Computer-Based Information System (CBIS)
• Rely on computer hardware and software
• Processing and disseminating information
• Collecting, storing, and using information
11
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.
12
Figure 1
Dimensions of Information Systems
Three Important Dimensions of Information Systems
• Organizations
• Managers
• Technology
You will need to understand and balance these dimensions of

information systems in order to create business value.
13
The Organizational Dimension of Information Systems
• People
• Structure
• Business processes
• Culture
• Politics
14
The Management Dimension of Information Systems
Managers are:
• Senior managers
• Middle managers
• Operational managers
• Innovators of new processes
• Leaders: set agendas
15
The Technology Dimension of Information Systems
Information technology is one of the tools managers use to cope
with change:
• Hardware: Physical equipment
• Software: Detailed preprogrammed instructions
• Storage: Physical media for storing data and the software
16
The Technology Dimension of Information Systems (Continued)
• Communications technology: Transfers data from one
physical location to another
• Networks: Links computers to share data or resources

(Internet, intranet, extranet)
Managers need to know enough about information technology to

make intelligent decisions about how to use it for creating
business value.
17
1.4 CONTEMPORARY APPROACHES TO
INFORMATION SYSTEMS
 Technical approach
 Behavioral approach
18
Fig 1-4: Contemporary approaches to information
system.
19
TECHNICAL APPROACH
 Computer science
 Theories of computability
 Methods of computation
 Methods of efficient data storage and
access
 Management science
 Models for decision making
 Management practices
20
TECHNICAL APPROACH
 Operations research
 Mathematical techniques for optimizing
selected parameters of organizations,
such as transportation, inventory control,
etc.
21
BEHAVIORAL APPROACH
 Sociology  Development of systems

System affect individual, groups, and
organization.
 How human decision makers perceive and use

 Psychology
formal information .
 Economics  Impacts to firm and within markets

－ on control
－ cost structures
22
Socio-Technical Systems
Optimize systems performance:
 Technology and organization
 Organizations mutually adjust to one another

until fit is satisfactory
23
1.5 Types of Information Systems
• Transaction Processing Systems (TPS)
• Management Information Systems (MIS)
• Decision-Support Systems (DSS)
• Executive Support Systems (ESS)
24
a. Transaction Processing Systems (TPS)
• Basic business systems that serve the operational level.

• A computerized system that performs and records the
daily routine transactions necessary to the conduct of
the business.
A transaction processing system is a computerized system
that performs and records the daily routine transactions
necessary to conduct business, such as sales order entry,
hotel reservations, payroll, employee record keeping, and
shipping.
The principal purpose of systems at this level is to answer
routine questions and to track the flow of transactions
through the organization. How many parts are in
inventory?
What happened to Mr. Smith’s payment? To answer these 25
kinds of questions, information generally must be easily
available, current, and accurate.
TRANSACTION PROCESSING SYSTEM
 Serve operational managers
 Principal purpose is to answer routine
questions and to track the flow of
transactions through the organization
 E.g. Inventory questions, granting credit to
customer
 Monitor status of internal operations and
firm’s relationship with external
environment
 Major producers of information for other
systems
 Highly central to business operations and
functioning 26
A Symbolic Representation for a Payroll TPS
27
Fig 1.5
b. Management Information Systems (MIS)
A management information system (MIS)
is an information system that provides for
management-oriented reporting based on
transaction processing and operations of the
organization.
Management level
• Inputs: High volume transaction level data
• Processing: Simple models
• Outputs: Summary reports
• Users: Middle managers
Example: Annual budgeting

28
MANAGEMENT INFORMATION SYSTEM
 Provide middle managers with reports on
firm’s performance
 To monitor firm and help predict future
performance
 Summarize and report on basic
operations using data from TPS
 Provide weekly, monthly, annual results,
but may enable drilling down into daily
or hourly data
 Typically not very flexible systems with
little analytic capability
29
Management Information Systems (MIS) (continued)
30
Figure 1-6
c. Decision-Support Systems (DSS)
A decision support system (DSS) is an information

system that either helps to identify decision making
opportunities or provides information to help make
decisions.
Management level
• Inputs: Transaction level data
• Processing: Interactive
• Outputs: Decision analysis
• Users: Professionals, staff
Example: Contract cost analysis 31

Decision-Support Systems (DSS)
Middle management needs systems to help with monitoring,
controlling, decision-making, and administrative activities.
Decision-support systems (DSS) support more non-routine
decision making. They focus on problems that are unique
and rapidly changing, for which the procedure for arriving at
a solution may not be fully predefined in advance.
32
DECISION SUPPORT SYSTEM
 Support non-routine decision making for
middle management
 E.g. What would impact on production
schedules be if sales doubled in December?
 Use information from TPS, MIS, and
external sources
 Use models to analyze data
 E.g. voyage estimating system of metals
company that calculates financial and technical
voyage details
 Focus on extracting, analyzing
information from large amounts of data 33
d. EXECUTIVE SUPPORT SYSTEMS (ESS):
• Inputs: Aggregate data
• Processing: Interactive
• Outputs: Projections
• Users: Senior managers
Example: 5 year operating plan
34
EXECUTIVE SUPPORT SYSTEMS (ESS) (Continued)
• Top Level Management
• Designed to the individual senior manager
• Ties CEO to all levels
• Very expensive to keep up
• Extensive support staff
35
EXECUTIVE SUPPORT SYSTEMS (CONT.)
 It is used by strategic management level.
 Uses all collected data.
 Evaluates future projections.
36
EXECUTIVE SUPPORT SYSTEMS
 Serve senior managers
 Address strategic issues and long-term
trends
 E.g. What products should we make in 5 years?
 Address non-routine decision-making
 Provide generalized computing capacity
that can be applied to changing array of
problems
 Draw summarized information from MIS,
DSS and data from external events
 Typically use portal with Web interface 37
to present content
e. Expert System(ES)
An expert system is an information system that
captures the expertise of workers and then simulates
that expertise to the benefit of non-experts.
38
F. OFFICE AUTOMATION SYSTEM
 An office automation system is an information
system that supports the wide range of business
office activities that provide for improved work
flow between workers
 Facilitates communication
 Increases productivity among managers and
office workers through the use of electronic
devices.
 Includes a variety of applications such as video
conferencing, voice mail, electronic mail,
desktop publishing...etc.
39
Relationship of Systems to One Another
Interrelationships among systems
40
41
Traditional View of Systems
1.6 Information Systems in Business Functions
Business Processes and Information Systems
Business processes:
• Manner in which work is organized, coordinated, and focused to
produce a valuable product or service
• Concrete work flows of material, information, and knowledge—

sets of activities
• Unique ways to coordinate work, information, and knowledge

• Ways in which management chooses to coordinate work
42
Business Processes and Information Systems (Continued)
• Information systems help organizations achieve great
efficiencies.
• IS also contributes to completely rethinking processes.
• Business processes typically span several different

functional areas.
43
Examples of Business Processes
i. Manufacturing and production:
• Assembling product, checking quality, producing bills of
materials
ii. Sales and marketing:

• Identifying customers, creating customer awareness, selling
44
Examples of Business Processes (Continued)
iii. Finance & accounting:

• Paying creditors, creating financial statements, managing cash
accounts
iv. Human resources:

• Hiring employees, evaluating performance, enrolling employees in
benefits plans
45
Business Processes and Information Systems
Cross-Functional Business Processes:
• Transcend boundary between sales, marketing, manufacturing,

and research and development
• Group employees from different functional specialties to a

complete piece of work
Example: Order Fulfillment Process
46
47
The Order Fulfillment Process
SYSTEMS FROM A FUNCTIONAL PERSPECTIVE
A. Sales and Marketing Systems
Major functions of systems:
• Sales management, market research, promotion, pricing,
new products
Major application systems:

• Sales order info system, market research system, pricing
system
48
Sales and Marketing Systems
SYSTEM DESCRIPTION ORGANIZATIONA
L LEVEL
Order Enter, process, and track orders Operational

processing
Pricing Determine prices for products Management

analysis and services
Sales trend Prepare 5-year sales forecasts Strategic

forecasting
49
B. Manufacturing and Production Systems
• Scheduling, purchasing, shipping, receiving, engineering,
operations

• Materials resource planning systems, purchase order control
systems, engineering systems, quality control systems
50
Manufacturing and Production Systems

SYSTEM DESCRIPTION ORGANIZATION
AL LEVEL
Machine Control the actions of machines and Operational
control equipment
Production Decide when and how many Management

planning products should be produced
Facilities Decide where to locate new Strategic 51

location production facilities
Overview of an Inventory System
52
C. Financing and Accounting Systems
• Budgeting, general ledger, billing, cost accounting

• General ledger, accounts receivable, accounts payable, budgeting,
funds management systems
53
Financing & Accounting Systems (Continued)
SYSTEM DESCRIPTION ORGANIZATIO
N-AL LEVEL
Accounts Tracks money owed the Operational

receivable firm
Budgeting Prepares short-term Management

budgets
Profit Plans long-term profits Strategic

planning 54
D. Human Resource Systems
• Personnel records, benefits, compensation, labor relations,
training

• Payroll, employee records, benefit systems, career path systems,
personnel training systems
55
Human Resource Systems (Continued)
SYSTEM DESCRIPTION ORGANIZATION
AL LEVEL
Training and Tracks employee training, skills, Operational

development and performance appraisals
Compensation Monitors the range and Management

analysis distribution of employee wages,
salaries, and benefits
Human Plans the long-term labor force Strategic

resources needs of the organization
planning
56
Human Resource Systems (Continued) An Employee Recordkeeping System
57
MAJOR ORGANIZATIONAL FUNCTIONS
58
MAJOR TYPES OF SYSTEMS IN ORGANIZATIONS
Different Kinds of Systems

Three main categories of information systems serve
different organizational levels:
1. Operational-level systems: support operational
managers, keeping track of the elementary activities
and transactions
2. Management-level systems: serve the monitoring,

controlling, decision-making, and administrative
activities
3. Strategic-level systems: help senior management

tackle and address strategic issues 59
60
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CHAPTER 1

Managing the digital firm

1.2 DATA, INFORMATION, AND INFORMATION SYSTEMS

• The emerging digital firm

• Competition in world markets

• Global delivery systems

• Digitally enabled relationships with customers, suppliers, and

• Core business processes accomplished using digital networks

• Digital management of key corporate assets

 An information system is a set of interrelated

• Processing and disseminating information

• Collecting, storing, and using information

Three Important Dimensions of Information Systems

You will need to understand and balance these dimensions of

• Innovators of new processes

• Leaders: set agendas

Information technology is one of the tools managers use to cope

• Hardware: Physical equipment

• Software: Detailed preprogrammed instructions

• Storage: Physical media for storing data and the software

• Networks: Links computers to share data or resources

Managers need to know enough about information technology to

 How human decision makers perceive and use

 Economics  Impacts to firm and within markets

 Organizations mutually adjust to one another

• Transaction Processing Systems (TPS)

• Decision-Support Systems (DSS)

• Executive Support Systems (ESS)

• Basic business systems that serve the operational level.

• Inputs: High volume transaction level data

• Processing: Simple models

• Outputs: Summary reports

• Users: Middle managers

Example: Annual budgeting

A decision support system (DSS) is an information

• Inputs: Transaction level data

• Outputs: Decision analysis

• Users: Professionals, staff

Example: Contract cost analysis 31

• Inputs: Aggregate data

• Users: Senior managers

Example: 5 year operating plan

• Top Level Management

• Ties CEO to all levels

• Very expensive to keep up

• Extensive support staff

 Evaluates future projections.

Business Processes and Information Systems

• Concrete work flows of material, information, and knowledge—

• Unique ways to coordinate work, information, and knowledge

• IS also contributes to completely rethinking processes.

• Business processes typically span several different

ii. Sales and marketing:

iii. Finance & accounting:

iv. Human resources:

• Transcend boundary between sales, marketing, manufacturing,

• Group employees from different functional specialties to a

Example: Order Fulfillment Process

A. Sales and Marketing Systems