Management Information Systems: Managing the Digital Firm

How Information Systems Are Transforming Business

• In 2017, over 140 million businesses had registered dot-com addresses.

• 273 million adult Americans were online, with 190 million making online purchases.

• 269 million Americans owned mobile phones.

• 200 million Americans used social networks.

• Businesses use social networking tools to connect employees, customers, and managers.

• Internet advertising continues to grow at over 20% annually.

• New laws necessitate businesses to store more data for longer durations.

• Business changes lead to changes in jobs and careers.

Information Technology Capital Investment

• IT investment represents a significant portion of total investment.

What’s New in Management Information Systems

• IT Innovations:

  • Cloud computing, big data, and the Internet of Things.

  • Mobile digital platform.

  • AI and machine learning.

• New Business Models:

  • Online streaming music and video services.

  • On-demand e-commerce services.

• E-commerce Expansion:

  • Reaching nearly $1 trillion in 2018.

  • Netflix has over 125 million U.S. subscribers.

  • Online services approach online retail in revenue.

  • Online mobile advertising surpasses desktop advertising.

• Management Changes:

  • Managers utilize social networks and collaboration tools.

  • Business intelligence applications accelerate.

  • Virtual meetings proliferate.

• Firms and Organizations Change:

  • Increased collaboration with less emphasis on hierarchy.

  • Greater emphasis on competencies and skills.

  • Higher-speed and more accurate decision-making based on data and analysis.

  • Increased willingness to interact with consumers via social media.

  • Enhanced understanding of the importance of IT.

Globalization Challenges and Opportunities

• Internet and global communications have significantly altered business practices:

  • Drastic reduction in the costs of global operations and transactions.

  • Increased competition for jobs, markets, resources, and ideas.

  • Growing interdependence of global economies.

• Requires new understandings of skills, markets, and opportunities.

• Over half of the revenue of S&P 500 U.S. firms is generated offshore.

• Information systems enable the globalization of commerce.

The Emerging Digital Firm

• In a fully digital firm:

  • Significant business relationships are digitally enabled and mediated.

  • Core business processes are accomplished through digital networks.

  • Key corporate assets are managed digitally.

• Digital firms offer greater flexibility in organization and management through time shifting and space shifting.

Strategic Business Objectives of Information Systems

• Growing interdependence between the ability to use information technology and the ability to implement corporate strategies and achieve corporate goals.

• Firms invest heavily in information systems to achieve six strategic business objectives:

  • Operational excellence.

  • New products, services, and business models.

  • Customer and supplier intimacy.

  • Improved decision making.

  • Competitive advantage.

  • Survival.

Operational Excellence

• Improved efficiency results in higher profits.

• Information systems and technologies help improve efficiency and productivity.

• Example: Walmart

  • Combines information systems and best business practices to achieve operational efficiency, resulting in over $485 billion in sales in 2017.

  • The most efficient retail store in the world due to digital links between suppliers and stores.

New Products, Services, and Business Models

• Information systems and technologies enable firms to create new products, services, and business models.

• Business model: how a company produces, delivers, and sells its products and services.

• Example: Apple

  • Transformed the old model of music distribution with iTunes.

  • Constant innovations—iPod, iPhone, iPad, etc.

Customer and Supplier Intimacy

• Customers who are served well become repeat customers who purchase more.

  • Example: Mandarin Oriental Hotel uses IT to foster an intimate relationship with its customers, keeping track of preferences, etc.

• Close relationships with suppliers result in lower costs.

  • Examples: Mandarin Oriental Hotel and J.C. Penney

  • J.C. Penney uses IT to enhance relationships with suppliers in Hong Kong.

Improved Decision Making

• Without accurate information:

  • Managers must use forecasts, best guesses, and luck.

  • Results in: Overproduction, underproduction, misallocation of resources and poor response times.

• Poor outcomes raise costs and lose customers.

• Real-time data improves the ability of managers to make decisions.

  • Example: Verizon’s web-based digital dashboard provides managers with real-time data on customer complaints, network performance, and line outages.

Competitive Advantage

• Often results from achieving previous business objectives.

• Advantages over competitors:

  • Charging less for superior products, better performance, and better response to suppliers and customers.

  • Examples: Apple, Walmart, and UPS are industry leaders because they know how to use information systems for this purpose.

Survival

• Businesses may need to invest in information systems out of necessity, simply as the cost of doing business.

• Keeping up with competitors, e.g., Citibank’s introduction of ATMs.

• Federal and state regulations and reporting requirements, e.g., Toxic Substances Control Act and the Sarbanes-Oxley Act.

What Is an Information System?

• Information technology: The hardware and software a business uses to achieve objectives.

• Information system: Interrelated components that manage information to:

  • Support decision making and control.

  • Help with analysis, visualization, and product creation.

• Data: Streams of raw facts.

• Information: Data shaped into meaningful, useful form.

Activities in an Information System

• Input

• Processing

• Output

• Feedback

Functions of an Information System

• Input: Captures raw data from the organization or external environment.

• Processing: Converts raw data 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.

• Feedback: Output is returned to appropriate members of the organization to help evaluate or correct the input stage.

• Distinction between computer/computer program versus information system.

  • Computers and software are technical foundations and tools, similar to the materials and tools used to build a house.

Dimensions of Information Systems

• Organizations

• Management

• Technology

Dimensions of Information Systems: Organizations

• Hierarchy of authority, responsibility:

  • Senior management

  • Middle management

  • Operational management

  • Knowledge workers

  • Data workers

  • Production or service workers

• Separation of business functions:

  • Sales and marketing

  • Human resources

  • Finance and accounting

  • Manufacturing and production

• Unique business processes.

• Unique business culture.

• Organizational politics.

Dimensions of Information Systems: Management

• Managers set organizational strategy for responding to business challenges.

• Managers must act creatively:

  • Creation of new products and services.

  • Occasionally re-creating the organization.

Dimensions of Information Systems: Technology

• Computer hardware and software.

• Data management technology.

• Networking and telecommunications technology:

  • Networks, the Internet, intranets, extranets, World Wide Web.

• IT infrastructure: provides the platform on which the system is built.

It Isn’t Just Technology: A Business Perspective on Information Systems

• An information system is an instrument for creating value.

• Investments in information technology will result in superior returns:

  • Productivity increases.

  • Revenue increases.

  • Superior long-term strategic positioning.

Business Information Value Chain

• Raw data acquired and transformed through stages that add value to that information.

• The value of an information system is determined in part by the extent to which it leads to better decisions, greater efficiency, and higher profits.

• Business perspective calls attention to the organizational and managerial nature of information systems.

• Investing in information technology does not guarantee good returns.

• There is considerable variation in the returns firms receive from systems investments.

• Factors include adopting the right business model and investing in complementary assets (organizational and management capital).

Complementary Assets: Organizational Capital and the Right Business Model

• Assets required to derive value from a primary investment.

• Firms supporting technology investments with investment in complementary assets receive superior returns.

  • Example: Invest in technology and the people to make it work properly.

• Complementary assets:

  • Examples of organizational assets:

  • Appropriate business model.

  • Efficient business processes.

• Examples of managerial assets:

  • Incentives for management innovation.

  • Teamwork and collaborative work environments.

• Examples of social assets:

  • The Internet and telecommunications infrastructure.

  • Technology standards.

Technical Approach

• Emphasizes mathematically based models.

• Includes computer science, management science, and operations research.

Behavioral Approach

• Focuses on behavioral issues, such as strategic business integration and implementation.

• Includes psychology, economics, and sociology.

Approach of This Text: Sociotechnical Systems

• Management information systems combine computer science, management science, operations research, and practical orientation with behavioral issues.

• Four main actors:

  • Suppliers of hardware and software.

  • Business firms.

  • Managers and employees.

  • Firm’s environment (legal, social, cultural context).

• Sociotechnical view:

  • Optimal organizational performance is achieved by jointly optimizing both social and technical systems used in production.

  • Helps avoid a purely technological approach.

Formulas or Equations

N/A