Lecture notes on Management Information Systems pdf

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? Management Information SystemMANAGEMENT INFORMA TION SYSTEM LESSON 1: INTRODUCTION TO INFORMATION SYSTEMS Learning Objectives The first step in learning how to apply information technology to solve problems is to get a broader picture of what is meant • To explain how IT impacts upon organisations. by the term information system. You probably have some • To analyse the necessity for IS in the management of experience with using computers and various software packages. modern, and increasingly global, organisations. Yet, computers are only one component of an information • To recognise that IT professionals need to understand how system. A computer information system (CIS) consists of an organisation operates in order to effectively apply related components like hardware, software, people, procedures, technology to make the organisation more efficient and and collections of data. The term information technology (IT) competitive. represents the various types of hardware and software used in • To explain how an organisation must change in order to an information system, including computers and networking successfully capitalise on the use of IS and the consequent equipment. The goal of Information System is to enable impact on organisational structure and employees. managers to make better decisions by providing quality information. • To identify how the benefits of using IS may be measured and assessed, and contrast with existing practice. The physical equipment used in computing is called hardware. The set of instructions that controls the hardware is known as 1.1 Introduction software. In the early days of computers, the people directly Welcome to the information age. Going shopping? As a involved in are tended to be programmers, design analysts, and consumer, you have instant access to millions of pieces of data. a few external users. Today, almost everyone in the firm is With a few clicks of the mouse button, you can find anything involved with the information system. Proce-dures are instruc- from current stock prices and video clips of current movies. tions that help people use the systems. They include items such You can get product descriptions, pictures, and prices from as user manuals, documentation, and procedures to ensure that thousands of companies across India and around the world. backups are made regularly. Data-bases are collections of related Trying to sell services and products? You can purchase demo- data that can be retrieved easily and processed by the com- graphic, economic, consumer buying pattern, and puters. As you will see in the cases throughout our book, all of market-analysis data. Your firm will have internal financial, these components are vital to creating an effective information marketing, production, and employee data for past years. This system. tremendous amount of data provides opportunities to So what is information? One way to answer that question is to managers and consumers who know how to obtain it and examine the use of in-formation technology on three levels: (1) analyze it to make better decisions. data management, (2) information systems, and (3) knowledge There is no question that the use of computers in business is bases. Data consists of factual elements (or opinions or increasing. Walk into your local bank, grocery store, or fast food comments) that describe some object or event. Data can be restaurant and you will see that the operations depend on thought of as raw numbers or text. Data man-agement systems computers. Go into management offices and you will find focus on data collection and providing basic reports. Informa- computers used to analyze marketing alternatives, make tion repre-sents data that has been processed, organized, and financial decisions, and coordinate team members around the integrated to provide more insight. In-formation systems are world. designed to help managers analyze data and make decisions. The expanding role of technology raises some interesting From a decision maker’s standpoint, the challenge is that you questions. What exactly are computers being used for? Who might not know ahead of time which information you need, so decided to install them? Do computers increase productivity or it is hard to determine what data you need to collect. Knowl- are they just expensive’ paperweights? Are there new uses that edge represents a higher level of understanding, including rules, you should be considering? Are there some tasks that should patterns, and de-cisions. Knowledge-based systems are built to be performed by humans instead of computers? How can you automatically analyze data, identify pat-terns, and recommend deal with the flood of data that you face every day? decisions. Humans are also capable of wisdom, where they put The speed with which Information Technology (IT) and knowledge, experience, and analytical skills to work to create new Information Systems (IS) are changing our lives is amazing. knowledge and adapt to changing situations. To date no Only 50 years ago communication was almost limited to the computer system has attained the properties of wisdom. telephone, the first word processors came out in the mid-sixties To create an effective information system, you need to do more and the fax entered our offices in the 1970’s. Today information than simply purchase the various components. Quality is an systems are everywhere; from supermarkets to airline reserva- important issue in business today, particularly as it relates to tions, libraries and banking operations they have become part information systems. The quality of an information system is of our daily lives. measured by its ability to provide exactly the information 1MANAGEMENT INFORMATION SYSTEM needed by managers in a timely manner. The information must That is why information has to be managed as a company be accurate and up-to-date. Users should be able to receive the resource, just like raw materials, people or energy. information in a variety of formats: tables of data, graphs, 1.4 Characteristics of Information summary statistics, or even pictures or sound: Users have Now, let us discuss about the characteristics of good informa- different perspectives and different requirements, and a good tion information system must have the flexibility to present • Timeliness: Information must reach the user in a timely information in diverse forms for each user. manner, just when it is needed; not too early, because by the 1.2 Data, Information, Knowledge, and Wisdom time it is used it would be out-of-date; not too late because Let us consider the case of a retail store that is trying to increase the user will not be able to incorporate it into his/her sales. Some of the data available includes sales levels for the last decision-making. 36 months, advertising expenses, and customer comments • Appropriateness: Information must be relevant to the from surveys. By itself, this data may be interesting, but it must person who is using it. It must be within the sphere of his/ be organized and analyzed to be useful in making a decision. her activities so that it can be used to reduce uncertainty in For example, a manager might use economic and marketing his/her decision-making. models to forecast patterns and determine relationships among • Accuracy: Accuracy costs. We don’t always need 100% various advertising expenses and sales. accurate information so long as we know the degree of The resulting information (presented in equations, charts, and accuracy it represents (eg: + or - 5%). (Remember the value tables) would clarify relationships among the data and would be of information). used to decide how to proceed It requires knowledge to • Conciseness: Information should always contain the determine how to analyze data and make decisions. minimum amount of detail that is appropriate for the user. Education and experience create knowledge in humans. A Too much detail causes information overload. manager learns which data to collect, the proper models to • Frequency: Frequency is related to timeliness. Too often the apply, and ways to analyze results for making better decisions. information presented is linked to the calendar (end of the In some cases, this knowledge can be transferred to specialized week, beginning of the month); its frequency should be computer programs (expert systems). synchronized with the timing of the decision making of the Wisdom is more difficult to define but represents the ability to user. learn from experience and adapt to changing conditions. In this • Understandability: The format and presentation of example, wisdom would enable a manager to spot trends, information are very important. Some people prefer tabular identify potential problems, and develop new techniques to information, whereas others may need it in a graphical form. analyze the data. Also the use of colors enhances the understandability of 1.3 Data Versus Information what is presented. Often the words data and information are used interchangeably. • Relevant: It pertains to the particular problem. What data is Yet they don’t mean the same thing. It is important to under- relevant depends on the decision-making model used. E.g. stand the difference between data and information. university admissions officials may choose to consider the • Data is raw material. results of some high-school test irrelevant, if they believe • Data that is analysed, summarised or processed only that it does not improve the chances of some applicant later becomes information if the user understands it. becoming a successful student. • Data means the words, numbers, graphics that are entered • Complete: All the relevant parts are included. E.g. marketing into the computer by the user to describe people, events, and data about household incomes may lead to bad decisions, if things. not accompanied by consumption habits of the target population. • Information is knowledge and understanding that is usable by the recipient. It must reduce uncertainty and have a • Current: Decisions are often based on the latest information surprise value. If it doesn’t have these attributes, as far as the available user is concerned, it contains processed data, not • Economical: The costs of gathering information should be information. justified by the overall benefits • Information means the words, numbers, graphics that are 1.5 What is a System? displayed or printed as the basis for making decisions. Often A system is a group of interrelated components working information is the result derived by processing data. together toward a common goal by accepting inputs and Data capture, handling, entry, processing and dissemination producing outputs in an organized transformation process. incur costs and do not directly produce value. Value only occurs System will have the following basic interacting components when information is used to improve decision-making. (functions): Value of information = change in decision making caused by 1. Input the information being available minus the cost of producing 2. Processing this information. 3. Output 2MANAGEMENT INFORMATION SYSTEM 4. Feedback • In other words, you will have no time to do anything else: reading a new book, learning new things, or playing golf, etc. 5. Control • In contrast, if you develop an information system that can Let me explain the concept of system with an example. The carry out the performance evaluation program, your life will following example will give you better understanding about be much easier. The program is now automated with a System. computer-based information system. Example: Sales Force Automation System (SFAS) • A major difference between this new system in Case 2 and Suppose you are a regional manager who supervises 100 the previous system in Case 1 is that feedback and control salespersons in Mumbai. Your company’s headquarters are functions are added to the new information system. located in Chennai. Your performance is daily evaluated by the headquarters. You are compared with managers in other 1.6 What is an Information System? regions such as Delhi, Kolkata etc. Your company publishes Now, it is time to see the real meaning and concept of Informa- various books: encyclopedia, children’s books, etc. tion Systems. Too often you hear someone say, “Oh yeah, I know how to use a computer. I can surf the Web with the best In short, the headquarters are not interested in each of them and I can play Solitaire for hours. I’m really good at salesperson’s performance. All they care about is your perfor- computers.” Okay. So that person can pound a keyboard, use a mance, i.e. the regional sales results. mouse at lightning speed, and has a list of favorite Web sites a In order to save your job, you have to keep increasing sales. mile long. But the real question is “Is that person information You have to motivate, encourage, help, and discipline sales- literate?” Just because you can pound the keyboard doesn’t people in Mumbai, if they perform, your job is secured. If they necessarily mean you can leverage the technology to your don’t perform, you will be fired. advantage or the advantage of your organization. An organiza- Case 1 tion can gather and keep all the data on its customers that a hard Each morning, you are supposed to submit a daily report to the drive can hold. You can get all the output reports that one desk headquarters. In the report, you should include the total sales can physically hold. You can have the fastest Internet connection made in Mumbai yesterday, and sub-total of each category created to date. But if the organization doesn’t take advantage (encyclopedia, children’s books, etc.). of customer data to create new opportunities, then all it has is useless information. If the output report doesn’t tell the • At the end of each day, a salesperson submits his sales record management that it has a serious problem on the factory floor, to the Mumbai regional office. then all that’s been accomplished is to kill a few more trees. If • The record is added to compute the total sales, and also you don’t know how to analyze the information from a Web summarized in terms of book category. site to take advantage of new sales leads, then what have you • The total sales, and sub-total sales in terms of book category, really done for yourself today? are presented in the daily report. Most of us think only of hardware and software when we • Here, the daily record submission indicates “INPUT” in a think of an Information System. There is another component system. of the triangle that should be considered, and that’s the people • Adding and summarizing indicates “PROCESSING” in a side, or “persware.” Think of it this way: system. PERSWARE • Reporting indicates “OUTPUT” in a system. Case 2 • In order to increase sales, you decided to implement a kind of performance evaluation program, which is intended to motivate and discipline the salespersons under your HARDWARE SOFTWARE supervision. We talk about the input, processing, output and feedback • According to the program, if a salesperson makes daily sales processes. Most important is the feedback process; unfortu- greater than one million, he will be awarded a gift certificate nately it’s the one most often overlooked. Just as in the triangle of Ebony Department Store. On the other hand, if a above, the hardware (input and output) and the software salesperson makes daily sales less than one hundred (processing) receive the most attention. With those two alone, thousand rupees, he will be given a warning. If he makes a you have computer literacy. But if you don’t use the “persware” sales less than one hundred thousand rupees two days in a side of the triangle to complete the feedback loop, you don’t row, a more serious warning letter will be sent to him. If he accomplish much. Add the “persware” angle with good makes sales less than one hundred thousand rupees three feedback and you have the beginnings of information literacy. days in a row, he will be fired. An information system differs from other kinds of systems in • If you manually check all the sales records to comply the new that its objective is to monitor/document the operations of performance evaluation program, most of your time will be some other system, which we can call a target system. An occupied by processing the data and paperwork. information system cannot exist without such a target system. For example, production activities would be the target system 3MANAGEMENT INFORMATION SYSTEM for a production scheduling system, human resources in the They stay on the sidelines during the game. Their real role is to business operations would be the target system of a human develop the game plan by analyzing their team’s strengths and resource information system, and so on. It is important to weaknesses. But that’s not all; they also determine the recognise that within a vending machine there is a component/ competition’s strengths and weaknesses. Every good coach has sub-system that can be considered an information system. In a game plan before the team even comes out of the dressing some sense, every reactive system will have a subsystem that can room. That plan may change as the game progresses, but be considered an information system whose objective is to coaches pretty much know what they’re going to do if they are monitor and control such a reactive system. losing or if they are winning. The same is true in workplace organizations. A Business Perspective on Information Systems Using feedback completes the information-processing loop. To be a good Information Systems manager, however, you must bring into that loop far more than just the computer data. For Management instance, your information system reports that you produced 100,000 units last week with a “throwback” rate of 10%. The feedback loop tells you that the throwback rate has fallen 2% in the last month. You can say, that’s a pretty good improvement. IT So far, so good. But if you put that information into a broader Organisation context, you’re still costing the organization a huge sum of money because each percentage point on the throwback rate averages Rs. 10,000. And when you bring in available external environmental information, your company is 5% above the industry norm. Now that’s information you can use - to your Business Perspective of Information Systems advantage or disadvantage Technology If you, as a manager, can then take other information from the Do you own a Digital Video Disk? Probably not, since it’s only internal and external environments to come up with a solution been on the market for a short time. How old is your car or to this problem, you can consider yourself “information truck? Manufacturers are constantly offering us new vehicles, yet literate.” we tend to upgrade only every few years. Your personal Organizations computer may be a year old or three years old. Do you have the Organizations are funny things. Each one tends to have its own latest gadgets? Chances are you don’t. Face it, you just can’t keep individual personality and yet share many things in common up with all the new stuff. No one can. Think about how hard, with other organizations. Look us at some of the organizations not to mention expensive, it is for an individual to acquire you may be associated with - cricket team, fraternity, health club, everything introduced to the marketplace. Think how difficult it or a child’s cricket team. See, organizations exist everywhere and is sometimes to learn how to use every feature of all those new each of them has its own structure, just as workplace organiza- products. tions have their own structure and personality to fit their needs, Now put those thoughts into a much larger context of an or in some cases, habits. organization. Yes, it would be nice if your company could A cricket team needs talented, well-trained players at different purchase new computers every three months so you could have positions. Sometimes, the success of the team depends on a the fastest and best technology on the market. But it can’t. Not good, well-informed coach or manager. So too with the only is it expensive to buy the hardware and the software, but workplace organization. Business organizations need many the costs of installing, maintaining, updating, integrating, and kinds of players with various talents, who are well-trained and training must all be taken into account. We’ll look at the well-informed, in order to succeed. hardware and software sides of the Information Systems triangle in upcoming chapters, but it’s important that you Every organization requires tools to help it succeed. If the understand now how difficult it is for an organization, large or baseball team uses bats that are 25 years old against a team small, to take advantage of all the newest technology. whose bats are 2 years old, they will have to work harder on their own to make up for that disadvantage. If your child’s 1.7 Components of an IS cricket team uses balls with torn seams, they’re going to have a In an organization, information systems consist of the harder time hitting the ball into the boundaries. So if your following components. These components will formulate a organization is using older equipment or uses it the wrong way, system, which will help us to gather the required information it just stands to reason it is going to have a harder time beating for making decision in various levels of management. We will the odds. now see these components in brief and discuss them in detail in the later lectures. Management Every good organization needs a good manager. Pretty simple, • Data - Input that the system takes to produce information pretty reasonable. Take professional cricket coaches. They don’t • Hardware - Computer itself and its peripheral equipment: actually play the game; they don’t hit the run, catch the ball for input, output, storage devices; includes data communication the wicket, or hang every decoration for the celebration party. equipment 4MANAGEMENT INFORMATION SYSTEM • Software - Sets of instructions that tell the computer how • Attributes can be last name, first name, gender, etc. for an to input, process, output and store data entity of “people.” • Communication networks - Hardware and software 2. Information: specializing in transmission and reception of electronic data • Data that have been converted into a meaningful and useful • People - IS professionals and users who design, construct, context for specific end users. operate and maintain IS • Processed data placed in a context that gives it value for • Procedures - Rules to process data, e.g. priorities in running specific end users. different applications, security measures, routines for 1. Its form is aggregated, manipulated, and organized. malfunctioning IS, etc. 2. Its content is analyzed and evaluated. 1.8 Information System Resources 3. It is placed in a proper context for a human user. Every Information System is equipped with the following • Network Resources: resources. The goals of information systems can be easily • Communications media achieved by employing these resources to their optimum level by keeping in view that the purpose of using IS in an organiza- • Communications processors tion. • Network access & control software • People Resources 1.9 Why Information Systems? • End users Ask managers to describe their most important resources and they’ll list money, equipment, materials, and people - not • IS specialists necessarily in that order. It’s very unusual for managers to • Hardware Resources consider information an important resource and yet it is. This • Machines chapter will help explain why you need to manage this resource • Media as closely as any other in your organization. • Software Resources The Competitive Business Environment • Program For many years computer technology was relegated to the backrooms or basements of a corporation. Only the “techies” • Operating Systems (OS) worried about it and were often the only ones who really knew • Examples: Windows, Unix, etc. how it all worked. Now computers are all over the organization • Application Software - one on every desk. It’s not enough for you to know how to • Examples: Excel, Access, MS-Word, etc. pound a keyboard or click a mouse. It is not even enough for you to know how to surf the Web. Now every employee, • Application software that makes people buy computers that including you, must know how to take advantage of Informa- can run the software. tion Systems to improve your organization and to leverage the • Example 1: Lotus 1-2-3 (a spreadsheet program): In early available information into a competitive advantage for your 1980s, personal computer market was dominated by Apple company. (about 90% Apple, about 10 % IBM and its compatibles); Lotus 1-2-3 was introduced and it could be run on only Emergence of the Global Economy IBM’s MS-DOS operating system; Companies all over the Next time you purchase a product, any product, look at the fine world were impressed with Lotus 1-2-3, and wish to use the print and see where it’s made. It could be China, or the software. In order to run the software, they had to purchase Philippines, or India, or even in the USA. You can disagree with IBM PC or IBM PC compatibles that run on MS-DOS. the many manufacturing jobs that are being moved from the U.S. to foreign countries. But look at the vast number of jobs • Example 2: email system. To use an email system that are being created in this country. Maybe they aren’t the (software), people buy computers. traditional factory jobs we’re used to. In fact, many of our new • Procedures: jobs are in the information industry. Many of them service • Operating instructions for the people who will use an whole new markets that didn’t exist just a few years ago. There information system. was no position called “Webmaster” in 1991 because the Web • Examples: Instructions for filling out a paper form or using didn’t exist. But now, that particular job category is one of the a software package. fastest growing in the overseas. The global economy I am talking about is being made possible by technology. And that’s • Data Resources: why it’s so important that you understand how to use Infor- • Data vs. Information mation Systems Technology instead of just computer 1. Data: technology. There’s a big difference between the two, and we’ll • Raw facts, observations, business transactions talk about it more. • Objective measurements of the attributes (characteristics) of Transformation of Industrial Economies entities (people, places, things, events, etc.) “In a knowledge- and information-based economy, knowledge and information are key ingredients in creating wealth.” Think 5MANAGEMENT INFORMATION SYSTEM back to the early 1900s when the horse and buggy were the the committee and see what the next quarter’s figures say.” main form of transportation. Along came a guy named Ford Neither approach is better than the other, depending on the who built a whole new industry around the automobile. Many situation. Neither approach is more right than the other, jobs, such as horse groomers, horse shoers, and buggy depending on the situation. manufacturers, were lost forever. Now think about all the new An organization can’t afford to view its information resources jobs that were created - not just in the factories but all the other as belonging to either the techies (technical approach) or the businesses associated with the car. The people in the horse and non-techies (behavioral approach). Responsibility for informa- buggy industry adapted, retrained for the new jobs, and the tion belongs to everyone in the organization. This is the whole country changed. sociotechnical approach, that is, a combination of the two. The same thing is happening now with the information Everyone has to work together to ensure that Information industry. Many of the new jobs that are being created have Systems serve the entire organization. better working conditions, better pay, and more advantages To help you understand the importance of viewing Informa- than the old jobs had. You just have to be equipped to take tion Systems through the sociotechnical approach, look at what advantage of the situation. You have to take advantage of the current trade journals are saying. David Haskin, writing in retraining opportunities. You have to gain the skills necessary the April 1999 issue of Windows Magazine, quotes Steve for the transformation of the industries that have been a Roberts, vice president of information technology for Mind mainstay of this country. It’s not that hard - it just takes a lot of Spring Enterprises, an Atlanta-based Internet service provider: hard work. “The gap in understanding between technical and non technical We often think of industries such as manufacturing and people is the biggest challenge I’ve seen.” Haskin goes on to financial institutions as information-based. But even farmers say, “Because technology is the bedrock on which successful and ranchers in this country are learning information-based businesses are built, the stakes in making this relationship work skills so that they can become more efficient and cut costs. They are high. Failing to use the correct technology can put you at a are taking advantage of the technological explosion by using competitive disadvantage, and glitches in existing technologies computers and Global Positioning Systems on their farms and can bring a business to a grinding halt.” ranches to increase crop yields or reduce workloads. They’re Information Systems and the use of technology belong to catching on to the idea that Information Systems are a key to everyone in an organization. This concept is best carried out success. through a sociotechnical approach, which allows both the technical and behavioral approaches to be combined for the Transformation of the Business Enterprise good of the organization. You can’t help but know about the entire job cuts occurring in our country. It seems like every week we hear about thousands 1.11 Information System as a Strategic Resource and thousands of people losing their jobs. Back in the 80s Information can be exploited as a strategic resource at three most of the job losses were in the blue-collar sector. In the 90s different levels: it seems many of the cuts are being made in the white collar, • National management jobs. Why? Think about it. Technology, to a large • Company extent, has driven organizations to change the way they operate and that includes the way they manage. We’re going to take an • Individual in-depth look at how organizations work and how they’ve been National Level transformed by technology. Developed nations have adopted the diffusion of information But it isn’t always bad You just have to ask yourself this systems and technologies as a national policy. There appear to question: “With all the job losses in the last few years, many be two approaches at the national level. Countries like Japan driven by technological changes, why has the Indian unemploy- and the United Kingdom have invested in the technical ment rate dropped to it’s lowest in decades and remained so infrastructure first whereas France has determined educating low?” people on how to use IS as a priority in order to enable them to leverage the power of information and communication 1.10 Contemporary Approaches to Information Systems technologies. There are several different approaches to Information Systems: technical, behavioral, socio-technical. Think of this analogy: A Company Level “techie” looks at most things associated with computing as a Many companies have attained higher product and service series of zeroes or ones. After all, everything in a computer is quality, shorter product cycles, lower costs and better responsive- ultimately reduced to a zero or a one. So using the technical ness to customer requirements through the use of IS. approach, you could say that 2 + 2 = 4. The behavioral ap- Information systems allow the automation of certain functions proach, on the other hand, takes into account the very nature of (eg: inventory management or sales order processing), provide human beings. Nothing is totally black and white. Therefore the critical information for decision making and integrate business behavioral approach to the same equation would be “2 + 2 = processes. Successful companies leverage the power of informa- maybe 4 or perhaps 3.5 to 5.5, but we’ll have to put it before tion as a competitive weapon. 6MANAGEMENT INFORMATION SYSTEM Individual Level different world and actually seemed disconnected from the mainstream operations of the company. Managers and Information Systems As the time line indicates, technology and its associated You will be exposed to information systems as a business Information Systems are now integrated throughout the professional in whichever field you are working in, be it sales, organization. Everyone is concerned about technology’s role manufacturing, accounting, finance, banking or consultancy. and impact on their work activities. End users take on greater This is inevitable. responsibilities for the success of Information Systems and are You will not only be users of information systems but you will actually doing a lot of the work that once belonged to the also be expected to analyse the system to identify its strengths techies. Even the executive levels of an organization can no and weaknesses, recommend changes for improvement and longer ignore the technology and pretend that it belongs to participate in their implementation. someone else. But don’t forget information systems are a means to an end, We are constantly bombarded with new tools, new technology, not an end in themselves. Information systems are powerful and new methods of doing business. It almost seems as valuable tools but not magic. If you automate a business though just as you master a word processing program, here process that is a mess, you end up with an automated mess comes a whole new program you have to learn from scratch. Managers must take IS in the context of business activities and But the plain fact is that organizations, especially larger ones, purposes and use information as a resource, like money, just can’t change as fast as the technology. Companies make equipment or energy. huge investments not just in hardware, but in software and Managers must use IS to: persware. Training people, building new operating procedures around technology, and changing work processes take far longer • Access information than the technological pace will allow. • Interprete information The introduction of new technology can severely disrupt • Incorporate information in decision making organizations. Productivity naturally slips. Learning curves cost Managers must exploit IS because of: time and money. Most system installations or changes used to • Rapid changes in technology affect mainly data workers or production workers. Now they affect every level of the organization, even the management and • Intense international competition strategic levels. Every part of the organization is involved in the • Faster product life cycles introduction or change of technology and everyone plays a part • More complex and specialised markets managers: in its success. • Are responsible for investments in IS The Network Revolution and the Internet • Need to be proactive and selective Even though the Internet as a whole has existed since 1969, the • Must understand how IS are used in the functional areas of World Wide Web didn’t exist until around 1993-1994. That’s business. less than 10 years. Now you can’t pick up a magazine or a newspaper, turn on the television or radio, even drive by a 1.12 The New Role of Information Systems in billboard, without some kind of reference to “dot com.” Organizations Businesses are rushing to the Internet in an effort to keep up Managers can’t ignore technology any more and pass it off to with the competition or to create whole new businesses. Now secretaries or clerical workers or the Information Technology organizations struggle with such issues as how to design and department. Information Systems are critical to the success of develop a Web site or how to determine a fair email policy for an organization at all managerial levels. employees. The Widening Scope of Information Systems The fastest and biggest change in modern computing is the Internet. To say that the Internet is transforming the way we live, work, and play is probably the greatest understatement in years. Businesses can create new opportunities but they can also lose opportunities just as quickly. Now an organization has to design new systems, or transform old ones, with not just the company in mind, but 100 million other users of the Internet, Extranets, and Intranets. They have to decide how much or how little information to provide in what way, with what level of access, how best to present it, etc. It’s a huge job New Options for Organizational Design: The Networked If you take a look at the above figure you can understand the Enterprise. evolution of Information Systems in organizations. Technol- Many of the job losses of the 1990s occurred because technol- ogy was considered, well, too technical for the rest of us to ogy allowed organizations operate efficiently with flatter understand. Computers were relegated to the back room with a organizations - with fewer levels of bureaucracy. One manager few technicians running around in white coats. No one else can now oversee a larger group of people. More important, understood what these people did or how they did it. It was a 7MANAGEMENT INFORMATION SYSTEM technology increases the span of communication a manager can to manage. New technologies and new management informa- accomplish with a single email. You can make information tion systems now make such partnerships easier and more available to a greater number of people much more easily than productive than ever before. ever before. As we’ll see in future chapters, new technology allows busi- But wait. You can make that information available to more nesses to reorganize their workflows, allowing them to become people, but you have to train them how to use it, and when it’s more efficient and to meet new challenges. The potential for appropriate to use it and with what latitude they can use it. saving money is tremendous, and so are the opportunities to Again, it all comes back to the “persware” portion of the better meet customer demands. triangle. Yes, your hardware enables more people to connect to A few years ago we couldn’t imagine having Levi Strauss make a the Information System, and the software is becoming much pair of jeans just for us. It wasn’t possible for a gardening easier to use and more widespread than ever before. But you company to produce a catalog strictly for our own backyard. still have to concentrate on the people who are using the There was no way for an airline reservation company to know software to connect to the hardware. your favorite city to visit and send you special ticket deals for a Technology now allows workers to work from anywhere. It’s weekend getaway in a weekly email message. All that is now becoming common for companies to literally shift their work possible thanks to the newer management information through time zones. That is, the person in New York will shift systems. But with all these new opportunities come new blueprints for a new product to a worker in California. The challenges and problems. Californian can then collaborate on the product for an addi- Enterprise Resource Planning, which we’ll talk about in other tional three hours before zipping it to another person across the chapters, is only possible through new and improved technol- ocean who will work on it while the others sleep. Talk about ogy. Companies are realizing that they can’t afford “islands of telecommuting information” and must have the means to share information Technology now allows companies in foreign countries to resource across all boundaries. And speaking of boundaries, merge their organizations in ways never before possible. Think most of those are either rearranged or eliminated because of of Daimler from Germany and Chrysler in Michigan. Opportu- technological changes. Suppliers, customers, and governmental nities for new products and new production methods exist agencies are now linked electronically to organizations that with this merger. However, think of the challenges it poses to increase the efficiency and decrease the cost of operations in management information systems and employees. what are called inter organizational systems. One common mistake with many organizations wanting to do business on the Internet is the idea that they can simply throw up a Web site, add an email software program for customer communication, and they are ready to do business in cyberspace. They haven’t addressed any of their internal processes and possible changes to the way they do business. They’ve spent hundreds of thousands or millions of dollars and can’t get enough sales to support a day’s worth of expenses. Electronic markets are allowing businesses to take advantage of technology to create new methods of buying and selling. For a while it seemed as though the middleman was going out of business because of the direct connection between customers and merchants. While this is true in some industries, new opportunities are springing up for the middleman in other areas. We’ll look at this issue in more detail later. Amazon.com, the largest retailer on the Internet selling books and CDs, loses millions of dollars a year and yet is one of the best success stories in E-commerce. Its fiercest rival, Barnes & Noble Books, has also spent millions of dollars converting The figure you see depicts the possibilities of virtual organiza- traditional retailing operations to the Internet. Unfortunately, tions. XYZ and ABC companies can team up, work on a Barnes & Noble’s efforts at E-commerce are considered project, and then go their separate ways. ABC could then seek somewhat of a failure. Why? Because Barnes and Noble hasn’t out LMN corporation to develop a new technology from which fully changed its core processes to accommodate the changes both will gain but which neither could accomplish on their required for doing business on the Web. own. This is happening more and more in technology compa- nies. In November 1998, America Online purchased Netscape. There are many opportunities offered by the Internet, At the same time AOL announced a collaboration with Sun Extranets, and Intranets. Yet there are many problems associ- Microsystems to develop and deliver enhanced technology that ated with developing a company’s electronic commerce and AOL couldn’t produce on its own. A few years ago, virtual electronic business. It is easy to put up a Web site - a snazzy, organizations were difficult to develop and even more difficult colorful Web site that looks very pretty and may even be easy to 8MANAGEMENT INFORMATION SYSTEM use. But you must consider how you’re going to incorporate technology. Is productivity up or down? What is the cost of that part of your business with the other, more established lost sales opportunities and lost customer confidence from a methods of doing business. What internal processes must you poorly managed E-Business Web site? How do you change or adapt? What new processes must you establish? determine if your Management Information System is worth What training must you do with the people who will run the it? E-business, both technical and non-technical? 5. The Responsibility and Control Challenge: Remember, Employing new Information Systems in an organization humans should drive the technology, not the other way requires changes to old methods and processes. Managing the around. Too often we find it easier to blame the computer changes is as important to the success of the new technology as for messing up than to realize it’s only doing what a human managing the system itself. being told it to do. Your goal should be to integrate the technology into the world of people. Humans do control 1.13 Learning to Use Information Systems: New the technology, and as a manager, you shouldn’t lose sight Opportunities with Technology of that. Is this new technology worth the headaches and heartaches Management’s focus must continually change to take advantage associated with all the problems that can and will arise? Yes. The of new opportunities. Changes should take place throughout opportunities for success are endless. The new technologies do the organization. They require lots of attention and planning offer solutions to age-old problems. Improvements are for smooth execution. possible to the way you operate and do business. Information Literacy is more than just clicking a mouse, The rest of the lessons in this book and this course will give pounding the computer keyboard, or surfing the Web. It’s you tools you can use to be successful with the current and about integrating various elements of an organization, technical future Management Information Systems. and non-technical, into a successful enterprise. As a successful 1. The Strategic Business Challenge: Companies spend manager you must concentrate on all three parts of the thousands of dollars on hardware and software, only to find Information Systems triangle (hardware, software, and that most of the technology actually goes unused. “How can persware) and integrate them into a single, cohesive system that that be?” you ask. Usually because they didn’t pay attention serves the needs of the organization, the wants of the cus- to the full integration of the technology into the tomer, and the desires of the employees. The more complex, organization. Merely buying the technology without the harder to manage, but the greater the payoff. exploiting the new opportunities it offers for doing business smarter and better doesn’t accomplish much. Think and Review Questions rethink everything you do and figure out how you can do it 1. Why is it important to understand the difference between better. Change is inevitable, and information must be Computer Literacy and Information Literacy? managed just as you would any other resource. 2. What are the three elements of an Information System that 2. The Globalization Challenge: The world becomes smaller managers must consider? every day. Competition increases among countries as well as 3. What are some of the factors managers must consider when companies. A good Management Information System meets considering changes in technology? both domestic and foreign opportunities and challenges. 4. What are some of the new roles Information Systems are How does Daimler/Chrysler integrate its organizations and playing in organizations? cultures into one - or almost one? Discussion Questions 3. The Information Architecture Challenge: You have to Discuss the Benefits of Information Technology in doing decide what business you are in, what your core competencies successful business across the world? List down the advantages are, and what the organization’s goals are. Those decisions and disadvantages and explain how IT is giving competitive drive the technology, instead of the technology driving the edge to companies with an Example. rest of the company. Purchasing new hardware involves more than taking the machine out of the box and setting it Application Exercises on someone’s desk. Remember the triangle of hardware, 1. Interview a local manager (or a student who has recently software, and persware. Take care of the people and they will graduated) to discover how he or she uses computers on the take care of the rest Information architecture describes job. How does the business use the Internet for e-commerce how to incorporate technology into the mainstream or e-business? processes in which the business is involved. How will the 2. Using the resources of your library (government data, annual new Information System support getting the product reports, business publications, etc.), find statistics to produced and shipped? How will Advertising and Marketing document at least two business trends. Draw graphs to know when to launch ad campaigns? How will Accounting reveal the patterns. know when to expect payment? 3. Choose one large company. Using annual reports, news 4. The Information Systems Investment Challenge: Too articles, trade journals, and government data, research this often managers look at their technological investments in company. Identify any changes that have been made in the terms of the cost of new hardware or software. They last few years. overlook the costs associated with the non-technical side of 9MANAGEMENT INFORMATION SYSTEM LESSON 2 : SYSTEMS CONCEPTS Leaning Objectives In other terms we can say that a system is an integrated set of components, or entities, that interact to achieve a par-ticular 1. To understand the concepts of Systems and its components function or goal. Systems have characteristics such as bound- 2. To Know about the Information Systems used as a system aries, outputs and inputs, methods of converting inputs into in Enterprises outputs, and system interfaces. Systems are composed of 3. To study about the various types of Systems interrelated and interdependent subsystems. 4. To Explain the Specification of Information Systems Examples of systems are all around us-in fact; an excellent 5. To understand the Framework of Information System example is your class. The components of the classroom situation, including an instructor, the students, textbooks, and 6. To know the System approach in Problem Solving facilities, all interact to make the accomplishment of learning 2.1 Introduction goals possible. When you begin the study of information systems, you should Example: A Classroom System be-come acquainted with a theoretical framework for under- INSTRUCTOR standing their use, develop-ment, and effect on organizations; that is, you need to have an understanding of sys-tems INPUT OUTPUT STUDENTS concepts as a foundation for further study. A system is a Students Students without with collection of people, machines, and methods organized to ac- Knowledge Knowledge TEXTBOOKS complish a set of specific tasks. Information systems-which are and Skills and Skills a major topic in this text-have the same components and FACILITIES characteristics as systems in general. This lesson introduces the concepts of systems, their character- A business is also a system. A business uses resources such as istics, and their interaction with the environment. As a manager, people, capital, ma-terials, and facilities to achieve the goal of you’ll constantly be dealing with sys-tems, and you’ll need making a profit. Business procedures, such as order handling, feedback about their performance. Information is the feedback marketing research, financial planning, and manufacturing, are you need to determine if systems are achieving their objectives, the interactions that need to be managed to achieve this operating with the necessary components, and meeting the objective. necessary standards. Information systems are designed to give Let us now see the components of a system which are common managers the information they require as feedback. to all kinds of system in detail. In this lesson you will learn about the systems approach to 2.2.1 System Boundaries problem solving also. As a manager, you will be dealing with Every system has a boundary that defines its scope of activities. many types of systems, and you will be responsi-ble for For example, the ac-tivities in your class include lectures, improving their performance. For example, you’ll determine if discussion, continuous evaluation, grading, and preparation of procedures, per-sonnel, and equipment need to be changed to as-signed course work. These activities may represent the achieve objectives. Or you’ll need to as-sess the effect of new boundary of the system for which a teacher is responsible. equipment on current work methods, procedures, and organi- Within the system of the classroom, the teacher is re-sponsible zation. The systems approach to problem solving will help you for organizing class time, assigning homework to students, and deal with these kinds of tasks. evaluating student progress. The boundary, then, delineates an Finally, this chapter explains how organizations operate as area of responsibility. When defin-ing a system, you must systems, with unique characteristics, information flows, and establish a boundary. decision processes. You will learn about the components of System boundaries are also established within a business organizations and about different types of organizational system. A sales manager may be responsible for managing, structures. You will need to recognize the structures of motivating, and evaluating the performance of a sales organiza- organizations to understand the decision making processes that tion. The owner of the business, however, faces different occur within different types of organizations. boundaries and may develop a financial plan, a marketing 2.2 Systems Concepts strategy, and a long-range business plan. Let us see the very simple meaning of any system. A system is a 2.2.2 Systems and Sub Systems set of inter-dependent components (some of which may be Systems may consist of numerous subsystems, each of which systems in their own right), which collectively accomplish certain has elements, interac-tions, and objectives. Subsystems perform objectives. specialized tasks related to the overall ob-jectives of the total system. For example, an educational system may consist of 10MANAGEMENT INFORMATION SYSTEM indi-vidual courses that are subsystems. Each course provides 2.2.5 Interface Problems specific knowledge that is a part of the overall educational In the previous section we mentioned that adhering to system and contributes to its goals. standards can alleviate some interface problems. However, you might encounter other types of interface problems. Sometimes In a business system, various functions are subsystems. the output of one subsystem is not sufficient to accommodate Marketing, finance, and manufacturing, for example, are the needs of the next subsystem. For example, the production subsystems. Within the marketing subsystem, the sales order- subsystem may not be able to produce enough stock to meet entry and credit-checking functions are subsystems. Each sales demands during certain peak periods. One way of subsystem uses its resources to meet specific objectives. handling this interface problem is through the use of slack Successful achievement of these goals re-quires good manage- resources. In this situation a business can build excess inventory ment of internal resources. For instance, in managing the sales during slack times to meet the demand for inventory at peak order-entry function, the supervisor needs to develop sales times. order procedures, main-tain sales order records, and train sales order personnel. Another system interface problem can occur between the authoring subsystem and the editorial subsystem in the 2.2.3 Outputs and Inputs development of a textbook. Authors who wait until the last The inner workings of a system or subsystem are organized to minute to finish their writing may not be able to produce a produce outputs from inputs. In this conversion process, some manuscript fast enough to meet production schedules, which value or utility should be added to the inputs. For example, a involve editing, artwork, layout and de-sign, typesetting, and training program should produce trained employees with proofreading tasks. The publisher can avoid this problem in certain skills, knowledge, or behavior from its inputs-untrained sev-eral ways. First, the publisher can ask the author to complete employees several chapters before production activities begin. This The outputs of one subsystem usually become inputs into the procedure is another example of using slack re-sources. next. The outputs of a course in introductory data processing Second, the publisher can ask the author to adhere to certain concepts, for instance, become inputs into the next course in standards for input into the production subsystem. For Java programming. example, the author can create and store all text using a word As you would expect, the outputs of a subsystem have to processing package that can be transported to a computer-based adhere to certain standards to be acceptable to the next. If type-setting system without reeking. students coming out of the introductory data processing course Third, the author could hire a library researcher, photo re- don’t understand basic concepts of file organization and file searcher, and typist to provide a support subsystem to expedite pro-cessing, they won’t have the prerequisite skills needed for the development of manuscript. This method creates a new Java. If they were not per-mitted to enter Java until they meet subsystem to solve a system interface problem. certain standards, though, the problem would be alleviated. The Another situation in which designing a new subsystem can more exactly standards are adhered to; the easier it will be to solve a system inter-face problem occurs at a college when it inter-face the two courses, or subsystems. accepts some students with deficiencies in their academic 2.2.4 Subsystem Interface backgrounds. To bridge the gap between high school and An interface is a connection at system or subsystem boundaries. college, the college can create a remedial subsystem to help An interface serves as a medium to convey the output from one students develop prerequisite skills for college work. For system to the input of another system. An example will help instance, the college may require students deficient in basic clarify this concept. Two typical business systems that in-terface writing skills to take a remedial writing class to learn spelling, with each other are inventory control and purchasing. If grammar, punctuation, and composition skills before they can inventory levels drop below a certain level, then additional stock enroll in literature classes. of these items should be purchased. Pur-chasing will need to 2.2.6 System and its Environment know what quantity of a particular item to obtain to replenish The system’s environment consists of people, organizations, the stock and information on sales and inventory turnover to and other systems that supply data to or that receive data from learn which items are in greatest demand so these items can be the system. Not surprisingly, different man-agers perceive the replenished on a timely basis. An inventory control system will environment differently. A sales manager, for example, may provide information on stock to be reordered based on sales envi-sion the system environment to be the company’s and inventory turnover trends. customers and vendors of the products and services being However, if the inventory control subsystem triggers erroneous marketed. On the other hand, the owner of the business may information about the amount of stock to be reordered, then perceive the environment to include the firm’s competitors, inputs into purchasing will be wrong. This problem can be financial institutions that provide resources for expansion, and partially overcome by establishing an economic order quantity, government agencies with jurisdiction over company plans and or the quantity of an item that is most economical to buy, for products. Moreover, various kinds of systems may interact with each item in in-ventory. This quantity, derived from order the environment in different ways. history and inventory turnover rate, can serve as a standard and prevent reordering too much or too little stock. 11MANAGEMENT INFORMATION SYSTEM grades, they may need to improve study habits, obtain tutoring, Open systems operate in an external environment and exchange or enroll in courses that better match their abilities or back- information and ma-terial with that environment. The external grounds. environment consists of the activities exter-nal to the system Product managers also need feedback on how well new boundary with which the system can interact. An open system products fare in certain markets. They conduct market research needs to receive feedback to change and to continue to exist in studies in test markets to compare new prod-ucts with estab- its environment. For example, a marketing system, which is an lished products. They can use feedback from these market tests open system, operates in an environment of competi-tion. If a to re-design a new product or identify target markets for which competitor introduces new technology by providing customers the product is suitable be-fore its introduction. Products such as with on-line order-entry terminals, the marketing function must shampoos, honey-roasted peanuts, and detergents are all adapt to the change in the environ-ment or remain at a competi- market tested in this way. Sometimes a company receives tive disadvantage. One way of accommodating the change in enormous amounts of feedback after introducing a new the environment is to offer a similar on-line order-entry service. product. When Coca-Cola introduced new Coke, negative The same type of ad-justment is necessary when an airline feedback from customers forced the company to reintroduce its offers a new service, such as a frequent flier bonus program. original formula as Classic Coke. Though the new service may temporarily give the air carrier a Trainers in companies also need feedback about how well their com-petitive advantage, the other airlines soon follow suit and programs are equipping trainees for job tasks. Feedback from offer similar programs. supervisors may provide suggestions on what skills trainees In Contrast, a closed system is relatively self-contained; it need to perform successfully on the job. For example, employ- doesn’t exchange in-formation with its environment. Closed ees who take a training program to learn how to use Lotus systems don’t get the feedback they need from the external 1-2-3, a popular microcomputer spreadsheet program, may not environment and tend to deteriorate. For instance, if a training be taught how to copy formulas from one cell to a range of cells pro-gram administrator doesn’t respond to the needs of the and may experience difficulty performing this procedure on the business environment for trained graduates, students may no job. Trainers can use this feedback to build more exercises on longer be able to get jobs and may go elsewhere for training. the copy com-mand into training classes. Eventually, the training program may be discontinued. It also shows how managers to modify or improve the system’s You might wonder why closed systems exist at all. More often internal workings can use feedback from the external environ- than not, partici-pants in a system become closed to external ment. feedback without fully being aware of it. For example, a So far we’ve emphasized the constructive aspect of feedback. university may offer graduate courses only during the daytime Sometimes, how-ever, the wrong kind of feedback is provided. hours because it has always scheduled these courses in this way. For example, if students are rewarded for the number of book Without recognizing the growing number of working adults reports they complete, rather than for the quality of the re- wishing to enroll in evening graduate programs, the university ports, they may skim books to get just enough information to may find registrations dwindling and may even have to complete and submit each report without developing compre- discontinue cer-tain courses. If university officials had been hension and reading skills-the real objec-tives of the exercise. Or more responsive to student needs, how-ever, the school might if employees get the wrong kind of feedback, they may in-crease have enjoyed booming enrollments among the population of their efforts in areas that aren’t useful in achieving the objectives adult evening students. of the system. For example, if salespeople are rewarded for the 2.2.7 System Feedback number of sales calls they make, in-stead of the number of A system needs feedback to do its job. Feedback is an indicator sales they close, they will try to fit in as many calls a day as they of current perfor-mance rates when compared to a set of can, rather than spending the time with each customer to make standards. With effective feedback, continu-ing adjustments in a sale. As a result, the company may lose business and not the activities of a system can be made to assure that the system achieve its objectives. achieves its goals. Measuring performance against a standard is Such considerations make it clear that managers must design an effective control mechanism. Employees need feedback to feedback mecha-nisms for effective control of business learn how well they are achieving job goals. Students receive functions within an organization. In a business setting, an grades or other kinds of evaluations from instructors that show inventory manager needs to manage the inventory levels of whether the students are meeting course objectives. hundreds of items to avoid shortages of items in demand and The good thing about feedback is that it usually increases effort. to prevent excess inventory levels of items that do not turn For example, tennis players often perform better when they are over frequently. The inventory manager needs feedback to con- keeping score. When salespeople receive positive feedback, it trol these inventory levels and determine when to order new increases their motivation to achieve a sales quota. Nega-tive stock of certain items. An inventory control system can feedback may also serve a useful purpose. Negative feedback is automatically generate a purchase order for stock replenishment designed to cor-rect or guide activities that are not consistent when an item in inventory falls below its reorder point. (The with achieving the goals of the system. If salespeople are not reorder point is the inventory level of an item that signals when achieving quotas, they may want to rethink current sales tech- that item needs to be or-dered.) This reorder system is an niques or reorganize their time. Similarly, if students receive low effective control device because if inventory levels fall below a 12MANAGEMENT INFORMATION SYSTEM safe level, the company cannot fill incoming customer orders. quality of output. Many colleges and universities screen This system also reduces excess inventory, which ties up cash applicants using standardized test scores, high school grades, unnecessarily. and references. Some educational institutions, however, have open admissions policies that allow all high school graduates to In short, many information systems provide managers with apply and be admitted. Because admitting candidates with-out information they need to allocate their resources to achieve the necessary academic skills for college study places undue stress business goals. By having information about cur-rent business on the entire educational system, colleges with open admissions activities, managers can control production, inventory, and policies typically localize this stress by establishing remedial marketing re-sources and invest these resources in the most programs and hiring specially trained teachers for these stu- profitable ways. ‘For example, man-agers can use information dents. Students are expected to pass remedial course work on planned versus actual sales to detect slow-moving items and before entering regular college courses. cut production appropriately. Fast-moving items should trigger production so the sales function can take advantage of market In a business situation, the same thing happens. New workers demand. participate in train-ing programs before they begin to work in the firm. During the training period, they learn specific job- 2.2.8 System Entropy related practices so they can become productive in the work Systems can run down if they are not maintained. Systems envi-ronment as soon as possible. After training, they receive entropy corresponds roughly to chaos or disorder - a state that jobs and responsibilities con-sistent with their skill levels and occurs without maintenance. If employees do not have backgrounds. This orientation and training process helps opportunities to learn new concepts and techniques, the skills minimize the stress that might occur if the new employees were they apply to performing job tasks will become out of date. pl4ced directly into positions within the firm. The process of maintaining a system is a process of decreasing Although one way to deal with stress is by changing the entropy or increasing orderliness. Sending auto-mobile activities of a subsystem, it is also important to remember that mechanics to training classes to learn new diagnostic techniques the subsystem is a part of the whole system and interacts with is an exam-ple of decreasing entropy. Orderliness can be other subsystems to achieve the organization’s overall objec- achieved through preventive mainte-nance checks, such as a tives. Therefore, managers may need to consider the entire yearly physical examination for an employee or a routine tune- system in responding to a prob-lem and to modify activities in up for an automobile, and then taking action as a result of other subsystems as well. these regular checks. These checks provide valuable feedback to help detect faults or problems when none have been antici- 2.3 Systems concepts in Business pated. Diagnostic tools for equipment and machinery help Now that you have a general picture of how a system works, it pre-vent downtime, which may cause delays in production and will be helpful to look more closely at business systems. The cost thousands of dollars in lost business. systems approach is a way of analyzing business problems. This approach views the business organization as a system of 2.2.9 System Stress and Change interrelated parts designed to accomplish goals. Each subsystem Systems change over time. Some of these changes occur because is both a self-contained unit and a part of a larger system. of identified prob-lems, new business opportunities, and new Managers must understand the goals of the total system and management directives. Systems may also change as a result of design the function and subsystems within the total system to stresses. The achievement levels needed to meet existing goals accomplish the goals. may change. For example, because of reduced profit margins on sales, a division sales manager may insist on a sales increase of More specifically, management is the practice of organizing 10 percent instead of 7 percent to achieve the same profits. The resources including people, materials, procedures and machines tendency is to localize the stress so that only one subsystem, in to achieve objectives. In other words, it entails organizing this case the division sales force, feels most of the pressure for subsystems to accomplish specific tasks. Using a system adjusting to new demands. approach, a manager organizes various activities of the business into separate organizational subsystems. It is easier to deal with change within one subsystem than within the total system because stress may require rethinking To consider an example, the market research subsystem of the existing work methods and organization. In this case the sales business may obtain information from the customers about manager may have to develop more effective procedures to im- modifications that about to be made in the firm’s products and prove the profitability of sales. The sales manager may services. The market research subsystem can transmit this recommend cutting down calls to smaller customer accounts information to the manufacturing subsystem that builds and substituting telemarketing to service their needs. Sales- product design changes into its processes. Finally, the marketing people might need to reallocate their time so they can pay special subsystem sells the finished products to the customers. If attention to customers who purchase the most profitable technical problems occur, the service subsystem may need to product lines and encourage customers who purchase less provide follow-up support. The interactions among these profitable lines to look at high-margin products. All these functional subsystems are depicted in the following figure. proce-dures require a close analysis of the current system, changes in work procedures, and effective time management. Another source of system stress occurs if inputs cannot be monitored but the sys-tem is expected to produce the same 13MANAGEMENT INFORMATION SYSTEM Market Research Subsystem company’s information-processing activities. These procedures Hardware Software include designing and implementing programs, maintaining e Process Output Input hardware and software, and managing the operations function. Customer needs The interactions among these elements constitute the informa- Manufacturing Subsystem INFORMATION tion-processing procedures that are used to generate People Process Output Input Finished Goods Marketing Subsystem Input Process Output Product in Use DATA Service Subsystem Input Process Output DataBase Procedure s 2.4 Information System as a Sub System information needed for decision-making. A general model of In many ways, information systems have the same characteris- an information system is shown below. tics as systems in gen-eral. The major purpose of an information system is to convert data into informa-tion - Subsystems information is data with meaning. In a business context, an Operational systems, which are designed to provide informa- information system is a subsystem of the business system of tion about day-to-day activities, are composed of subsystems an organization. Each business system has goals, such as that accomplish specialized tasks. A mail-order business, for increasing profits, expanding market share, and providing example, needs a system to process customer orders. The order- service to cus-tomers. Information systems that provide process-ing system actually consists of subsystems set up to information that lets management allocate resources effectively handle incoming orders, update inventory levels, and bill to achieve business objectives are known as tactical systems. customers. Other subsystems are created to purchase new stock, Finally, information systems that support the strategic plans of to handle accounts payable transactions, and to apply cash the business are known as strategic planning systems. To sum receipts from customers to outstanding accounts receivable up our dis-cussion so far, information provides managers with balances. Each subsystem performs a specialized task that the feedback they need about a system and its operations- supports the business objectives of increasing sales and provid- feedback they can use for decision-making. Using this ing customer service. You can see how these subsystems are in-formation, a manager can reallocate resources, redesign jobs, organized in the following figure. or reorganize proce-dures to accomplish objectives successfully. If one of these subsystems breaks down, the overall business An information system consists of components that interact to will feel the effect. For example, if the mail-order company does achieve the ob-jective of providing information about day-to- not maintain sufficient inventories, cus-tomers may become day activities that managers can use to control business frustrated with constant back orders and shift their business to operations. Information systems can also provide information other companies. to en-able managers to allocate resources and establish long- Outputs and Inputs range business plans. An infor-mation system contains such elements as hardware, software, personnel, databases, and procedures to accomplish its objectives. The hardware consists Sales Sales of the computer and computer-related activities. Software Listing Transaction consists of the instructions that the hardware uses to process information. Software includes both application software and system software. Application software consists of the programs Inventory Update Reorder written to support specific business functions, such as order Report entry, inventory control, and accounts receivable. System software enables the hardware to run application software. System software consists of the programs that handle such functions as sorting data, converting pro-grams into the Old New Inventory machine language the computer can understand, and retrieving Inventory Master Master data from storage areas. Information-processing personnel, such as systems designers and programmers, design and write the application programs to An information system, like any other system, receives inputs support information processing activi-ties. Operations person- of data and instructions, processes the data according to these nel, such as data entry operators and equipment operators, instructions, and produces outputs. This information- handle day-to-day operations activities. Finally, all personnel processing model can be used to depict any information system. have to follow specific procedures to organize and manage a An in-ventory update system is shown below. 14MANAGEMENT INFORMATION SYSTEM In an inventory update procedure, the inputs are sales order Internal Controls transactions and an old inventory master file. During the update Good information systems also have internal standards to procedure, the item quantities for each item on a sales order make sure that data are processed accurately. Input controls, for transaction are subtracted from the existing inventory level for example, ensure that input data are valid be-fore they are that item in stock. The new inventory level is then written to the processed. Another type of control is a password security new inventory master file. The outputs of this system are an procedure de-signed to protect against unauthorized access and updated inventory master file, a reorder report, and a sales update of data. All in all, standards make sure the system works listing. A reorder report lists any items in inventory that have properly. Without controls, the data printed out on re-ports fallen below their desired inventory level and provides a may be inaccurate, and managers may not be able to trust the purchasing manager with feedback about items that need to be information system to provide valid results. If unauthorized reordered. users update data files or if input data are not valid, managers may not even know that the output generated in reports is Hierarchy of Subsystems invalid, and thus they may make decisions using erroneous The subsystems within an information system can be organized information. into a hierarchy to represent their functions within the overall system. Each subsystem performs a spe-cialized function. In 2.5 The Structure of an Enterprise the inventory update example, one subsystem may record sales As we know, the entire enterprise has been organized into transactions as input, another subsystem may check customer subsystems, including the marketing subsystem, the service credit, and another may check inventory availability. Other subsystem, and the administrative subsystem. The marketing subsystems may update inventory, generate a re-order report, subsystem promotes and markets microcomputer products and produce information for billing, and so on. services. When cus-tomers have problems with their microcom- puters or need preventive maintenance, they use the service System Feed Back subsystem. Finally, the administrative subsystem takes care of An information system provides system feedback Owner to a manager about day- to-day activ-ities and about deviations from planned activity. The Marketing Service Administration manager can use this information to supervise daily operations, such as credit checking and billing, Product line 1 Product Line 2 Supplies Product Line Parts Purchasing Accounting and to reorganize re- Specialists Management sources to achieve objectives more effectively. In the inventory control example, one of the outputs was a billing customers, purchasing equipment and supplies from reorder report indicating which inventory items need to be re- vendors, paying vendors, and handling accounting activities. ordered. A purchasing manager could use this report to reorder The organizational structure of the dealership is depicted in the additional stock on a day-to-day basis. following figure. Middle managers might want feedback about which items in The marketing subsystem of the dealership is managed by a inventory are mov-ing rapidly and which items are moving sales manager who recruits salespeople, including experienced slowly so they can reallocate the investment in inventory to veterans and new trainees, to demon-strate and sell the minimize waste and maximize profitability. The information equipment. These salespeople are trained to follow certain systems providing feedback that can be used to allocate proce-dures, such as giving equipment demonstrations and resources effectively, such as inven-tory and personnel, are called making follow-up calls. These procedures are an important part tactical systems. of the “system” of selling microcomputer hardware and Subsystem Interface software. When they are not followed, profitability suffers. As with other systems, interfaces exist between the subsystems The sales manager needs an information system to provide of an information sys-tem. Again, the outputs of one sub- feedback on how the system is working. On a day-to-day basis, system become the inputs into the next. For exam-ple, the he may receive information about sales-people who have outputs of a sales order entry system become the inputs into an successfully closed sales, about customers who are complaining, invoicing system. If the outputs of one system are not correct, and about technical problems with equipment. This feedback however, the next subsystem will be affected. If the price of an makes it possible to re-view the procedures and activities of the item is entered incorrectly during order entry, then the charges to current system. For example, if a particular the customer may be incorrectly calculated during billing. A Contextual view Any system operates by interacting with its environment. The contextual view describes graphically the interaction of the 15MANAGEMENT INFORMATION SYSTEM 2.6 Some basic concepts and strategies in the study of systems • Abstraction: We have developed an exceptionally powerful technique for dealing with complexity. We abstract from it. Unable to master the entirety of a complex object, we choose to ignore the inessential details, dealing instead with the generalized, idealized model of the object. • Formality: Rigor at each stage in the development of a system. • Divide and conquer: Divide a complex problem into a set of simpler problems that can be solved. • Hierarchical ordering: Order the simplification of the problem in “divide & conquer” in hierarchies. system with the various entities in its environment. The • Cohesion & coupling: Modularise the system such that interactions consist of dataflows from and to such entities.The interactions within components (cohesion) is maximised and contextual view clarifies the boundary of the system and its interactions between components (coupling) is minimised. interfaces with the environment in which it operates. This way, the impact of errors, when they arise, is localised Contextual View and does not cascade through the system. Diagnosis of A Control View offending components is also made easier. Any system must manipulate certain variables in order to • Information hiding: Each module (or subsystem) must achieve its objectives. It determines the manipulation needed by have available to it just the information that is needed by it. processing its outputs/states in relation to certain control • Conceptual integrity: Consistency in design. parameters. • Completeness: Ensuring that the design meets all the specifications. • Logical independence: Emphasis on the statement of system objectives in terms of logical functions independent of physical implementation. • Correctness & Efficiency: Correct in the sense that the design meets all the user requirements. Efficient is that the system accomplishes the objectives with minimum computing resources. 2.7 Types of Information Systems Information systems can be classified in many ways, but for our purposes here, we will consider their classifications based on the mode of processing, on the system objectives, and on the nature of interaction of the system with its environment. Control View 2.7.1 Classification by mode of processing Frequently, complexity takes the form of a hierarchy, whereby a complex system is composed of interrelated sub systems that • Batch processing systems: The transactions are collected as have in turn their own subsystems, and so on, until some they occur, but processed periodically, say, once a day or week. lowest level of elementary components is reached. The choice • On-line batch systems: The transaction information is of what components in a system are primitive is relatively captured by on-line data-entry devices and logged on the arbitrary and is largely up to the discretion of the observer of system, but it is processed periodically as in batch processing the system. Intra-component linkages are generally stronger systems. than inter-component linkages (components of a system are • On-line Real-time systems: The transaction data capture as loosely coupled, but components themselves are cohesive). well as their processing in order to update records (and Hierarchical systems are usually composed of only a few generate reports) is carried out in real-time as the transaction different kinds of subsystems in various combinations and is taking place. arrangements (same components can be reused). A complex system designed from scratch never works and can not be 2.7.2 Classification by System Objectives patched up to make it work. You have to start over, beginning • Transaction Processing Systems: Their objective is to with a system that works. process transactions in order to update records and generate reports, i.e., to perform score-keeping functions. 16MANAGEMENT INFORMATION SYSTEM • Decision Support Systems: Their objective is to support Most tools co-ordinate information systems projects through a the managerial decisions. Usually, these systems are based on project or system dictionary. The function of the dictionary is to a model of the decision-making domain, and utilize standardise the use of terms throughout the organisation and techniques from management science, finance or other to serve as a repository of all common information in the functional areas of business in order to build such models. project. It enforces consistency as well as (relative) completeness These systems are also used often for attention-directing of the specifications, and facilitates verification & validation of purposes, i.e., for directing the attention of managers to a such specifications. It also serves as a means of communication problematic aspect of operations. between the different persons on the information systems building team. The figure below shows the various compo- • Expert Systems: These systems incorporate expertise in nents of the specifications and the modeling techniques order to aid managers in diagnosing problems or in problem utilised. We will be studying some of those techniques in this solving. course. 2.7.3 Classification based on the Nature of Interaction with Environment • Transformational Systems: These are systems that transform inputs received from the environment in order to generate reports (output). • Reactive Systems: These are systems characterized by being, to a large extent, event-driven, continuously having to react to external and internal stimuli. The components of accounting systems such as payroll, general ledger are, it should be obvious, usually batch processing systems, and also transaction processing systems that are transformational systems. Systems for determination of sample sizes for audit testing, on the other hand may be decision support systems. Systems aiding provision for doubtful accounts (or loan loss reserves for financial institutions) may be expert systems. 2.8 Specification of Information Systems Specification of any system before its development is crucial. 2.9 A Framework of Information Systems Specifications perform for information systems the same The activities of an organisation are of three kinds: operational, function that blue-prints and engineering specifications perform tactical and strategic planning. Operations are the day-to-day for physical structures. Specifications serve as benchmarks for activities of the firm that involves acquiring and consuming evaluating designs as well as their implementation. They also resources. First-line supervisors must identify, collect and facilitate quality assurance via verification (are we building the register all transactions that result in acquiring and expending system right, ie., do the design and implementation meet the these resources. When sales are made or goods are shipped, a specifications?) and validation ( are we building the right department manager needs to record these vents. These day-to- system, ie., does the system meet the user needs?). day transactions produce data that are the basis for the operational systems. 2.8.1 Formal Vs. Informal Specifications The tactical function of an organisation is the responsibility of In the development of information systems in business, its middle-level managers. They review operational activities to informal specifications through graphical modeling have been make sure that the organisation is meeting its goals and not used at least since late 70s. We shall be studying many of these wasting its resources. The time frame for tactical activities may modeling tools. Recently, formal specification languages (such as be month to month, quarter to quarter, or year to year. For Larch, VDM, Z, FOOPS and OBJ) have been developed. While example orders for raw materials might be monitored monthly, their use in business systems development is in its very early productivity might be assessed quarterly, and department stages, they are expected to play an important role in the future. budgets might be reviewed annually. Managers responsible for These formal specification techniques attempt to mathematically control have to decide how to allocate resources o achieve specify structure, function, and behavior of information business objectives. Data that can be used to predict future systems. trends help managers make these resource allocation decisions. 2.8.2 Components of specifications The top management of the organisation carries out strategic Specification of an information system is given by their: planning. Though managers responsible for operational and • Structure: How it is organised. tactical decision making are primarily involved in reviewing • Function: What it does. internal data, the managers responsible for planning are also • Behavior: How it responds to events and stimuli. interested in external information. They need to set the organization’s long range goals, for example, by deciding • Data: Its meaning and organization. whether to introduce new products, build new physical plant 17MANAGEMENT INFORMATION SYSTEM and net pay. Customer invoices specify details regarding purchases made during the period, the terms under which the purchases must be repaid, and the total amount, including taxes and other charges, due. STRATEGIC Long-range • Internal origin. The data for operational systems usually Plans spring entirely from in-ternal sources. That is, the data for paychecks come from internal documents such as time cards TACTICAL and employee master records. The data for customer invoices Budgets, Tactical Plans come from sales orders and shipping documents. • Structured form. The form of the data used as input and the form of the informa-tion produced by operational-level OPERATIONAL systems are usually very structured. That is, the data on time Day-to-day Activities cards are carefully formatted in identical fashion on each, or the data on each customer invoice are carefully formatted in identical fashion. In short, the form and for-mat of the data facilities, or invest in technology. For making these decisions they need to know the activities of the competing firms, interest rates, the trends in government regulations. Support for Decisions STRATEGIC Special Requests Strategic planners address problem that Long-range Plans involves long-range analysis and prediction and often require months and years to TACTICAL Information Needs Demand Reports resolve. Budgets, Tactical Plans The Activities of an Organisation 2.9.1 Operational Systems OPERATIONAL At the operational systems level the primary Transactions Scheduled Reports Day-to-day Activities concern is to collect, validate, and record transactional data describing the acquisition or disbursement of corporate re-sources. input and the information output of the systems are highly Financial data on accounts receivable; accounts payable, payroll, structured. and cash receipts must be recorded as they occur. When a sale occurs, data on the items or-dered are recorded, the inventory • Great accuracy. The accuracy of the data used as input to level for these items is adjusted, a shipping label and packing such systems and of the output produced by such systems is slip are prepared, and an invoice is generated. The original usually very high. The data input and information output are transac-tion-the sale of the item-creates numerous transactions carefully checked. in order processing, in-ventory, and billing. 2.9.2 Tactical Systems Operational-level information systems often have the following Tactical information systems differ from operational informa- characteristics. tion systems in their basic purpose: the purpose of tactical • Repetitiveness. The information operational-level information systems is not to support the exe-cution of information systems produce is usually generated repetitively operational tasks, but to help the manager control these at periodic intervals, such as daily, weekly, or monthly. operations. As a re-sult, the types of data used as inputs and the information produced as outputs also dif-fer from the types • Predictability. The information usually does not contain of data involved in operational information systems. Tactical any surprises or unex-pected results for the manager or other information systems often have these characteristics. The second users of the system. That is, people are paid what they were level in the framework consists of tactical systems. Tactical expected to be paid, and customers are billed for what they systems pro-vide middle-level managers with the information pur-chased during the month. they need to monitor and control operations and to allocate • Emphasis on the past. The information usually describes their resources effectively. past activities of the or-ganization. For example, the output Tactical information systems may also produce information of a payroll system describes employees’ past work. The when it is needed, that is, on an ad hoc basis. For instance, once checks to vendors describe past purchases by the the credit manager has identified a problem with overdue organization. Customer invoices describe past sales to them. accounts, he or she may wish to query the accounting system Stock reports describe past changes in inventory. database to find out what customer data, if any, correlate with • Detailed nature. The information is very detailed. That is, those who have credit problems. For example, is there a paychecks provide de-tailed information on the workweek of relationship between family income and credit dif-ficulty? Is each employee and the specifics of each em-ployee’s gross there a connection between location or address and credit 18MANAGEMENT INFORMATION SYSTEM difficulty? Is there a relationship between age and credit • Comparative nature. The information is usually difficulty? Is there a link between the number of years that comparative in nature rather than merely descriptive. Tactical customers have resided in the same home or apartment and information systems should provide managers with infor- credit difficulty? Is there a connection between home ownership mation that alerts them to variance from accepted versus renting and credit difficulty? standards or to results that are out-side the normal range so that they can take remedial action swiftly. This type of tacti-cal The answers to these questions, and others’ that the credit information system is analogous to process control systems manager pursues by querying the accounting system records, that monitor output constantly and provide feedback when may assist in identifying the problem or propos-ing new credit output parameters are at variance with ac-cepted standards. limitations or requirements for credit status within the organi- zation. An example of this type of feedback is a home heating system. As long as the temperature of the air in the house falls within In tactical systems, transactions data are summarized, aggre- the range specified on the thermostat, the heating system gated, or analyzed. Tactical systems generate a variety of re-ports, remains inactive. When the air temperature falls below the ther- including summary reports, exception reports, and ad hoc mostat setting, however, the thermostat sends a signal to the reports. furnace to turn on. When the air reaches the temperature on the 1. Summary Reports provide management with important thermostat, it sends a signal to the fur-nace to turn off. totals, averages, key data, and abstracts on the activities of the With comparative overdue account information from other organisation. An example of a summary report might be a branches and other periods, the credit manager can determine list of the total regular and overtime hours earned at each whether the amount overdue is normal or beyond acceptable plant for the week by job classification. Another example is limits. In some cases, top management sets the standard. That the list of total weekly sales, by salesperson, by product, and is, top management may have set a credit goal of no more than by sales region. 5 percent bad debts. Re-ports comparing the actual bad debts to 2. Exception Reports warn managers when results from a this standard help the manager spot credit problems quickly. particular operation exceed or do not meet the expected • Summary form. The information is usually not detailed, standard for the organisation. An example of an exception but in summary form. The credit manager is not interested report is a list of all plants that have logged more overtime in a detailed listing of each customer account and its balance. hours than expected for a week. Another example is a list of In large organizations, that would be an enormous quantity those sales personnel whose sales fall in the top and bottom of data and would not, therefore, be useful information to 10% of the organisation. the manager. The manager needs only summary information 3. Ad hoc reports are reports that managers need, usually relating to credit performance or balances of accounts that are quickly, that may never be needed again. Ad hoc reports overdue or in collection. present information that the manager needs to solve a • ·Both internal and external sources. The data used for unique problem. An example of this type of report might input to the system may extend beyond sources internal to be a list of the total num-ber of employees absent during the organization. In our example the credit man-ager the week arranged by plant and by job title along with the compared the information pertaining to problem customers hours or days missed. Another example might be a report to other branches, to other periods from the same that presents the production record of each plant for the organization, or to a goal set by top management. The credit week. A manager might request these reports only when an manager might also have compared the branch’s credit exception report shows high overtime earnings at certain information with the av-erage overdue account experience plants. The manager may ask for a number of ad hoc reports reported for the whole industry of which the or-ganization such as these to identify the nature of the overtime problem is a part. Such a comparison might show that though the • Periodic nature. The information from a tactical system is branch is experi-encing an increase in credit problems, so is sometimes produced periodically. For example, a branch the whole industry. Further investigation may reveal that a credit manager for an organization may receive a weekly downturn in the economy is the likely culprit, not any report showing the total dollar amount of accounts that are unusual credit policies of the organization. more than 60 days Thus tactical information systems differ from operational • Unexpected findings. A tactical information system may information systems not only in their intended purpose but produce unexpected in-formation. For example, in querying also in the regularity with which information is pro-duced, the the .accounting system database, the credit man-ager may predictability of the results, the comparative nature of the find that the major customer characteristic correlating with information, the amount of detail produced, and the rigidity of credit difficulty is the relationship between type of position the structure of the information. and type of employer. Further investiga-tion may reveal that organizations in a particular industry have cut their 2.9.3 Strategic Planning Systems workforces and have laid off selected workers in certain The third level in the framework for information systems is positions. Such findings may lead to a re-view of all strategic planning. Strategic planning information systems are customers who work in similar positions in that industry to designed to provide top managers with in-formation that find ways to solve or ease their credit problems and to assists them in making long-range planning decisions for the prevent them from becoming bad debts to the organization. organiza-tion. The distinction between strategic planning 19

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