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Chapter One Overview of Information Systems

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1. 1 Introduction When Rutherford B. Hayes, the 19th president of the United States, saw a demonstration of the telephone in the late 1800s, he reportedly commented that while it was a wonderful invention, businessmen would never use it. Hayes believed that people had to meet face to face to conduct substantive business affairs, and he was not alone in that assessment.

Few of Hayes’s contemporaries could foresee the profound changes that would be ushered in by the telephone and other technologies of the day, including steam engines, production machinery; transportation technologies such as railroads and automobiles, and communication technologies such as the telegraph and telephone. As we are in the 21st century, we are once again experiencing an intense period of technology-enabled innovation, creativity, and excitement that has been spurred by the information and telecommunications technologies and associated changes in our life, work and society.

We are now in the information/knowledge age — a time when information and knowledge are power.

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Leading industrial countries are transforming from industrial-based economies to information/knowledge-based economy. Information is everywhere. Information and knowledge have become critical, strategic assets for most organizations. We live in an “information society,” where power and wealth increasingly depend on information and knowledge as central assets. It is a new world of doing business.

Business and other organizations all over the world are focusing on information and knowledge as their key strategic resources. All firms today, large and small, local and global, use information systems to achieve important business objectives, such as operational efficiency, customer and supplier intimacy, better decision making, and new products and services. A continuing stream of information technology innovations from the Internet to wireless networks to digital phone is continuing to transform the business world.

These innovations are enabling entrepreneurs and innovative traditional firms to create new products and service, develop new business models, and transform the day-to-day conduct of business. In the process, some old businesses, even industries, are being destroyed while new businesses are springing up. In 2005, journalist Thomas Friedman wrote an influential book declaring the world was ‘flat’ by which he meant that the Internet and global communications had greatly reduced the economic and cultural advantages of developed countries. U. S. nd European countries were in a fight for their economic lives, competing for jobs, markets, resources, and even ideas with highly educated, motivated populations in low-wage areas in the less developed world. The globalization trend of the world economy greatly enhances the value of information systems to the organizations. In today’s global business environment, information technology is creating new opportunities for organizational coordination and innovation. Organizations require powerful information and communication systems to manage business on an international scale.

Manufacturers are using information systems to order supplies and distribute goods faster than ever before; financial institutions are employing them to transfer billions of dollars around the world electronically; investors are using them to make multimillion-dollar decisions. This globalization presents you and your business with both challenges and opportunities. The challenge for you as a business student is to develop high-level skills through education and on-the-job experience that cannot be outsourced. Information systems will continue to change our business, society and lives.

Information system and technologies will also play large roles in your career. Along with the changes in business come changes in job and careers. No matter whether you are a finance, accounting, management, marketing, operations management, or information systems major, how you work, where you work, and how well you are compensated will all be affected by business information systems. When interviewing potential employees, business firms often look for new hires who know how to use information technologies and systems for achieving bottom-line business results.

It is widely recognized that understanding information systems is essential for managers and employees because most organizations need information systems to survive and prosper. Employees will depend on the information systems to increase their productivity. Management will use the information systems to improve their decision-making processes. Thus the knowledge of information systems and the ability to put this knowledge to work can result in a successful personal career. The knowledge and skill you learn from this subject will be valuable throughout your business career. 1. Computer Literacy and Information System Literacy Today, computers are everywhere: at work, at school, and at home. Many daily activities either involve the use of or depend on information from a computer. Computer advances impact all individuals, families, organizations, and schools (see Figure 1-1). Computers already are an essential part of people’s daily lives, as much as the automobile, television, and telephone. Computers are taking on many new roles — providing vast information resources, fast communications, effective learning tools, and powerful support for activities in businesses, schools, and homes.

Information systems and technologies have become a vital component of successful businesses and organizations. They thus constitute an essential field of study in business administration and management. Almost any career in your future will involve a computer in some way. You probably recognize that it will not be easy to get through the rest of your life without knowing about computers and information systems. In today’s technology-rich world, a great demand for computer and information systems professionals exists and continues to grow.

The computer and information systems industries offer many rewarding careers and jobs, but require a unique combination of hands-on computing skills, creative problem solving ability, and an understanding of business needs. In preparing yourself to enter today’s fast-paced, ever-changing, and information-intense business environment, you need to understand the new thinking in business. Managers and professionals such as engineers, scientists, or architects are collectively known as knowledge workers, since their main contribution to the activities in which they are involved is their knowledge and skills.

The term literacy has been used to describe two types of knowledge that are key to succeed as a knowledge worker in today’s information/knowledge-based business environment. One kind of knowledge is computer literacy; the other is information systems literacy. The knowledge and understanding of computer systems and the ways they function are called computer literacy. Computer literacy focuses primarily on knowledge of information technology. This knowledge includes an understanding of computer terminology, recognition of the strengths and weaknesses of the computer, and an ability to use the computer.

It also stresses computer equipment and devices (hardware), programs and instructions (software), databases, networking, and telecommunications. The requirements that determine computer literacy change as technology changes. As you study about computers, you will become aware of their importance, their versatility, and their pervasiveness in our society. There is no better way to understand computer systems than through interacting with one. So being computer literate also means being able to use computers for some type of applications. However, no one expects you to become a computer expert.

Today, information systems provide the communication and analytic power that firms need for conducting trade and managing businesses on a global scale. In addition to understanding computers, the modern knowledge worker should have information systems literacy. From an organizational perspective, an information system is an organizational and management solution, based on information technology, to a challenge posed by today’s dynamic environment. To fully understand information systems, you must understand the broader organization, management, and information technology dimensions of information systems (see Figure 1-2).

Figure 1-2 Organization, management, and information technology dimensions of information systems Information systems are integral part of organizations. The key elements of an organization are its people, structure, operating procedures, politics, and culture. Organizations are composed of different levels and specialties. Different levels and specialties in an organization create different interests and points of view. Information systems come out of this cauldron of differing perspectives, conflicts, compromises, and agreements that are a natural part of all organizations.

Management’s job is to make sense out of the many situations faced by organizations, make decisions, and formulate action plans to solve organizational problems. Managers perceive business challenges in the environment, they set the organizational strategy for responding and allocate the human and financial resources to achieve the strategy and coordinate the work. The business information systems in organizations reflect the hopes, dreams, and realities of the managers. Information technology is one of many tools managers use to cope with change.

Information technology infrastructure provides the foundation or platform on which the firm can build its specific information systems. Each organization must carefully design and manage its information technology infrastructure so that it has the set of technology services it needs for the work it wants to accomplish with information systems. Let us use UPS’s package tracking system to identify the organization, management, and technology elements. The organization element anchors the package tracking system in UPS’s sales and production functions (the main product of UPS is a service–package delivery).

It specifies the required procedures for identifying packages with both sender and recipient information, taking inventory, tracking the packages en route, and providing package status reports for UPS customers and customer service representatives. The system must also provide information to satisfy the needs of managers and workers. UPS’s management is responsible for monitoring service levels and costs and for promoting the company’s strategy of combining low-cost and superior service.

Management decided to use automation to increase the ease of sending a package via UPS and of checking its delivery status, thereby reducing delivery costs and increasing sales revenues. The technology supporting this system consists of handheld computers, barcode scanners, wired and wireless communications networks, desktop computers, UPS’s central computer, storage technology for the package delivery data, UPS package tracking software, and software to access the World Wide Web. The result is an information system solution to the business challenge of providing a high level of service with low prices in the face of mounting competition.

Therefore, information systems literacy is knowledge of how and why data, information, knowledge, computer, and information technology are used by organizations and individuals. It includes not only knowledge of computer technology but also aspects of the broader range of information technology. Information systems literacy can involve knowledge of how and why people use information technology; knowledge of organizations, decision-making approaches, management levels, and information needs; and knowledge of how organizations can use information systems to achieve their goals.

Thus, the key aspect of information systems literacy is knowing how to deploy information technology to help an organization achieve its business goals and to gain a competitive advantage. In general, knowing about various types of hardware and software is an example of computer literacy. Knowing how to use hardware and software to increase profits, cut costs, improve productivity, increase customer satisfaction, and improve management decision-making is an example of information systems literacy. Information system literacy includes a ehavioral as well as a technical approach to studying information systems. The field of management information systems (MIS) tries to achieve this broader information systems literacy. One of the main objectives of this course is to lay the foundation for information systems literacy. 1. 3 Data and Information Today, information is one of an organization’s most important and valuable resources. Organizational information systems contain information about people, places, things, ideas and events within the organization and in the environment surrounding it.

By information we mean data that have being processed into a form that is meaningful and useful to the recipient. Data are therefore the raw facts for producing information. The relation of data to information is that of raw material to finished product. The information systems process data in unusable form into a usable form that is information for intended recipient. As the simplified example shown in Figure 1-3, the student name, ID number, semester, curse codes, and course grades all represent data. The computer processes the data to produce the grade information (report). | | Figure 1-3 The process of transforming data into information| Organizational activities require information. Producing products, assigning workers, making sales, billing amounts due, and providing customer services are examples of activities that use information. Data represents real-world facts, such as an employee’s name, weekly sales, customer numbers, or product inventory. Data items are organized for processing purpose into data structures, file structure, database, and data warehouse. Data are simply raw facts and has little value beyond its existence.

Information systems manipulate and process data to create information. The information in an information system take a variety of forms including text, numbers, pictures, sounds, animations and videos. The value of information is described most meaningful in the context of a decision. In other words, the value of information is directly linked to how it helps decision-makers achieve their organization’s goals. If there were no current or future choices or decisions affected by a piece of information, the information would be unnecessary.

It is cited frequently in explaining why information systems that collect vast amounts of data often fail to satisfy managerial information needs. The value of information might be measured in following three dimensions: * Content — information should be accurate, relevant, and complete * Time — information should be timely and current * Form — information should be provided at the appropriate level of detail and in the most appropriate form. More specifically, information should have certain characteristics to make it valuable.

The characteristics of valuable information include being accurate, verifiable, timely, organized, meaningful, useful, and cost effective. * Accurate information is correct information. Inaccurate information often is worse than no information, because inaccurate information can lead to incorrect decisions. For example, you assume that your transcript correctly list your grades. If your transcript incorrectly reports low grades in your major courses, a potential employer might deny you an interview. * Verifiable information means that the information can be confirm by the user.

For example, before relying on the cumulative GPA on your transcript, a potential employer might want to check that the GPA is calculated correctly. The potential employer can verify the accuracy of the accumulated GPA by calculating it from the individual semester GPA values. * Timely information has an age suited to its use. Your transcript, for example, has value for a potential employer only if the employer receives it in time to make a hiring decision. Although most information loses its value with time, some information, such as information on trends, gains value as time passes and more information is obtained.

Your transcript, for example, gains value as you complete more coursework because it reflects your work ethic and dedication over a time period. * Meaningful information is relevant to the person who receives it. Because certain information is meaningful only to specific individuals or groups, unnecessary information should be eliminated. * Cost-effective information costs less to produce than the value of the resulting information. Most organizations periodically review the information they produce in reports to determine if the reports provide valuable information.

Based on that review, the companies can determine whether to continue, scale back, or even eliminate these reports. The need for timely information can change for each business decision. Some decisions require weekly or monthly information while other decisions require daily information. Timeliness is an aspect of information that depends on the situation. In some industries such as insurance and construction, information that is a few days or weeks old can be relevant, while in other industries such as 911 centers and stock trading information that is a few minutes old can be almost worthless.

Real-time information means immediate, up-to-date information. Real-time systems provide real-time information in response to query requests. Many organizations use real-time systems to exploit key corporate transactional information. Real-time systems provide valuable information for supporting corporate strategies such as customer relationship management. The growing demand for real-time information stems from organizations’ need to make faster and more effective decisions, keep smaller inventories, operate more efficiently, and track performance more carefully.

Nevertheless, timeliness is relative. Organizations need fresh, timely information to make good decisions. Information also needs to be timely in the sense that it meets employees’ needs, but no more. If employees can absorb information only on an hourly or daily basis, there is no need to gather real-time information in smaller increments. Many people request real-time information without understanding one of the biggest pitfalls associated with real-time information’s continual change. Imagine the following scenario: Three managers meet at the end of the day to discuss a business problem.

Each manager has gathered information at different times during the day to create a picture of the situation. Each manager’s picture may be different because of this time discrepancy. Their views on the business problem may not match since the information they are basing their analysis on is continually changing. This approach may not speed up decision making, and may actually slow it down. Organizations must evaluate the timeliness of the information required for each business decision. Organizations do not want to find themselves using real-time information to make a bad decision faster.

Information and knowledge are becoming the foundation for many new products and services. Information/ knowledge-intense products such as computer games require a great deal of knowledge to produce. Entire new information-based services have sprung up, such as Lexis, Dow Jones News, and America Online. These fields are employing millions of people. Information technology constitutes more than 75 percent of the invested capital in service industries such as finance, insurance, and real estate. Knowledge is used more intensively in the production of traditional products as well.

In the automobile industry, both design and production now rely heavily on knowledge and information technology. 1. 4 Information Systems 1. 4. 1 The Concept of System System concepts underlie the field of information systems. A system is a set of elements or components that operate together to accomplish an objective. Many examples of systems can be found in the physical and biological sciences, in modern technology, and in human society. A system (sometimes called a dynamic system) has three basic interacting components or functions: *  Input involves capturing and assembling elements that enter the system to be processed.

For example, raw materials, energy, data, and human effort must be secured and organized for processing. * Processing involves transforming processes that convert input into output. Examples are a manufacturing process, the human breathing process, or mathematical calculations. * Output involves transferring elements that have been produced by a transformation process to their ultimate destination. For example, finished products, human services, and management information must be transmitted to their human users. The system concept becomes even more useful by including two additional components: feedback and control.

A system with feedback and control components is sometimes called a cybernetic system, that is, a self-monitoring, self-regulating system. * Feedback is data about the performance of a system. For example, data about sales performance is feedback to a sales manager. * Control involves monitoring and evaluating feedback to determine whether a system is moving toward the achievement of its goal. The control function then makes necessary adjustments to a system’s input and processing components to ensure that it produces proper output.

For example, a sales manager exercises control when reassigning salespersons to new sales territories after evaluating feedback about their sales performance. 1. 4. 2 Information Systems An information system is a specialized type of system and can be defined in a number of different ways. An information system can be defined technically as a set of interrelated information technology components that collect (or retrieve), process, store, and distribute data and information and provide a feedback/control mechanism to meet an objective.

From a business perspective, information systems can be defined as a combination of hardware, software, and telecommunications networks which people build and use to collect, create, and distribute useful data and information, typically in organizational settings. Information systems support managers and workers make decisions, control operations, analyze problems, visualize complex subjects, and create new products and services. An information system contains information about an organization and its surrounding environment.

The basic activities of input, processing and output in an information system produce the information that organization need for decision-making and operations. An information system also requires feedback and control components to meet an objective (see Figure 2-4). | Figure 1-4 An information system| In an information system, input is the activity of gathering and capturing raw data from within the organization or from its external environment. For example, in producing paychecks, the number of hours worked for every worker must be collected before the pay amounts can be calculated and checks can be printed.

Processing involves converting or transforming data into more meaningful form. Processing can involve making calculations, making comparisons and taking alternative actions, and storing data for future use. In the payroll example, the required processing may first involve calculating gross pay. If weekly hours worked are greater than 40 hours, overtime pay must be determined. Then deductions are subtracted from gross pay to get net pay. Output involves producing useful information in a proper form such as reports, paychecks or documents, and transferring the processed information to the user.

In some cases, output from one information system can become input for another. Information systems also provide feedback/control mechanism to allow people to evaluate the performance of the systems and make necessary changes to input or processing activities. Information technologies (IT) are tools used to build information systems. Information technologies include hardware, software, database, networks, and other related components. Information systems use and integrate these technologies to meet the information needs of different users.

The information technology, then, must support the goal of the information system, which is to provide accurate, timely, relevant, complete, well-formatted information that users value. Computer architecture ensures a fit between information systems and technologies. Computers are valuable tools. As technology advances and computers extend into every facet of daily living, computers have become an essential part of organizational information processing because of the power of the technology and the volume of data to be processed.

When we use the term information systems, we are referring to computer-based information systems (CBIS) — organizational information systems that rely on computer technology to collect, process, store and disseminate information. A CBIS is composed of hardware, software, database, telecommunications, people, and protocols/procedures, as shown in Figure 1-5. | | | Figure 1-5 The components of an information system| In a computer-based information system, hardware consists of physical computer equipment and associated devices used to perform input, processing, and output activities.

Software is a broad term given to the instructions that direct the operation of the hardware. Database contains all data utilized by application software. Telecommunications is the electronic transmission of signals for communications and enables organizations to link computer systems into effective networks. Information systems personnel include all the people who develop, program, operate, manage, use and maintain the information systems. Protocols are standards and guidelines used for designing and deploying information systems.

Procedures include strategies, policies, methods, and rules for developing, managing and using the information systems. Although computer-based information systems use computer technology to process raw data into meaningful information, there is a sharp distinction between a computer system and an information system. Electronic computers and related software programs are the technical foundation, the tools and materials, of modern information systems. Computer systems provide the equipment and software for processing, storing and distributing information. Knowing how computer systems work is important in esigning solutions to organizational problems, but computer systems are only part of an information system. Computers and programs alone cannot produce the information a particular organization needs. To understand information systems, you must understand the problems they are designed to solve, their architectural and design elements, and the organizational processes that lead to these solutions. In other words, to be information systems literate as opposed to computer literate, you must understand the broader organization, management, and technology dimensions of information systems. 1. 4. Enterprise System Architectures System architecture refers to the arrangement of software, hardware, and tasks in an information system needed to achieve a specific functionality. To support the volume and complexity of today’s users and application requirements, information technology needs to take a fresh approach to enterprise system architectures by constructing smarter, more flexible environments that protect from system failures and crashes. Enterprise system architectures include the plans for how an organization will build, deploy, use, and share its data, processes, and IT assets.

A unified enterprise system architecture will standardize enterprisewide hardware and software, with tighter links to the business strategy. A solid enterprise system architecture can decrease costs, increase standardization, promote reuse of IT assets, and speed development of new systems. The right enterprise system architecture can make IT cheaper, strategic, and more responsive. Enterprise system architectures are never static; they continually change. Organizations use enterprise system architects to help manage change.

An enterprise system architect is a person grounded in technology, fluent in business, a patient diplomat, and provides the important bridge between IT and the business. An enterprise system architect is expensive and generally receives a salary of $180,000 per year on average. Companies that have created solid enterprise system architectures are reaping huge rewards in savings, flexibility, and business alignment. Basic enterprise architectures contain three components, as shown in Figure 2-6. | | |    Figure 1-6 Three components of enterprise system rchitecture| Information Architecture Information architecture identifies where and how important information, like customer records, is maintained and secured. A single backup or restore failure can cost an organization more than time and money; some data cannot be recreated, and the business intelligence lost from that data can be tremendous. Three primary areas an enterprise information architecture should focus on include back up and recovery, disaster recovery, and information security. Each year businesses lose time and money because of system crashes and failures.

One way to minimize the damage of a system crash is to have a backup and recovery strategy in place. A backup is an exact copy of a system’s information. Recovery is the ability to get a system up and running in the even of a system crash or failure and includes restoring the information backup. Organizations should choose a backup and recovery strategy that is in line with its business goals. If the organization deals with large volumes of critical information, it will require daily backups, perhaps even hourly backups, to storage servers.

Deciding how often to back up information and what media to use is a critical business decision. If an organization decides to back up on a weekly basis, then it is taking the risk that, if a total system crash occurs, it could lose a week’s worth of work. If this risk is unacceptable, then the organization needs to move to a daily backup strategy. Some organizations find the risk of losing a day’s worth of work too high and move to an hourly backup strategy. Two techniques used to help in case of system failure are fault tolerance and failover.

Fault tolerance is a computer system designed that in the event a component fails, a backup tolerance can be provided with software, or embedded in hardware, or provide by some combination. Failover is a backup operational mode in which the functions of a computer component are assumed by secondary system components when the primary component becomes unavailable through either failure or scheduled downtime. A failover procedure involves automatically offloading tasks to a standby system component so that the procedure si as seamless as possible to the end user.

Disasters such as power outages, floods, and even harmful hacking strike businesses every day. Organizations must develop a disaster recovery plan to prepare for such occurrences. A disaster recovery plan is a detailed process for recovering information or an IT system in the event of a catastrophic disaster such as a fire or flood. A comprehensive disaster recovery plan takes into consideration the location of the backup information. Many organizations store backup information in an off-site facility. A hot site is a separate and fully equipped facility where the company can move immediately after a disaster and resume business.

A cold site is a separate facility that does not have any computer equipment, but is a place where employees can move after a disaster. Security professionals are under increasing pressure to do the job right and cost-effectively as networks extend beyond organizations to remote users, partners, and customers, and to cell phones, PDAs, and other mobile devices. Regulatory requirements to safeguard data have increased. Concerns about identify theft are at an all-time high. Hacking and other unauthorized access contribute to the approximately 10 million instances of identity theft each, according to the Federal Trade Commission.

A good information architecture includes a strong information security plan, along with managing user access and up-to-data antivirus software and patches. Managing user access to information is a critical piece of the information architecture. There is little doubt that security is a top priority for business managers, regardless of the size of their company. The main focus for most managers is preventing hackers, spammers, and other malcontents from entering their networks, and they are looking to enhance their network-security-management, intrusion-detection, content-filtering, and anti-spam software.

Infrastructure Architecture Infrastructure architecture includes the hardware, software, and telecommunications equipment that, when combined, provide the underlying foundation to support the organization’s goals. As an organization changes, its systems must be able to change to support its operations. If an organization grows by 50 percent in a single year, its systems must be able to handle a 50 percent growth rate. Systems that cannot adapt to organizational changes can severely hinder the organization’s ability to operate. The future of an organization depends on its ability to meet its artners and customers on their terms, at their pace, any time of the day, in any geographic location. The following are the five primary characteristics of a solid infrastructure architecture: 1. Flexibility: Organizations must watch today’s business, as well as tomorrow’s, when designing and building systems. Systems must be flexible enough to meet all types of business changes. For example, a system night be designed to include the ability to handle multiple currencies and languages, even though the company is not currently performing business in other countries.

When the company starts growing and performing business in new countries, the system will already have the flexibility to handle multiple currencies and languages. If the company failed to recognize that its business would someday be global, it would need to redesign all its systems to handle multiple currencies and languages, not easy once systems are up and running. 2. Scalability: Scalability refers to the ability of a system to increase in size as demand warrants. If an organization grows faster than anticipated, it might all types of performance degradations, ranging from running out of storage space to a slowdown in transaction speeds.

Capacity planning determines the future IT infrastructure requirements for new equipment and additional network capacity. Performing a capacity plan is one way to ensure the IT infrastructure is scalable. There are three steps you can take to meet the demands for service at your system: scale hardware vertically, scale hardware horizontally, and improve the processing architecture of the system. Vertical scaling refers to increasing the processing poser of individual components. Horizontal scaling refers to employing multiple computers to share the workload and increase the ‘footprint’ of the installation.

Improving the processing architecture is a combination of vertical and horizontal scaling, combined with artful design decisions. 3. Reliability: Reliability ensures all systems are functioning correctly and providing accurate information. Reliability is another term for accuracy when discussing the correctness of systems within the context of efficiency IT metrics. 4. Availability: High availability refers to a system or component that is continuously operational for a desirably long length of time. Availability is typically measured relative to 100 percent operational.

A widely held but difficult-to-achieve standard of availability for a system is known as ‘five 9s’ (99. 999 percent) availability. Systems, however, must come down for maintenance, upgrades, and fixes. One challenge organizations face is determining when to schedule system downtime if the system is expected to operate continually. Many organizations overcome this problem by having redundant systems, allowing the organization to take one system down by switching over to a redundant system. 5. Performance: Performance measures how quickly a system performs a certain process or transaction.

Not having enough performance capacity can have a devastating, negative impact on a business. People usually use IT metrics to measure the system architecture. Efficiency IT metrics measure the performance of the IT system including throughout, speed and availability. Effective IT metrics measure the impact of the IT system on business processes and activities including customer satisfaction, conversion rates, and sell-through increases. Application Architecture Application architecture determines how applications integrate and relate to each other.

Advances in integration technology are providing new ways for designing more agile, more responsive enterprise architectures that provide the kind of value businesses need. With these new architectures, IT can build new business capabilities faster, cheaper, and in a vocabulary the business can understand. Web services promise to be the next major frontier in computing. Web services contain a repertoire of Web-based data and procedural resources that use shared protocols and standards permitting different applications to share data and services.

The major application of Web services is the integration among different applications. Before Web services, organizations had trouble with interoperability. Interoperability is the capability of two or more computer systems to share data and resources. If a supply chain management system can share data with a customer relationship management system, interoperability exists between the two systems. Web services encompass all the technologies that are used to transmit and process information on and across a network, most specifically the Internet.

A Web service is really a piece of reusable software code. A software developer can quickly build a new application by using many of these pieces of reusable code. For example, a ‘Deposit’ Web service for a banking system might allow customers to perform the task of depositing money to their accounts. The Web service could be used by a bank teller, by the customer at an ATM, and by the customer performing an online transaction through a Web browser. The trick to building Web service is finding the right level of granularity.

An open system is a broad, general term that describes nonproprietary IT hardware and software made available by the standards and procedures by which their products work, making it easier to integrate them. The designs of open systems allow for information sharing. In the past different systems were independent of each other and operated as individual islands of control. The sharing of information was accomplished through software drivers and devices that routed data allowing information to be translated and shared between systems.

Open system integration is designed to: * Allow systems to seamlessly share information. The sharing of information reduces the total number of devices, resulting in an overall decrease in cost. * Capitalize on enterprise architectures. This avoids installing several independent systems, which creates duplication of devices. * Eliminate proprietary systems and promote competitive pricing. Utilization of open systems allows users to purchase systems competitively. 1. 5 The Role of Information Systems in Business 1. . 1 Business Environment Business students frequently ask, “Why do we need to study information technology? ” The answer is simple: Information technology is everywhere in business. Information technology plays a critical role in reducing costs, improving productivity and generating growth by facilitating communication and increasing business intelligence. Information technology is supplying the foundation for new business models, new business processes, and new ways of distributing products, services and knowledge.

Companies are relying on information technology and telecommunications to conduct more of their work electronically, seamlessly linking factories, offices, sales forces, managers, customers, and suppliers around the globe. Understanding information technology provides great insight to anyone learning about business. Business students who understand technology have an advantage in business. | | | Figure 1-7 Seven major factors that affect today’s business environment| Before discussing the role of information systems in organizations, let’s xamine some of the most important factors shaping today’s new business. These and other factors have altered the environment of business and posed new challenges to business firms and their management. To you, these factors can be translated into a substantial career opportunity, if you understand them and prepare yourself through education to take advantage of them. Figure 2-7 lists seven important factors including globalization, competition, information as a key resource, organization restructuring, end-use computing, electronic commerce, and virtual workplace.

Emergence of the global economy means that business today is global business. The success of firms today and in the future depends on their ability to manage business globally. Business globalization greatly enhances the value of information systems to organizations and offers new opportunities to business. Organizations need powerful information systems and communications systems to conduct trade and manage businesses on a global scale. Obviously, globalization has increased competition. Information technology is another reason competition is heating up.

Globalization and information technology bring new threats to domestic business firms. Customers now can use global communication and information systems to shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day. To become competitive participants in international markets, firms need powerful information and communication systems. In the information age, information is so important that businesses must have information to be successful. The need to capture and record information about what customers want has led to many databases and data warehouses.

These databases and data warehouses contain valuable information to help firms to throb with the pulse of marketplace. These databases and data warehouses of great economic value are based on new information technologies. Today, many organizations are restructuring in a variety of ways. The explosive growth in computing power and networks is turning organizations into networked enterprises, which allow organizations to redesign and reshape their structures, scope of operations, control mechanisms, work practices, work flows, products, and services.

Many organizations have reduced the number of levels in their organizational hierarchies. In these flatter organizations, employees are empowered to make more decisions than in the past. Contemporary information technology can make more information available to line workers so they can make decisions that previously had been made by managers. Companies can use information and communications technologies to organize in more flexible ways, increasing their ability to respond to changes in the marketplace, to take advantage of new business opportunities, and to reduce the cost of obtaining products and services from outside the firm.

Many organizations use information technology to recast the management process, providing powerful new capabilities to help managers plan, organize, lead, and control. One important trend is using information technology for enterprise resource planning. For example, more and more firms are using the Enterprise Resource Planning (ERP) system. The ERP system is a business information system that integrates all facets of the business, including planning, purchasing, manufacturing, sales, finance and human resources.

The ERP system creates an integrated database to coordinate business activities within and across functional areas by sharing consistent information, and automates many business processes. Information and telecommunications technologies are creating new ways of conducting business electronically both inside and outside the firm. The Internet is emerging as the primary technology platform for electronic commerce. Electronic commerce is the computerized process of buying and selling goods and services through the Internet, networks, and other digital technologies.

The Internet links millions of organizations and individuals into a single network, creating the foundation for a vast electronic marketplace. An electronic market is an information system that links together many buyers and sellers to exchange information, products, services, and payments. Many organizations are increasingly apply Internet technology to facilitate the management and coordination of other business processes within the firm — publishing company’s policies and work procedures, scheduling work flow, reviewing production plan, revising design documents, and so on, which is called electronic business.

Information and telecommunications technologies have eliminated distance as a factor for many types of work in many situations. Many companies are using networked information systems to coordinate their geographically distributed capabilities. Works can be done wherever the employees are located. The term virtual workplace describes a technology-enabled working arrangement where work can be done at virtually any geographical location as along as the work site is linked to one or more of the firm’s fixed locations by some type of telecommunications capability.

Some companies are even using networked information systems to coordinate with other organizations such as suppliers, distributor, or even competitors as virtual organizations to create and distribute new products and services without being limited by traditional organizational boundaries or physical location. Intensive use of information technology in business firms, coupled with equally significant organizational redesign, has created a new type of business: the fully digital firm. The digital firm can be defined along several dimensions.

A digital firm is one where nearly all of the organization’s significant business relationships with customers, suppliers, and employees are digitally enabled and mediated. Core business processes are accomplished through digital networks spanning the entire organization or linking multiple organizations. Key corporate assets–intellectual property, core competencies, and financial and human assets–are managed through digital means. In a digital firm, any piece of information required to support key business decisions is available at anytime and anywhere in the firm.

Digital firms sense and respond to their environments far more rapidly than traditional firms, giving them more flexibility to survive in turbulent times. Digital firms offer extraordinary opportunities for more global organization and management. By digitally enabling and streamlining their work, digital firms have the potential to achieve unprecedented levels of profitability and competitiveness. A few firms, such as Cisco Systems, Dell Computer Corporation or Google, are close to becoming fully digital firms, using the Internet to drive every aspect of their business.

In most other companies, a fully digital firm is still more vision than reality but this vision is driving them toward digital integration. For today’s managers, information technology is not simply a useful handmaiden, an enabler, but rather it is the core of the business and a primary management tool. There are four major systems that help define the digital firm. Supply chain management systems seek to automate the relationship between suppliers and the firm to optimize the planning, sourcing, manufacturing, and delivery of products and services.

Customer relationship management systems attempt to develop a coherent, integrated view of all the relationships a firm maintains with its customers. Enterprise systems create an integrated enterprise-wide information system to coordinate key internal processes of the firm, integrating data from manufacturing and distribution, sales, finance, and human resources. Finally, knowledge management systems seek to create, capture, store, and disseminate firm expertise and knowledge.

Collectively, these systems represent the areas where corporations are digitally integrating their information flows and making major information system investments. For example, building only cars that customers order and building them in record time has been every automaker’s dream. Now, it appears that Toyota Motor Corporation is coming close to making that dream come true. Toyota is using new software tools and Internet technology to drive its processes for designing and manufacturing automobiles and to integrate them with customers and suppliers.

The company is moving toward a digital firm organization. In many organizations, end users are developing a growing percentage of information systems with little or no formal assistance from technical specialists. This phenomenon is called end-user computing. Information technology education programs at both the college and pre-college level and easy-to-use of both computer hardware and software have made more and more managers and employees have good computing knowledge and skills.

End user computing involves you, as a future knowledge worker, in more than just developing a budget using spreadsheet software, creating a presentation using presentation graphics software, or using a system that someone else developed. It requires you to take an active role in developing systems that support your specific needs or the needs of a team. 1. 5. 2 Functional Areas in Business Understanding information technology begins with gaining an understanding of how businesses function and IT’s role in creating efficiencies and effectiveness across the organization.

Typical businesses operate by functional areas. Each area undertakes a specific core business function. These functional areas are interdependent (see Figure 2-8). For example, sales must rely on information from operations to understand inventory, place orders, calculate transportation costs, and gain insight into product availability based on production schedules. For an organization to succeed, every department or functional area must work together sharing common information. Information technology can enable departments to more fficiently and effectively perform their business operations. | Figure 1-8 Common functional areas in business| To perform the MIS function effectively, almost all organizations today, particularly large and medium-sized ones, have an internal IT department. The plans and goals of the IT department must align with the plans and goals of the organization. Information technology can enable an organization to increase efficiency in manufacturing, retain key customers, seek out new sources of supply, and introduce effective financial management.

Information technology is a relatively new functional area, having been around formally in most organizations only for about 40 years. Job titles, roles, and responsibilities often differ from organization to organization. Most organizations maintain positions such as chief executive officer (CEO), chief financial officer (CFO), and chief operations officer (COO) at the strategic level. Recently there are more IT-related strategic positions such chief information officer (CIO), chief technology officer (CTO), chief security officer (CSO), chief privacy officer (CPO), and chief knowledge officer (CKO).

The CIO is responsible for overseeing all uses of information technology and ensuring the strategic alignment of IT with business goals and objectives. The CTO is responsible for ensuring the throughput, speed, accuracy, availability, and reliability of an organization’s information technology. The CSO is responsible for ensuring the security of IT systems and developing strategies and IT safeguards against attacks from hackers and viruses. The CPO is responsible for ensuring the ethical and legal use of information within an organization.

The CKO is responsible for collecting, maintaining, and distributing the organization’s knowledge. The CKO designs programs and systems that make it easy for people to reuse knowledge. All the above IT positions and responsibilities are critical to an organization’s success. While many organizations may not have a different individual for each of these positions, they must have leaders taking responsibility for all these areas of concern. It is not always easy for managers to make the right choices when using IT to support business initiatives.

Most managers understand their business initiatives well, but are often at a loss when it comes to knowing how to use and manage IT effectively in support of those initiatives. Managers who understand what IT is, and what IT can and cannot do, are in the best position for success. Individuals anticipating a successful career in business must understand information technology including: * Information technology basics. * Roles and responsibilities in information technology. * Measuring information technology’s success. 1. 5. 3 The Role of Information Systems in Business

In 2007, American business invested over $1 trillion in information systems hardware, software and telecommunications equipment, more than half of all capital investment in the United States. In addition, they spent another $250 billion on business and management consulting and services, much of which involves redesigning firms’ business operations to take advantage of these new technologies. More than half of all business investment in the United States each year involves information systems and technologies. In 2007, more than 40 million U. S. usinesses had cot-com Internet sites registered. E-commerce and Internet advertising are booming. Companies today manage their operation and inventories in near real time in order to reduce their production and overhead costs and get to market faster. What makes information systems so essential today? Why are businesses investing so much in information systems and technologies? They do so to achieve the following six important business objectives: 1. Operational Excellence: Businesses continuously seek to improve the efficiency of their operations in order to achieve higher profitability.

Information systems and technologies are some of the most important tools available to managers for achieving higher levels of efficiency and productivity in business operations, especially when coupled with changes in business practices and management behavior. 2. New Products, Services and Business Models: Information systems and technologies are a major enabling tool for firms to create new product and services, as well as entirely new business models. A business model describes how a company produces, delivers, and sells a product or service to create wealth. . Customer and Supplier Intimacy: Information systems can help a business know its customers and serves them well, the way they want to be served, the customers generally respond by returning and purchasing more. This raises revenues and profits. Likewise with suppliers: the more a business engages its suppliers, the better the suppliers can provide vital inputs. This lowers costs. 4. Improved Decision Making: Many business managers operate in an information fog bank, never really having the right information at the right time to make an informed decision.

Instead, they rely on forecasts, best guesses, and luck. The result is over- or underproduction of goods, misallocation of resources, and poor response times. Information systems and technologies have made it possible for managers to use real-time data from the marketplace when making decisions. 5. Competitive Advantage: Information systems and technologies can help a business achieve a competitive advantage: doing things better than its competitors, charging less for superior products, and responding to customers and suppliers in real time. 6.

Survival: Business firms invest in formation systems and technologies because they are necessities of doing business. Sometimes these necessities are driven by industry-level changes. Many federal and state statutes and regulations create a legal duty for companies to retain records. Firms turn to information systems and technologies to provide the capability to respond to these information retention and reporting requirements. Information systems directly affect how top management draw up long-tern planning, how managers make decisions, and what products and services are produced and how.

In fact, information systems play a strategic role in the life of the firm. Figure 2-9 illustrates the relationship between businesses and information systems. | Figure 1-9 Growing interdependence between businesses and information systems| There is a growing interdependence between business strategy, organizational structure, operation rules and procedures, and production on the one hand, and IT infrastructure, IT strategy and information system management on the other. A change in any of these components often requires changes in other components.

Existing information systems can act as a constraint on businesses. Often, what the organization plans to do in next five years depends on what its information systems will permit it to do. Developing new products and service, increasing market share, becoming the high-quality or low-cost producer, providing better customer service, and increasing employee productivity depend more and more on the scope and quality of information systems in the organization. Businesses are not in the business of processing information for its own sake. Instead they rocess information in order to improve organizational performance and produce profits. From a business perspective, an information system is an important instrument for creating value for the organization. There are many ways in which information systems can contribute to firm value, including increasing the firm’s return on its investments, enhancing the company’s strategic position, or increasing the market value of the firm’s stock. Information processing activities support management decision making, enhance the execution of business processes and as a result increase business value.

Every business has an information value chain, shown in Figure 2-10, in which raw information is systematically acquired, and then transformed through various stages that add value to that information. From this perspective, information systems are part of a series of value-adding activities for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance, and ultimately increase firm profitability. | Figure 1-10 Business information value chain|