Chapter 1

Managing the Digital

Firm

1.1 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

OBJECTIVES

• Explain why information systems are so

important today for business and management

• Evaluate the role of information systems in

today’s competitive business environment

• Assess the impact of the Internet and Internet

technology on business and government

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 Management Information Systems
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OBJECTIVES (Continued)

• Define an information system from both a

technical and business perspective and
distinguish between computer literacy and
information systems literacy

• Identify the major management challenges to

building and using information systems

1.3 © 2006 by Prentice Hall

 Why Information Systems Matter

• Ask managers to describe their most important resources and

they'll list money, equipment, materials, and people — not
necessarily in that order.
• It's very unusual for managers to consider information an
important resource, and yet it is.
• As electronic business and electronic commerce grow in
popularity and more firms digitize their operations, having
useful information is becoming even more important to the
global business community.

1.4 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Why Information Systems Matter

There are four reasons why IT makes a difference to the
success of a business:

• Capital management

• Foundation of doing business

• Productivity

• Strategic opportunity and advantage

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Capital Management:

• IT is the largest single component of capital investment

in the United States.

• About $1.8 trillion is spent each year by American

businesses.

• Managers and business students need to know how to

invest this capital wisely.

• The success of your business in the future may well

depend on how you make IT investment decisions.
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Information Technology Capital Investment

Source: Based on the data in U.S. Department of

Commerce, Bureau of Economic Analysis, National
Income and Product Accounts, Tables 5.2 and 5.8,

1.7
2004.
Figure 1-1 © 2006 by Prentice Hall
 Management Information Systems
Chapter 1 Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Foundation of doing business:

• Most businesses today could not operate without

extensive use of information systems and technologies.
• there are very few businesses and organizations that
do not currently use some form of information
technology
• IT can increase market share.
• IT can help a business become a high-quality,
low-cost producer.
• IT is vital to the development of new products.

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 Management Information Systems
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WHY INFORMATION SYSTEMS?

The Interdependence between Organizations and

Information Systems

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 Management Information Systems
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WHY INFORMATION SYSTEMS?

Productivity:
• IT is one of the most important tools managers have
to increase productivity and efficiency of businesses.

• According to the Federal Reserve Bank, IT has

reduced the rate of inflation by 0.5 to 1% in the last
decade. For firms this means IT is a major factor in
reducing costs.

• It is estimated that IT has increased productivity in

the economy by about 1% in the last decade. For
firms this means IT is a major source of labor and
capital efficiency.

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 Management Information Systems
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Strategic Opportunity and Advantage:

• Create competitive advantage: IT makes it possible

to develop competitive advantages.

• New Business Models: Dell Computer has built its

competitive advantage on an IT enabled build-to-
order business model that other firms have not been
able to imitate.

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 Management Information Systems
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Strategic Opportunity and Advantage:

• Create new services: eBay has developed the

largest auction trading platform for millions of
individuals and businesses. Competitors have not
been able to imitate its success.

• Differentiate yourself from your competitors:

Amazon has become the largest book retailer in the
United States on the strength of its huge online
inventory and recommender system. It has no rivals
in size and scope.

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 Management Information Systems
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How Much Does IT Matter?

• Carr has written that whatever advantages firms
build using IT can be easily copied by competitors.

• This view is not supported by the evidence:

Amazon, eBay, Dell, Wal-Mart and Apple's iTunes
are just a few firms that have built and maintained
technology-based advantages.

1.13 © 2006 by Prentice Hall

 Management Information Systems
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WHY INFORMATION SYSTEMS?

How Much Does IT Matter?

• Commoditization of technology is typically a spur to
innovation and new business models, products and
services.

• Competitive advantage derives not from the

technology, but on how businesses use the
technology.

• Innovations in business processes, management

and organization are not easily copied from one firm
to another.
1.14 © 2006 by Prentice Hall
 Management Information Systems
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WHY INFORMATION SYSTEMS?

Why IT Now? Digital Convergence and the

Changing Business Environment

Technology, to a large extent, has driven organizations

to change the way they operate and that includes the
way they manage.

We're going to take an in-depth look at how

organizations work and how they've been transformed by
technology.

1.15 © 2006 by Prentice Hall

 Management Information Systems
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Why IT Now? Digital Convergence and the

Changing Business Environment (Continued)

Growing impact of IT in business firms can be

assessed from the following five factors:
• Internet growth and technology convergence
• Transformation of the business enterprise
• Growth of a globally connected economy
• Growth of knowledge and information-based
economies
• Emergence of the digital firm

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 Management Information Systems
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WHY INFORMATION SYSTEMS?

The Internet and Technology Convergence:

• Growth of the Internet: 120 million online in the

United States, 500 million global users

• The Internet is bringing about a convergence of

telecommunications and computing: VoIP
telephones.

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 Management Information Systems
Chapter 1 Managing the Digital Firm

WHY INFORMATION SYSTEMS?

The Internet and Technology Convergence:

• Growth in e-business, e-commerce, and e-

government

• Internet is bringing about rapid changes in markets

and market structure: financial services and banking
such as eTrade.com.

• The Internet is making many traditional business

models obsolete: the corner music store and video
store.
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 Management Information Systems
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WHY INFORMATION SYSTEMS?

Transformation of the Business Enterprise:

• Technology, to a large extent, has driven

organizations to change the way they operate and
that includes the way they manage.

• We're going to take an in-depth look at how

organizations work and how they've been
transformed by technology.

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 Management Information Systems
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WHY INFORMATION SYSTEMS?

Globalization:

• When u purchase any product, look at the print and

see where it’s made
• Could be China, Philip, America, US
• Many manufacturing jobs are being move from US
• Many new jobs are in IT industry, which service
whole new market that didn’t exist before
• Its being made possible by technology
• And it’s important to understand how to use IS
technology instead just a computer tech.
• There’s a difference
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 Management Information Systems
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WHY INFORMATION SYSTEMS?

Rise of the Information Economy:

• In a Knowledge and information-based economies,

knowledge and information key ingredients in creating
wealth
• Now, new products and services created and have
better working condition, better pay & more advtgs
• Just equipped to the situation
• Knowledge as a central productive and strategic asset
• Eg farmers using GPS on their farm and ranches to
increase crop yields or reduce workload
1.21 © 2006 by Prentice Hall
 Management Information Systems
Chapter 1 Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Emergence of the Digital Firm:

• When a firm goes digital, it's not about just adding a

computer system to the mix.
• Throwing a computer system at outdated business
processes is exactly the wrong thing to do.
• A truly digital firm has several characteristics that
distinguish it from most of the firms claiming to be
digitized:

1.22 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Emergence of the Digital Firm (Continued):

1. Significant business relationships are digitally enabled

and mediated
2. Core business processes are accomplished through
digital networks and span the entire organization
3. Key corporate assets are managed digitally
4. Internal and external environments are quickly
recognized and dealt with

1.23 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

WHY INFORMATION SYSTEMS?

The Emerging Digital Firm

1.24 Figure 1-4 © 2006 by Prentice Hall

 What Is an Information System?
• Too often you hear someone say, "Oh yeah, I know how to use
a computer.
• I can surf the Web with the best of them and I can play
Solitaire for hours.
• I'm really good at computers." Okay.
• So that person can pound a keyboard, use a mouse at lightning
speed, and has a list of favorite Web sites a mile long.
• But the real question is: "Is that person information literate?

1.25 © 2006 by Prentice Hall

 What Is an Information System?

• Most of us think only of hardware and software when

we think of an information system.
• There is another component of the triangle that
should be considered, and that's the people side or
"persware"

1.26 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

What Is an Information System?

Technology perspective: A set of interrelated

components that collect (or retrieve), process, store, and
distribute information to support decision making and
control in an organization

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 Management Information Systems
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PERSPECTIVES ON INFORMATION SYSTEMS

What is an Information System? (Continued)

• Data: Streams of raw facts representing events such as

business transactions
• eg counter in supermarket scan millions of data such as
bar codes, that describe products

• Information: Clusters of facts meaningful and useful to

human beings in the processes such as making
decisions

1.28 © 2006 by Prentice Hall

 Management Information Systems
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PERSPECTIVES ON INFORMATION SYSTEMS

Data and Information

1.29 Figure 1-5 © 2006 by Prentice Hall

 Management Information Systems
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PERSPECTIVES ON INFORMATION SYSTEMS

Functions of an Information System

• An IS contain information about organization and surrounding
environment
• 3 basic activities: input, processing, output – produce the info
needed
• Feedback is output returned to people or activities in organiza
• Environmental actor such as customers, suppliers, competitors,
stockholder, regulatory agencies interact with organization and
its IS

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 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Functions of an Information System

1.31 Figure 1-6 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Computer-Based Information System (CBIS)

• Rely on computer hardware and software

• Processing and disseminating information

• Fixed definitions of data and procedures

• Collecting, storing, and using information

1.32 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

A Business Perspective on Information Systems

Information systems are more than just technology.

Businesses invest in IS in order to create value and
increase profitability.

• Information systems are an organizational and

management solution to business challenges that arise
from the business environment.

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A Business Perspective on Information Systems

(Continued)

• Based on information technology but also require

significant investment in organizational and
management changes and innovations

• IS create value primarily by changing business

processes and management decision making.

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 Management Information Systems
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The Business Information Value Chain

1.35 Figure 1-7 © 2006 by Prentice Hall

 Management Information Systems
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PERSPECTIVES ON INFORMATION SYSTEMS

Information Systems Are More than Computers

1.36 Figure 1-8 © 2006 by Prentice Hall

 Management Information Systems
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PERSPECTIVES ON INFORMATION SYSTEMS

• Information systems literacy: Broad-based

understanding of information systems that includes
behavioral knowledge about organizations,
management and individuals using information systems
as well as technical knowledge about computers

• Computer literacy: Knowledge about information

technology, focusing on understanding how computer
technologies work

1.37 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Major Business Functions Rely on Information Systems

• Sales and marketing

• Manufacturing

• Finance

• Accounting

• Human resources

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 Management Information Systems
Chapter 1 Managing the Digital Firm

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Dimensions of Information Systems

Three Important Dimensions of Information Systems

• Organizations

• Managers

• Technology

You will need to understand and balance these dimensions

of information systems in order to create business value.

1.39 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

The Organizational Dimension of Information Systems

• The larger the organization, the more formal the

management structure, including the need for standard
operating procedures (SOPs).
• SOPs can help streamline standard business processes
so that managers and employees can properly complete
their tasks in a more efficient manner.
• Many companies now integrate these business
processes into their information systems to ensure
uniformity, consistency, and compliance.

1.40 © 2006 by Prentice Hall

 The Organizational Dimension of Information Systems

• a business organization requires different employees to

help it succeed.
• Knowledge workers help create new knowledge for the
organization and data workers help process the
paperwork necessary to keep an organization
functioning.
• Without production or service workers, how would the
company get its products and services to the customer?

1.41 © 2006 by Prentice Hall

 Management Information Systems
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PERSPECTIVES ON INFORMATION SYSTEMS

The Management Dimension of Information Systems

• Every good organization needs good managers.

• Their real role is to develop the game plan by
analyzing their team's strengths and weaknesses
• they also determine the competition's strengths and
weaknesses.
• That plan may change as the game progresses, but
managers pretty much know what they're going to do if
they are losing or if they are winning.
• The same is true in workplace organizations.

1.42 © 2006 by Prentice Hall

 Management Information Systems
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The Management Dimension of Information Systems

(Continued)
•In every organization you'll find senior managers making
long-range decisions, middle managers carrying out the
plans and goals set by senior managers, and operational
managers handling the day-to-day operations of the
company.
•As we'll see, information systems output must be geared
to each of these levels of management.
•Managers who can understand the role of information
systems in creating business value are the key ingredient
to success with systems, and cannot easily be replicated
by your competitors.
1.43 © 2006 by Prentice Hall
 The Technology Dimension 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, and how best
to present it.
1.44 © 2006 by Prentice Hall
 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

The Technology Dimension of Information Systems

Information technology is one of the tools managers use
to cope with change:

• Hardware: Physical equipment

• Software: Detailed preprogrammed instructions

• Storage: Physical media for storing data and the

software

1.45 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

The Technology Dimension of Information Systems

(Continued)
• Communications technology: Transfers data
from one physical location to another

• Networks: Links computers to share data or

resources

Managers need to know enough about information

technology to make intelligent decisions about how to use
it for creating business value.

1.46 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

Complementary Assets and Organizational Capital

• Technology and its associated information systems are

now integrated throughout the organization.
• Everyone is concerned about its role and impact on their
work activities.
• End users take on greater responsibility for the success
of the information systems and are actually doing a lot of
the work that belonged to the techies.
• Even the executive levels of an organization can no
longer ignore the technology as they realize the
importance of managing their organizational and
management capital.

1.47 © 2006 by Prentice Hall

 Complementary Assets and Organizational Capital

• As a firm becomes more digital, its information system

continues to extend beyond the traditional role of serving
the employees.
• Developing the complementary assets associated with
the information systems such as developing new
business processes, emphasizing employee training in
technology, and creating new partnerships with
suppliers, customers, and even competitors, is proving to
be a daunting task.

1.48 © 2006 by Prentice Hall

 Management Information Systems
Chapter 1 Managing the Digital Firm

Complementary Assets and Organizational Capital

•But the plain fact is that organizations, especially larger

ones, just can't change as fast as the technology.
• Companies make huge investments not just in
hardware, but in software and persware.
•Training people, building new operating procedures
around technology, and changing work processes take
far longer than the technological pace will allow.

1.49 © 2006 by Prentice Hall

 Contemporary Approaches to Information Systems

• There are several different approaches to information systems:

technical, behavioral, and sociotechnical.
• Think of this analogy: A "techie" looks at most things
associated with computing as a series of zeroes or ones.
• Neither approach is better than the other, depending on the
situation.
• Neither approach is more right than the other, depending on
the situation.

1.50 © 2006 by Prentice Hall

 Contemporary Approaches to Information Systems

• An organization can't afford to view its information resources

as belonging to either the techies (technical approach) or the
non-techies (behavioral approach).
• Responsibility for information belongs to everyone in the
organization.
• This is the sociotechnical approach — a combination of the
two approaches.
• Everyone has to work together to ensure that information
systems serve the entire organization.

1.51 © 2006 by Prentice Hall