Chapter 1

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Information Systems in
Business Today

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•How information systems are transforming business

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Increase in wireless technology use, Web sites
Increased business use of Web 2.0 technologies
Cloud computing, mobile digital platform allow more distributed
work, decision-making, and collaboration

•Globalization opportunities
Internet has drastically reduced costs of operating on global
scale
Presents both challenges and opportunities

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

Information Technology Capital Investment

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FIGURE 1-1 Information technology capital investment, defined as hardware, software, and
communications equipment, grew from 32 percent to 52 percent of all invested
capital between 1980 and 2009.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•In the emerging, fully digital firm

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Significant business relationships are digitally enabled and
mediated
Core business processes are accomplished through digital
networks
Key corporate assets are managed digitally

•Digital firms offer greater flexibility in organization and

management
Time shifting, space shifting

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Growing interdependence between ability to use information

technology and ability to implement corporate strategies and achieve

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corporate goals
•Business firms invest heavily in information systems to achieve six
strategic business objectives:
Operational excellence
New products, services, and business models
Customer and supplier intimacy
Improved decision making
Competitive advantage
Survival

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Operational excellence:

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Improvement of efficiency to attain higher profitability
Information systems, technology an important tool in achieving
greater efficiency and productivity
Walmart’s RetailLink system links suppliers to stores for
superior replenishment system

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•New products, services, and business models:

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Business model: describes how company produces, delivers, and
sells product or service to create wealth
Information systems and technology a major enabling tool for
new products, services, business models
Examples: Apple’s iPod, iTunes, iPhone, iPad, Google’s Android
OS, and Netflix

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Customer and supplier intimacy:

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Serving customers well leads to customers returning, which
raises revenues and profits
Example: High-end hotels that use computers to track
customer preferences and use to monitor and customize
environment
Intimacy with suppliers allows them to provide vital inputs,
which lowers costs
Example: J.C.Penney’s information system which links sales
records to contract manufacturer

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Improved decision making

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Without accurate information:
Managers must use forecasts, best guesses, luck
Leads to:
Overproduction, underproduction of goods and services
Misallocation of resources
Poor response times
Poor outcomes raise costs, lose customers
Example: Verizon’s Web-based digital dashboard to
provide managers with real-time data on customer
complaints, network performance, line outages, etc.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Operational excellence:
Improvement of efficiency to attain higher profitability

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•New products, services, and business models:
Enabled by technology

•Customer and supplier intimacy:

Serving customers raises revenues and profits
Better communication with suppliers lowers costs

•Improved decision making

More accurate data leads to better decisions

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Competitive advantage

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Delivering better performance
Charging less for superior products
Responding to customers and suppliers in real time
Examples: Apple, Walmart, UPS

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today

•Survival

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Information technologies as necessity of business
May be:
Industry-level changes, e.g. Citibank’s introduction of ATMs
Governmental regulations requiring record-keeping
Examples: Toxic Substances Control Act, Sarbanes-Oxley
Act

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
The Role of Information Systems in
Business Today
The Interdependence Between Organizations and Information Technology

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Figure 1.2 In contemporary systems there is a growing interdependence between a firm’s
information systems and its business capabilities. Changes in strategy, rules, and
business processes increasingly require changes in hardware, software, databases, and
telecommunications. Often, what the organization would like to do depends on what its
systems will permit it to do.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Information system:

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Set of interrelated components
Collect, process, store, and distribute information
Support decision making, coordination, and control

•Information vs. data

Data are streams of raw facts
Information is data shaped into meaningful form

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

Data and Information

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Figure 1.3 Raw data from a supermarket checkout counter can be processed and organized to
produce meaningful information, such as the total unit sales of dish detergent or the
total sales revenue from dish detergent for a specific store or sales territory.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Three activities of information systems produce information

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organizations need
Input: Captures raw data from organization or external
environment
Processing: Converts raw data into meaningful form
Output: Transfers processed information to people or activities
that use it

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Feedback:

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Output returned to appropriate members of organization to
help evaluate or correct input stage
•Computer/Computer program vs. information system
Computers and software are technical foundation and tools,
similar to the material and tools used to build a house

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

Functions of an
Information System

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An information system contains
information about an
organization and its
surrounding environment.
Three basic activities—input,
processing, and output—
produce the information
organizations need. Feedback
is output returned to
appropriate people or activities
in the organization to evaluate
and refine the input.
Environmental actors, such as
customers, suppliers,
competitors, stockholders, and
regulatory agencies, interact
with the organization and its
information systems.
Figure 1.4
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

Information
Systems are More
Than Computers

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Using information
systems effectively
requires an
understanding of the
organization,
management, and
information technology
shaping the systems. An
information system
creates value for the firm
as an organizational and
management solution to
challenges posed by the
environment.
Figure 1.5

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Organizational dimension of information systems

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Hierarchy of authority, responsibility
Senior management
Middle management
Operational management
Knowledge workers
Data workers
Production or service workers
Contd…

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

Levels in a Firm
Business organizations are

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hierarchies consisting of
three principal levels: senior
management, middle
management, and
operational management.
Information systems serve
each of these levels.
Scientists and knowledge
workers often work with
middle management.

Figure 1.6

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Organizational dimension of information systems

Separation of business functions

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Sales and marketing
Human resources
Finance and accounting
Manufacturing and production
Unique business processes
Unique business culture
Organizational politics

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Management dimension of information systems

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Managers set organizational strategy for responding to business
challenges
In addition, managers must act creatively:
Creation of new products and services
Occasionally recreating the organization

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Technology dimension of information systems

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Computer hardware and software
Data management technology
Networking and telecommunications technology
Networks, the Internet, intranets and extranets, World Wide
Web
IT infrastructure: provides platform that system is built on

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Business perspective on information systems:

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Information system is instrument for creating value
Investments in information technology will result in superior
returns:
Productivity increases
Revenue increases
Superior long-term strategic positioning

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Business information value chain

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Raw data acquired and transformed through stages that add
value to that information
Value of information system determined in part by extent to
which it leads to better decisions, greater efficiency, and higher
profits

•Business perspective:
Calls attention to organizational and managerial nature of
information systems

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

The Business Information Value Chain

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Figure 1-7 From a business 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.

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

Variation in Returns

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on Information
Technology
Investment
Although, on average,
investments in information
technology produce
returns far above those
returned by other
investments, there is
considerable variation
across firms.

Figure 1.8

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Investing in information technology does not guarantee good returns

•Considerable variation in the returns firms receive from systems

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investments
•Factors:
Adopting the right business model
Investing in complementary assets (organizational and
management capital)

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Complementary assets:

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Assets required to derive value from a primary investment
Firms supporting technology investments with investment in
complementary assets receive superior returns
Example: invest in technology and the people to make it work
properly

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Perspectives on Information Systems

•Complementary assets include:

Organizational assets, e.g.

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Appropriate business model
Efficient business processes
Managerial assets, e.g.
Incentives for management innovation
Teamwork and collaborative work environments
Social assets, e.g.
The Internet and telecommunications infrastructure
Technology standards

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Contemporary Approaches to Information
Systems

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Contemporary
Approaches to
Information
Systems

The study of
information systems
deals with issues and
insights contributed
from technical and
behavioral disciplines.

Figure 1.9

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Contemporary Approaches to Information
Systems

•Technical approach

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Emphasizes mathematically based models
Computer science, management science, operations research

•Behavioral approach
Behavioral issues (strategic business integration,
implementation, etc.)
Psychology, economics, sociology

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Contemporary Approaches to Information
Systems

•Management Information Systems

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Combines computer science, management science, operations
research and practical orientation with behavioral issues

•Four main actors

Suppliers of hardware and software
Business firms
Managers and employees
Firm’s environment (legal, social, cultural context)

Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Contemporary Approaches to Information
Systems
A Sociotechnical Perspective on Information Systems

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Figure 1-10 In a sociotechnical perspective, the performance of a system is optimized when both
the technology and the organization mutually adjust to one another until a satisfactory
fit is obtained.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon