Chapter2

Fundamental Concepts of Information Systems

2.1 Information and Its Role in Business

[Figure 2.1]
Figure 2.1 can be used in order to explain
that the role of information systems is to
transform data, the raw facts, into
information, that adds to our knowledge.
Distinction Between Data and Information
[Figure 2.2][Slide2-4]
Information is an increment in knowledge:
it contributes to the general framework of
concepts and facts that we know.
Information relies on the context and the
recipient's general knowledge for its
significance.
Data are only the raw facts, the material
for obtaining information. Information
systems use data stored in computer
databases to provide needed information.
A database is an organized collection of
interrelated data reflecting a major aspect
of a firm's activities.
1. Information systems capture data from
the organization (internal data) and its
environment (external data).
2. They store the database items over an
extensive period of time.
3. When specific information is needed,
the appropriate data items are manipulated
as necessary, and the user receives the
resulting information.
4. Depending on the type of information
system, the information output may take
the form a query response, decision
outcome, expert-system advice, transaction
document, or a report.
Formal information systems rely on
procedures (established and accepted by
organizational practice) for collecting,
storing, manipulating, and accessing data
in order to obtain information. Formal
systems do not have to be computerized,
but today they usually are. Informal
information systems also exist within an
organization (interpersonal networking,
water cooler gossip, etc.).
Attributes of Quality Information [Table
2.1]
Quality information needs to possess
several attributes. Notably, it has to be:
1. Timely Available when needed and not
outdated when made available
2. Complete Includes all the user needs to
know about the situation where the
information will be used
3. Concise Does not include elements
unneeded by the user
4. Relevant Has direct bearing on the
situation
5. Precise Offers quantitative information
with a degree of exactness appropriate to
the underlying data
6. Form The level of detail, tabular versus
graphic display, and quantitative versus
qualitative form are selected in accordance
with the situation Internal and External
Information
Most of the data captured by information
systems relates to the operations of the
organization itself, serving to produce
internal information. But in an
increasingly competitive marketplace, a
firm needs to access more and more
external information. Therefore, it is
important to note that decision makers
need both the internal information about
their organization and the external
information about its environment.
A firm can succeed only by adapting itself
to the demands of its external
environment. The environment is
represented by a number of groups that
affect the company's ability to achieve its
objectives or that is affected by it. Such
groups are called the stakeholders of a
firm, which includes both internal and
external stakeholders.
2.2 Systems [Figure 2.3 & Figure 2.4]
[Slide2-5 & 6]
An information system is a specific type of
system in general. A system is a set of
components (subsystems) that operate
together to achieve certain objectives. The
objectives of a system are realized in its
outputs. In particular, the objective of an
information system is to provide the
appropriate outputs to the members of the
organization.
Effectiveness and Efficiency
An organization is an example of an
artificial system: it is a formal social unit
devoted to the attainment of specific goals.
It does not emerge naturally - it has to be
organized.
The quality of the system may be
evaluated in terms of its effectiveness and
efficiency. Effectiveness measures the
extent to which the system meets its
objectives. Efficiency is a measure of
resources consumed to produce given
outputs. The fewer resources a system
consumes in producing given outputs, the
more efficient it is.
Information Systems in the Feedback Loop
of an Organization [Figure 2.5]
All organizations exist as part of a larger
system. Information systems are used to
assist management by providing feedback
on the firm's performance. Feedback refers
to the outputs of a system that are
transformed back into inputs in order to
control the system's operation. Information
systems are used to compare the data on
the actual performance with the standards
developed earlier. Based on the
information about the discrepancies,
managers can formulate corrective actions,
which are then fed back into the firm's
operations.
2.3 Components of Information Systems
Information systems consist of the
following general components:
1. Hardware
2. Software
3. Databases
4. Human resources
5. Procedures
Hardware
Multiple computer systems:
microcomputers, minicomputers,
mainframes, together with their
peripherals. Computer system components
are: a central processor(s), memory
hierarchy, input and output devices.
Computer processor: The central processor
carries out the instructions of a program,
translated into a simple form.
Memories: Included in a computer system
form a hierarchy. They range from the fast
electronic units, such as the main memory,
to the slower secondary storage devices
such as magnetic disks.
Moore's Law The increases in the number
of transistors on chips correspond to the
increase in the microprocessor speed and
memory capacity, and thus the growth of
the processing power.
Downsizing In information systems,
transferring some or all of the
organization;s computing from centralized
processing on mainframes or
minicomputers to systems built around
networked microcomputers (often in a
client/server configuration).
Software
Computer software falls into two classes:
systems software and applications
software.
Systems Software: Manage the resources
of the computer system and simplifies
programming. An operating system is the
principal system software. It manages all
the resources of a computer system and
provides an interface through which the
system's user can deploy these resources.
Application Software: Are programs that
directly assist end users in doing their
work. They are purchased as ready-to-use
packages. Applications software directly
assists end users in doing their work.
Databases
Databases are organized collections of
interrelated data used by applications
software. Databases are managed by
systems software known as database
management systems (DBMS) and shared
by multiple applications.
Telecommunications [Figure 2.7] [Slide2-
7]
Telecommunications are the means of
electronic transmission of information
over distances. Today, computer systems
are usually interconnected into
telecommunications networks. Various
network configurations are possible,
depending upon an organization's need.
These include:
1. Local area networks (LAN) 2.
Metropolitan area networks (MAN) 3.
Wide area networks (WAN)
A Network Information System: Three-
Tier Architecture: Figure 2.7:
1. Mainframe computer as the top-level
machine
2. Several minicomputers or powerful
microcomputers in the middle level.
3. End -users in the third tier.
A Downsized Networked Information
System: Client/Server Architecture:
[Figure 2.8][Slide2-8]
1. Users' microcomputers (clients) share
the more powerful machines (servers)
2. Each server is dedicated to a particular
task i.e., it is providing a certain service
3. The client machines provide the user
interface that makes it easy to use the
facilities of the network.
4. When needed, the software running on
the client calls remotely upon the software
running on the server to perform its task,
to access the specified data from a
database.
Systems Architecture for Remote Access
from Virtual Offices: [Figure 2.9]
Human Resources
Professional information systems
personnel include development and
maintenance managers, systems analysts,
programmers, and operators, often with
highly specialized skills.
End users are the people who use
information systems or their information
outputs, that is, the majority of people in
today's organizations. The hallmark of the
present stage in organizational computing
is the involvement of end users in the
development of information systems. End-
user computing, or control of their
information systems by end users and the
development of systems by end users, has
become an important contributor to
information systems in organizations.
Procedures
Procedures are the policies and methods to
be followed in using, operating, and
maintaining an information system.
Specifications for the use, operation, and
maintenance of information systems,
collected in help facilities, user manuals,
operator manuals, and similar documents,
frequently delivered in an electronic form.
2.4 Types of Information Systems
Organizations employ several types of
information systems. These include:
1. Transaction Processing Systems (TPS)
2. Management Reporting Systems (MRS)
3. Decision Support Systems (DSS)
4. Executive Information Systems (ESS)
5. Office Information Systems (OIS)
6. Professional Support Systems
Transaction Processing Systems
Transaction processing systems today
generally work in on-line mode by
immediately processing a firm's business
transactions. A Transaction is an
elementary activity conducted during
business operations.
TPS may work either in batch mode,
processing accumulated transactions at a
single time later on, or in on-line mode,
processing incoming transactions
immediately. Today, most TPS work in the
on-line mode.
Management Reporting Systems
The objective of management reporting
systems is to provide routine information
to managers. Managers receive
performance reports within their specific
areas of responsibility. Generally, these
reports provide internal information rather
than spanning corporate boundaries. They
report on the past and the present, rather
than projecting the future.
In order to prevent information overloads,
managers may resort to using demand or
exception reports. Demand reports are
requested when needed. Exception reports
are produced only when preestablished
out-of-bounds conditions occur and
contain only the information regarding
these conditions.
Decision Support Systems [Figure 2.11]
[Slide2-9]
Figure 2.11 explains the structure of a
decision support system. Decision support
systems directly support a decision-
making session. These systems facilitate a
dialog between the user, who is
considering alternative problem solutions,
and the system that provides built-in
models and access to databases. The DSS
databases are often extracts from the
general databases of the enterprise or from
external databases.
Executive Information Systems
Executive information systems support top
managers with conveniently displayed
summarized information, customized for
them. They make a variety of internal and
external information readily available in a
highly summarized and convenient form.
EIS are used to:
1. Monitor the performance of the
organization
2. Assess the business environment
3. Develop strategic directions for the
company's future
Office Information Systems
The main objective of OIS is to facilitate
communication between the members of
an organization and between the
organization and its environment. OIS are
used to:
1. Help manage documents represented in
an electronic format
2. Handle messages, such as electronic
mail, facsimile, and voice mail
3. Facilitate teleconferencing and
electronic meetings
4. Facilitate the use of the Internet for
communication and access to information
5. Facilitate the use of task-oriented teams
through the use of groupware
Professional Support Systems
Professional support systems help in tasks
specific to various professions. As both
organizational and individual experience
with information systems grow, more and
more specialized categories of professional
support systems emerge.
Expert Systems in Information Systems
[Figure 2.12][Slide2-10]
Expert systems are system that employs
knowledge about its application domain
and uses an inferencing (reason) procedure
to solve problems that would otherwise
require human competence or expertise.
The essential component of the knowledge
base is heuristics - informal, judgemental
elements of knowledge within the expert
system's domain, such as oil exploration or
stock valuation. The knowledge base is
developed by working with domain
specialists. It is further enhanced as the
system is used.
2.5 Supporting Managers with Information
Systems:
A variety of information systems support
managers as they play their interpersonal,
informational, and decisional roles. The
three management-oriented types of
systems (management reporting systems,
decision support systems, and executive
information systems) provide different
kinds of support to the three levels of
management:
1. Strategic
2. Tactical
3. Operational
What Managers Do and How Information
Systems Can Help
The fundamental functions of management
include:
1. Planning establishing goals and
selecting the actions needed to achieve
them over a specific period of time.
2. Controlling measuring performance
against the planned objectives and
initiating corrective action, if needed.
3. Leadership including the people in the
organization to contribute to its goals.
4. Organizing establishing and staffing an
organizational structure for performing
business activities.
Mintzberg classified all managerial
activities into ten roles falling into three
categories:
1. Interpersonal Role
2. Informational Role
3. Decisional Role
Information Systems for Management
Support:
The objectives of the three levels of
corporate management are:
1. Operations Management: performed by
supervisors of smaller work units
concerned with planning and control of
short-term (typically, a week or six
months) budgets and schedules.
2. Tactical Management: performed by
middle managers responsible for
acquisition and allocation of resources for
projects according to tactical plans, set out
for one or two years.
3. Strategic Management: Carried out by
top corporate executives and corporate
boards responsible for setting and
monitoring long-term directions for the
firm for three or more years into the future.
Chapter 1: What Is an Information
System?
Dave Bourgeois and David T. Bourgeois

Learning Objectives

Upon successful completion of this chapter, you will be able to:

 define what an information system is by identifying its major components;

 describe the basic history of information systems; and
 describe the basic argument behind the article “Does IT Matter?” by Nicholas Carr.

Please note, there is an updated edition of this book available

at https://opentextbook.site. If you are not required to use this edition for a course,
you may want to check it out.

Introduction

If you are reading this, you are most likely taking a course in information systems, but
do you even know what the course is going to cover? When you tell your friends or
your family that you are taking a course in information systems, can you explain what
it is about? For the past several years, I have taught an Introduction to Information
Systems course. The first day of class I ask my students to tell me what they think an
information system is. I generally get answers such as “computers,” “databases,” or
“Excel.” These are good answers, but definitely incomplete ones. The study of
information systems goes far beyond understanding some technologies. Let’s begin
our study by defining information systems.

Defining Information Systems

Almost all programs in business require students to take a course in something

called information systems. But what exactly does that term mean? Let’s take a look
at some of the more popular definitions, first from Wikipedia and then from a couple
of textbooks:

 “Information systems (IS) is the study of complementary networks of hardware and software

that people and organizations use to collect, filter, process, create, and distribute data.”[1]
 “Information systems are combinations of hardware, software, and telecommunications
networks that people build and use to collect, create, and distribute useful data, typically in
organizational settings.”[2]
 “Information systems are interrelated components working together to collect, process, store,
and disseminate information to support decision making, coordination, control, analysis, and
viualization in an organization.”[3]

As you can see, these definitions focus on two different ways of describing
information systems: the components that make up an information system and
the role that those components play in an organization. Let’s take a look at each of
these.

The Components of Information Systems

As I stated earlier, I spend the first day of my information systems class discussing
exactly what the term means. Many students understand that an information system
has something to do with databases or spreadsheets. Others mention computers and e-
commerce. And they are all right, at least in part: information systems are made up of
different components that work together to provide value to an organization.

The first way I describe information systems to students is to tell them that they are
made up of five components: hardware, software, data, people, and process. The first
three, fitting under the technology category, are generally what most students think of
when asked to define information systems. But the last two, people and process, are
really what separate the idea of information systems from more technical fields, such
as computer science. In order to fully understand information systems, students must
understand how all of these components work together to bring value to an
organization.

Technology

Technology can be thought of as the application of scientific knowledge for practical

purposes. From the invention of the wheel to the harnessing of electricity for artificial
lighting, technology is a part of our lives in so many ways that we tend to take it for
granted. As discussed before, the first three components of information systems –
hardware, software, and data – all fall under the category of technology. Each of these
will get its own chapter and a much lengthier discussion, but we will take a moment
here to introduce them so we can get a full understanding of what an information
system is.

Hardware

Information systems hardware is the part of an information system you can touch –
the physical components of the technology. Computers, keyboards, disk drives, iPads,
and flash drives are all examples of information systems hardware. We will spend
some time going over these components and how they all work together in chapter 2.

Software

Software is a set of instructions that tells the hardware what to

do. Software is not tangible – it cannot be touched. When programmers create
software programs, what they are really doing is simply typing out lists of instructions
that tell the hardware what to do. There are several categories of software, with the
two main categories being operating-system software, which makes the hardware
usable, and application software, which does something useful. Examples of operating
systems include Microsoft Windows on a personal computer and Google’s Android
on a mobile phone. Examples of application software are Microsoft Excel and Angry
Birds. Software will be explored more thoroughly in chapter 3.

Data

The third component is data. You can think of data as a collection of facts. For
example, your street address, the city you live in, and your phone number are all
pieces of data. Like software, data is also intangible. By themselves, pieces of data are
not really very useful. But aggregated, indexed, and organized together into a
database, data can become a powerful tool for businesses. In fact, all of the definitions
presented at the beginning of this chapter focused on how information systems
manage data. Organizations collect all kinds of data and use it to make decisions.
These decisions can then be analyzed as to their effectiveness and the organization
can be improved. Chapter 4 will focus on data and databases, and their uses in
organizations.

Networking Communication: A Fourth Technology Piece?

Besides the components of hardware, software, and data, which have long been
considered the core technology of information systems, it has been suggested that one
other component should be added: communication. An information system can exist
without the ability to communicate – the first personal computers were stand-alone
machines that did not access the Internet. However, in today’s hyper-connected world,
it is an extremely rare computer that does not connect to another device or to a
network. Technically, the networking communication component is made up of
hardware and software, but it is such a core feature of today’s information systems
that it has become its own category. We will be covering networking in chapter 5.

People

When thinking about information systems, it

is easy to get focused on the technology components and forget that we must look
beyond these tools to fully understand how they integrate into an organization. A
focus on the people involved in information systems is the next step. From the front-
line help-desk workers, to systems analysts, to programmers, all the way up to the
chief information officer (CIO), the people involved with information systems are an
essential element that must not be overlooked. The people component will be covered
in chapter 9.

Process

The last component of information systems is process. A process is a series of steps

undertaken to achieve a desired outcome or goal. Information systems are becoming
more and more integrated with organizational processes, bringing more productivity
and better control to those processes. But simply automating activities using
technology is not enough – businesses looking to effectively utilize information
systems do more. Using technology to manage and improve processes, both within a
company and externally with suppliers and customers, is the ultimate goal.
Technology buzzwords such as “business process reengineering,” “business process
management,” and “enterprise resource planning” all have to do with the continued
improvement of these business procedures and the integration of technology with
them. Businesses hoping to gain an advantage over their competitors are highly
focused on this component of information systems. We will discuss processes in
chapter 8.

The Role of Information Systems

Now that we have explored the different components of information systems, we need
to turn our attention to the role that information systems play in an organization. So
far we have looked at what the components of an information system are, but what do
these components actually do for an organization? From our definitions above, we see
that these components collect, store, organize, and distribute data throughout the
organization. In fact, we might say that one of the roles of information systems is to
take data and turn it into information, and then transform that into organizational
knowledge. As technology has developed, this role has evolved into the backbone of
the organization. To get a full appreciation of the role information systems play, we
will review how they have changed over the years. 

IBM 704 Mainframe (Copyright:

Lawrence Livermore National Laboratory)

The Mainframe Era

From the late 1950s through the 1960s, computers were seen as a way to more
efficiently do calculations. These first business computers were room-sized monsters,
with several refrigerator-sized machines linked together. The primary work of these
devices was to organize and store large volumes of information that were tedious to
manage by hand. Only large businesses, universities, and government agencies could
afford them, and they took a crew of specialized personnel and specialized facilities to
maintain. These devices served dozens to hundreds of users at a time through a
process called time-sharing. Typical functions included scientific calculations and
accounting, under the broader umbrella of “data processing.”

Registered trademark of International Business

Machines

In the late 1960s, the Manufacturing Resources Planning (MRP) systems were
introduced. This software, running on a mainframe computer, gave companies the
ability to manage the manufacturing process, making it more efficient. From tracking
inventory to creating bills of materials to scheduling production, the MRP systems
(and later the MRP II systems) gave more businesses a reason to want to integrate
computing into their processes. IBM became the dominant mainframe company.
Nicknamed “Big Blue,” the company became synonymous with business
computing. Continued improvement in software and the availability of cheaper
hardware eventually brought mainframe computers (and their little sibling, the
minicomputer) into most large businesses.

The PC Revolution

In 1975, the first microcomputer was announced on the cover of Popular Mechanics:
the Altair 8800. Its immediate popularity sparked the imagination of entrepreneurs
everywhere, and there were quickly dozens of companies making these “personal
computers.” Though at first just a niche product for computer hobbyists,
improvements in usability and the availability of practical software led to growing
sales. The most prominent of these early personal computer makers was a little
company known as Apple Computer, headed by Steve Jobs and Steve Wozniak, with
the hugely successful “Apple II.” Not wanting to be left out of the revolution, in 1981
IBM (teaming with a little company called Microsoft for their operating-system
software) hurriedly released their own version of the personal computer, simply called
the “PC.” Businesses, who had used IBM mainframes for years to run their
businesses, finally had the permission they needed to bring personal computers into
their companies, and the IBM PC took off. The IBM PC was named Time magazine’s
“Man of the Year” for 1982.

Because of the IBM PC’s open architecture, it was easy for other companies to copy,
or “clone” it. During the 1980s, many new computer companies sprang up, offering
less expensive versions of the PC. This drove prices down and spurred innovation.
Microsoft developed its Windows operating system and made the PC even easier to
use. Common uses for the PC during this period included word processing,
spreadsheets, and databases. These early PCs were not connected to any sort of
network; for the most part they stood alone as islands of innovation within the larger
organization.
Client-Server

In the mid-1980s, businesses began to see the need to connect their computers
together as a way to collaborate and share resources. This networking architecture
was referred to as “client-server” because users would log in to the local area network
(LAN) from their PC (the “client”) by connecting to a powerful computer called a
“server,” which would then grant them rights to different resources on the network
(such as shared file areas and a printer). Software companies began developing
applications that allowed multiple users to access the same data at the same time. This
evolved into software applications for communicating, with the first real popular use
of electronic mail appearing at this time.

Registered trademark of SAP

This networking and data sharing all stayed within the confines of each business, for
the most part. While there was sharing of electronic data between companies, this was
a very specialized function. Computers were now seen as tools to collaborate
internally, within an organization. In fact, these networks of computers were
becoming so powerful that they were replacing many of the functions previously
performed by the larger mainframe computers at a fraction of the cost. It was during
this era that the first Enterprise Resource Planning (ERP) systems were developed and
run on the client-server architecture. An ERP system is a software application with a
centralized database that can be used to run a company’s entire business. With
separate modules for accounting, finance, inventory, human resources, and many,
many more, ERP systems, with Germany’s SAP leading the way, represented the state
of the art in information systems integration. We will discuss ERP systems as part of
the chapter on process (chapter 9).

The World Wide Web and E-Commerce

First invented in 1969, the Internet was confined to use by universities, government
agencies, and researchers for many years. Its rather arcane commands and user
applications made it unsuitable for mainstream use in business. One exception to this
was the ability to expand electronic mail outside the confines of a single organization.
While the first e-mail messages on the Internet were sent in the early 1970s,
companies who wanted to expand their LAN-based e-mail started hooking up to the
Internet in the 1980s. Companies began connecting their internal networks to the
Internet in order to allow communication between their employees and employees at
other companies. It was with these early Internet connections that the computer truly
began to evolve from a computational device to a communications device.

In 1989, Tim Berners-Lee developed a simpler way for researchers to share

information over the network at CERN laboratories, a concept he called the World
Wide Web.[4] This invention became the launching point of the growth of the Internet
as a way for businesses to share information about themselves. As web browsers and
Internet connections became the norm, companies rushed to grab domain names and
create websites.
 Registered trademark of Amazon Technologies, Inc.

In 1991, the National Science Foundation, which governed how the Internet was used,
lifted restrictions on its commercial use. The year 1994 saw the establishment of both
eBay and Amazon.com, two true pioneers in the use of the new digital marketplace. A
mad rush of investment in Internet-based businesses led to the dot-com boom through
the late 1990s, and then the dot-com bust in 2000. While much can be learned from
the speculation and crazy economic theories espoused during that bubble, one
important outcome for businesses was that thousands of miles of Internet connections
were laid around the world during that time. The world became truly “wired” heading
into the new millenium, ushering in the era of globalization, which we will discuss in
chapter 11.

As it became more expected for companies to be connected to the Internet, the digital
world also became a more dangerous place. Computer viruses and worms, once
slowly propagated through the sharing of computer disks, could now grow with
tremendous speed via the Internet. Software written for a disconnected world found it
very difficult to defend against these sorts of threats. A whole new industry of
computer and Internet security arose. We will study information security in chapter 6.

Web 2.0

As the world recovered from the dot-com bust, the use of technology in business
continued to evolve at a frantic pace. Websites became interactive; instead of just
visiting a site to find out about a business and purchase its products, customers
wanted to be able to customize their experience and interact with the business. This
new type of interactive website, where you did not have to know how to create a web
page or do any programming in order to put information online, became known as
web 2.0. Web 2.0 is exemplified by blogging, social networking, and interactive
comments being available on many websites. This new web-2.0 world, in which
online interaction became expected, had a big impact on many businesses and even
whole industries. Some industries, such as bookstores, found themselves relegated to
a niche status. Others, such as video rental chains and travel agencies, simply began
going out of business as they were replaced by online technologies. This process of
technology replacing a middleman in a transaction is called disintermediation.

As the world became more connected, new questions arose. Should access to the
Internet be considered a right? Can I copy a song that I downloaded from the
Internet? How can I keep information that I have put on a website private? What
information is acceptable to collect from children? Technology moved so fast that
policymakers did not have enough time to enact appropriate laws, making for a Wild
West–type atmosphere. Ethical issues surrounding information systems will be
covered in chapter 12.

The Post-PC World

After thirty years as the primary computing device used in most businesses, sales of
the PC are now beginning to decline as sales of tablets and smartphones are taking
off. Just as the mainframe before it, the PC will continue to play a key role in
business, but will no longer be the primary way that people interact and do business.
The limited storage and processing power of these devices is being offset by a move
to “cloud” computing, which allows for storage, sharing, and backup of information
on a massive scale. This will require new rounds of thinking and innovation on the
part of businesses as technology continues to advance.

The
Eras of Business Computing

Era Hardware Operating System Applications

Mainframe Terminals connected to Time-sharing Custom-written

(1970s) mainframe computer. (TSO) on MVS MRP software

IBM PC or compatible.
PC Sometimes connected to WordPerfect,
MS-DOS
(mid-1980s) mainframe computer via Lotus 1-2-3
expansion card.
 Client-Server
IBM PC “clone” on a Microsoft
(late 80s to early Windows for Workgroups
Novell Network. Word, Microsoft Excel
90s)

World
IBM PC “clone” Microsoft
Wide Web (mid-
connected to company Windows XP Office, Internet
90s to early
intranet. Explorer
2000s)

Web 2.0 (mid- Laptop connected to Microsoft

Windows 7
2000s to present) company Wi-Fi. Office, Firefox

Post-PC
Mobile-friendly
(today and Apple iPad iOS
websites, mobile apps
beyond)

Can Information Systems Bring Competitive Advantage?

It has always been the assumption that the implementation of information systems
will, in and of itself, bring a business competitive advantage. After all, if installing
one computer to manage inventory can make a company more efficient, won’t
installing several computers to handle even more of the business continue to improve
it?
In 2003, Nicholas Carr wrote an article in the Harvard Business Review that
questioned this assumption. The article, entitled “IT Doesn’t Matter,” raised the idea
that information technology has become just a commodity. Instead of viewing
technology as an investment that will make a company stand out, it should be seen as
something like electricity: It should be managed to reduce costs, ensure that it is
always running, and be as risk-free as possible.

As you might imagine, this article was both hailed and scorned. Can IT bring a
competitive advantage? It sure did for Walmart (see sidebar). We will discuss this
topic further in chapter 7.

Sidebar: Walmart Uses Information Systems to Become the World’s

Leading Retailer

Registered trademark of Wal-Mart

Stores, Inc.

Walmart is the world’s largest retailer, earning $15.2 billion on sales of $443.9 billion
in the fiscal year that ended on January 31, 2012. Walmart currently serves over 200
million customers every week, worldwide.[5] Walmart’s rise to prominence is due in
no small part to their use of information systems.

One of the keys to this success was the implementation of Retail Link, a supply-chain
management system. This system, unique when initially implemented in the mid-
1980s, allowed Walmart’s suppliers to directly access the inventory levels and sales
information of their products at any of Walmart’s more than ten thousand stores.
Using Retail Link, suppliers can analyze how well their products are selling at one or
more Walmart stores, with a range of reporting options. Further, Walmart requires the
suppliers to use Retail Link to manage their own inventory levels. If a supplier feels
that their products are selling out too quickly, they can use Retail Link to petition
Walmart to raise the levels of inventory for their products. This has essentially
allowed Walmart to “hire” thousands of product managers, all of whom have a vested
interest in the products they are managing. This revolutionary approach to managing
inventory has allowed Walmart to continue to drive prices down and respond to
market forces quickly.

Today, Walmart continues to innovate with information technology. Using its

tremendous market presence, any technology that Walmart requires its suppliers to
implement immediately becomes a business standard.
Summary

In this chapter, you have been introduced to the concept of information systems. We
have reviewed several definitions, with a focus on the components of information
systems: technology, people, and process. We have reviewed how the business use of
information systems has evolved over the years, from the use of large mainframe
computers for number crunching, through the introduction of the PC and networks, all
the way to the era of mobile computing. During each of these phases, new innovations
in software and technology allowed businesses to integrate technology more deeply.

We are now to a point where every company is using information systems and asking
the question: Does it bring a competitive advantage? In the end, that is really what this
book is about. Every businessperson should understand what an information system is
and how it can be used to bring a competitive advantage. And that is the task we have
before us.

Study Questions

1. What are the five components that make up an information system?

2. What are three examples of information system hardware?
3. Microsoft Windows is an example of which component of information systems?
4. What is application software?
5. What roles do people play in information systems?
6. What is the definition of a process?
7. What was invented first, the personal computer or the Internet (ARPANET)?
8. In what year were restrictions on commercial use of the Internet first lifted? When were eBay
and Amazon founded?
9. What does it mean to say we are in a “post-PC world”?
10. What is Carr’s main argument about information technology?

Exercises

1. Suppose that you had to explain to a member of your family or one of your closest friends the
concept of an information system. How would you define it? Write a one-paragraph
description in your own words that you feel would best describe an information system to
your friends or family.
2. Of the five primary components of an information system (hardware, software, data, people,
process), which do you think is the most important to the success of a business organization?
Write a one-paragraph answer to this question that includes an example from your personal
experience to support your answer.
3. We all interact with various information systems every day: at the grocery store, at work, at
school, even in our cars (at least some of us). Make a list of the different information systems
you interact with every day. See if you can identify the technologies, people, and processes
involved in making these systems work.
4. Do you agree that we are in a post-PC stage in the evolution of information systems? Some
people argue that we will always need the personal computer, but that it will not be the
primary device used for manipulating information. Others think that a whole new era of
mobile and biological computing is coming. Do some original research and make your
prediction about what business computing will look like in the next generation.
 5. The Walmart case study introduced you to how that company used information systems to
become the world’s leading retailer. Walmart has continued to innovate and is still looked to
as a leader in the use of technology. Do some original research and write a one-page report
detailing a new technology that Walmart has recently implemented or is pioneering.

1. Wikipedia entry on "Information Systems," as displayed on August 19, 2012. Wikipedia: The

Free Encyclopedia. San Francisco: Wikimedia
Foundation. http://en.wikipedia.org/wiki/Information_systems_(discipline). ↵
2. Excerpted from Information Systems Today - Managing in the Digital World, fourth edition.
Prentice-Hall, 2010. ↵
3. Excerpted from Management Information Systems, twelfth edition, Prentice-Hall, 2012. ↵
4. CERN's "The Birth of the Web." http://public.web.cern.ch/public/en/about/web-en.html ↵
5. Walmart 2012 Annual Report. ↵

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Information Systems for Business and Beyond by Dave Bourgeois and David T. Bourgeois is
licensed under a Creative Commons Attribution 4.0 International License, except where otherwise
noted.