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BusinessDrivenMIS

L EARNINGOUT COM ES
1.1Describetheinformationageandthedifferencesamongdata,information,businessintelligence,and
knowledge.
1.2Explainsystemsthinkingandhowmanagementinformationsystemsenablebusinesscommunications.

COMPETINGINTHEINFORMATIONAGE
LO.1.1:Describethe
informationageandthe
differencesamongdata,
information,business
intelligence,andknowledge.
Didyouknowthat
ThemovieAvatartookmorethanfouryearstocreateandcost$450million?
LadyGaga'srealnameisStefaniJoanneAngelinaGermanotta?
Customerspay$2.6millionfora30secondadvertisingtimeslotduringtheSuperBowl?2
Afactistheconfirmationorvalidationofaneventorobject.Inthepast,peopleprimarilylearnedfactsfrombooks.
Today,bysimplypushingabutton,peoplecanfindoutanything,fromanywhere,atanytime.Welivein
theinformationage,wheninfinitequantitiesoffactsarewidelyavailabletoanyonewhocanuseacomputer.The
impactofinformationtechnologyontheglobalbusinessenvironmentisequivalenttotheprintingpress'simpacton
publishingandelectricity'simpactonproductivity.Collegestudentstartupsweremostlyunheardofbeforethe
informationage.Now,it'snotatallunusualtoreadaboutabusinessstudentstartingamultimilliondollarcompany
fromhisorherdormroom.ThinkofMarkZuckerberg,whostartedFacebookfromhisdorm,orMichaelDell(Dell
Computers)andBillGates(Microsoft),whobothfoundedtheirlegendarycompaniesascollegestudents.
Youmaythinkonlystudentswellversedinadvancedtechnologycancompeteintheinformationage.Thisissimply
nottrue.Manybusinessleadershavecreatedexceptionalopportunitiesbycouplingthepoweroftheinformationage
withtraditionalbusinessmethods.Herearejustafewexamples:
Amazonisnotatechnologycompanyitsoriginalbusinessfocuswastosellbooks,anditnowsellsnearly
everything.
Netflixisnotatechnologycompanyitsprimarybusinessfocusistorentvideos.
Zapposisnotatechnologycompanyitsprimarybusinessfocusistosellshoes,bags,clothing,and
accessories.
Amazon'sfounder,JeffBezos,atfirstsawanopportunitytochangethewaypeoplepurchasebooks.Usingthe
poweroftheinformationagetotailorofferingstoeachcustomerandspeedthepaymentprocess,heineffect
openedmillionsoftinyvirtualbookstores,eachwithavastlylargerselectionandfarcheaperproductthantraditional
bookstores.ThesuccessofhisoriginalbusinessmodelledhimtoexpandAmazontocarrymanyothertypesof
products.ThefoundersofNetflixandZapposhavedonethesamethingforvideosandshoes.Allthese
entrepreneurswerebusinessprofessionals,nottechnologyexperts.However,theyunderstoodenoughaboutthe
informationagetoapplyittoaparticularbusiness,creatinginnovativecompaniesthatnowleadentireindustries.
TheInternetofThings(IoT)isaworldwhereinterconnected,Internetenableddevicesorthingscancollectand
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sharedatawithouthumanintervention.AnothertermcommonlyassociatedwiththeInternetofThingsis machineto
machine(M2M),whichreferstodevicesthatconnectdirectlytootherdevices.Studentswhounderstandbusiness
alongwiththepowerassociatedwiththeinformationageandIoTwillcreatetheirownopportunitiesandperhaps
evennewindustries.Realizingthevalueofobtainingrealtimedatafromconnectedthingswillallowyoutomake
betterinformeddecisions,identifynewopportunities,andanalyzecustomerpatternstopredictnewbehaviors.Our
primarygoalinthiscourseistoarmyouwiththeknowledgeyouneedtocompeteintheinformationage.Thecore
driversoftheinformationageare:
Data
Information
Businessintelligence
Knowledge(seeFigure1.2)

FIGURE1.2
TheDifferencesamongData,Information,BusinessIntelligence,andKnowledge

APPLYYOURKNOWLEDGE

BUSINESSDRIVENDISCUSSION
ViewfromaFlatWorld
BillGates,founderofMicrosoft,statedthat20yearsagomostpeoplewouldratherhave
beenaBstudentinNewYorkCitythanageniusinChinabecausetheopportunities
availabletostudentsindevelopedcountrieswerelimitless.Today,manyarguethatthe
oppositeisnowtrueduetotechnologicaladvancesmakingiteasiertosucceedasagenius
inChinathanaBstudentinNewYork.Asagroup,discusswhetheryouagreeordisagree
withBillGate'sstatement.3

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Data
Dataarerawfactsthatdescribethecharacteristicsofaneventorobject.Beforetheinformationage,managers
manuallycollectedandanalyzeddata,atimeconsumingandcomplicatedtaskwithoutwhichtheywouldhavelittle
insightintohowtoruntheirbusiness.Lackingdata,managersoftenfoundthemselvesmakingbusinessdecisions
abouthowmanyproductstomake,howmuchmaterialtoorder,orhowmanyemployeestohirebasedonintuitionor
gutfeelings.Intheinformationage,successfulmanagerscompile,analyze,andcomprehendmassiveamountsof
datadaily,whichhelpsthemmakemoresuccessfulbusinessdecisions.

APPLYYOURKNOWLEDGE

BUSINESSDRIVENMIS
WhoReallyWonthe2014WinterOlympics?
Ifyouwerewatchingthe2014WinterOlympics,Ibetyouwereexcitedtoseeyourcountry
anditsamazingathletescompete.AsyouwerefollowingtheOlympicsdaybyday,youwere
probablycheckingdifferentwebsitestoseehowyourcountryranked.Anddependingonthe
websiteyouvisited,youcouldgetaverydifferentanswertothisseeminglyeasyquestion.
OntheNBCandESPNnetworks,theUnitedStatesrankedsecond,andontheofficial
SochieOlympicwebsite,theUnitedStatesrankedfourth.Thesimplequestionofwhowon
the2014WinterOlympicschangessignificantly,dependingonwhomyouasked.4
Inagroup,takealookatthefollowingtwochartsandbrainstormthereasonseach
internationallyrecognizedsourcehasadifferentlistingforthetopfivewinners.What
measurementiseachchartusingtodeterminethewinner?Whodoyoubelieveisthe
winner?Asamanager,whatdoyouneedtounderstandwhenreadingorlisteningtobusiness
forecastsandreports?

WinterOlympics2014MedalRankingAccordingtoNBCNews
Rank

Country

Gold

Silver

Bronze

Total

RussianFed

13

11

33

UnitedStates

12

28

Norway

11

10

26

Canada

10

10

25

Netherlands

24

WinterOlympics2014MedalRankingAccordingtoOfficial
SochieOlympicWebsite
Rank

Country

Gold

Silver

Bronze

Total

RussianFed.

13

11

33

Norway

11

10

26

Canada

10

10

25

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UnitedStates

12

28

Netherlands

24

Figure1.3showssalesdataforTony'sWholesaleCompany,afictitiousbusinessthatsuppliessnackstostores.
Thedatahighlightcharacteristicssuchasorderdate,customer,salesrepresentative,product,quantity,andprofit.
ThesecondlineinFigure1.3,forinstance,showsthatRobertaCrosssold90boxesofRufflestoWalmartfor
$1,350,resultinginaprofitof$450(notethatProfit=SalesCosts).Thesedataareusefulforunderstanding
individualsaleshowever,theydonotprovideusmuchinsightintohowTony'sbusinessisperformingasawhole.
Tonyneedstoanswerquestionsthatwillhelphimmanagehisdaytodayoperationssuchas:

FIGURE1.3
Tony'sSnackCompanyData

Whoaremybestcustomers?
Whoaremyleastprofitablecustomers?
Whatismybestsellingproduct?
Whatismyslowestsellingproduct?
Whoismystrongestsalesrepresentative?
Whoismyweakestsalesrepresentative?
WhatTonyneeds,inotherwords,isnotdatabutinformation.

Information
Informationisdataconvertedintoameaningfulandusefulcontext.Havingtherightinformationattherightmoment
intimecanbeworthafortune.Havingthewronginformationattherightmoment,ortherightinformationatthe
wrongmoment,canbedisastrous.Thetruthaboutinformationisthatitsvalueisonlyasgoodasthepeoplewho
useit.Peopleusingthesameinformationcanmakedifferentdecisionsdependingonhowtheyinterpretoranalyze
theinformation.Thusinformationhasvalueonlyinsofarasthepeopleusingitdoaswell.
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Tonycananalyzehissalesdataandturnthemintoinformationtoansweralltheprecedingquestionsandunderstand
howhisbusinessisoperating.Figures1.4and1.5,forinstance,showusthatWalmartisRobertaCross'sbest
customerandthatRufflesisTony'sbestproductmeasuredintermsoftotalsales.Armedwiththisinformation,Tony
canidentifyandthenaddresssuchissuesasweakproductsandunderperformingsalesrepresentatives.

FIGURE1.4
Tony'sDataSortedbyCustomerWalmartandSalesRepresentativeRobertaCross

FIGURE1.5
InformationGainedafterAnalyzingTony'sData

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Avariableisadatacharacteristicthatstandsforavaluethatchangesorvariesovertime.Forexample,inTony's
data,priceandquantityorderedcanvary.Changingvariablesallowsmanagerstocreatehypotheticalscenariosto
studyfuturepossibilities.Tonymayfinditvaluabletoanticipatehowsalesorcostincreasesaffectprofitability.To
estimatehowa20percentincreaseinpricesmightimproveprofits,Tonysimplychangesthepricevariableforall
orders,whichautomaticallycalculatestheamountofnewprofits.Toestimatehowa10percentincreaseincosts
hurtsprofits,Tonychangesthecostvariableforallorders,whichautomaticallycalculatestheamountoflostprofits.
Manipulatingvariablesisanimportanttoolforanybusiness.

BusinessIntelligence
Businessintelligence(BI)isinformationcollectedfrommultiplesourcessuchassuppliers,customers,
competitors,partners,andindustriesthatanalyzespatterns,trends,andrelationshipsforstrategicdecision
making.BImanipulatesmultiplevariablesandinsomecasesevenhundredsofvariables,includingsuchitemsas
interestrates,weatherconditions,andevengasprices.TonycoulduseBItoanalyzeinternaldata,suchas
companysales,alongwithexternaldataabouttheenvironmentsuchascompetitors,finances,weather,holidays,
andevensportingevents.Bothinternalandexternalvariablesaffectsnacksales,andanalyzingthesevariableswill
helpTonydetermineorderinglevelsandsalesforecasts.Forinstance,BIcanpredictinventoryrequirementsfor
Tony'sbusinessfortheweekbeforetheSuperBowlif,say,thehometeamisplaying,averagetemperatureisabove
80degrees,andthestockmarketisperformingwell.ThisisBIatitsfinest,incorporatingalltypesofinternaland
externalvariablestoanticipatebusinessperformance.
Abigpartofbusinessintelligenceisanareacalledpredictiveanalytics,whichextractsinformationfromdataand
usesittopredictfuturetrendsandidentifybehavioralpatterns.Topmanagersusepredictiveanalyticstodefinethe
futureofthebusiness,analyzingmarkets,industries,andeconomiestodeterminethestrategicdirectionthe
companymustfollowtoremainprofitable.Tonywillsetthestrategicdirectionforhisfirm,whichmightinclude
introducingnewflavorsofpotatochipsorsportsdrinksasnewproductlinesorschoolsandhospitalsasnewmarket
segments.

Knowledge
Knowledgeincludestheskills,experience,andexpertise,coupledwithinformationandintelligence,thatcreatea
person'sintellectualresources.Knowledgeworkersareindividualsvaluedfortheirabilitytointerpretandanalyze
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information.Today'sworkersarecommonlyreferredtoasknowledgeworkersandtheyuseBIalongwithpersonal
experiencetomakedecisionsbasedonbothinformationandintuition,avaluableresourceforanycompany.

APPLYYOURKNOWLEDGE

BUSINESSDRIVENETHICSANDSECURITY
TheInternetofThingsIsWideOpenForEveryone!
IoTistransformingourworldintoalivinginformationsystemaswecontrolourintelligent
lightingfromoursmartphonetoadailyhealthcheckfromoursmarttoilet.Ofcourse,withall
greattechnologicaladvancescomeunexpectedrisks,andyouhavetobepreparedto
encountervarioussecurityissueswithIoT.Justimagineifyourdevicesarehackedby
someonewhonowcanshutoffyourwater,takecontrolofyourcar,orunlockthedoorsof
yourhomefromthousandsofmilesaway.Wearejustbeginningtounderstandthesecurity
issuesassociatedwithIoTandM2M,andyoucanbesurethatsensitivedataleakagefrom
yourIoTdeviceissomethingyouwillmostlikelyencounterinyourlife.5 (Formore
informationaboutIoT,refertotheOpeningCaseStudy.)
Inagroup,identifyafewIoTdevicesyouareusingtoday.Thesecanincludefitness
trackersthatreporttoyouriPhone,sportsequipmentthatprovidesimmediatefeedbacktoan
app,orevensmartvacuumcleaners.IfyouarenotusinganyIoTdevicestoday,brainstorm
afewyoumightpurchaseinthefuture.HowcouldacriminalorhackeruseyourIoTtosteal
yoursensitivedata?Whatpotentialproblemsorissuescouldyouexperiencefromthese
typesofillegaldatathefts?Whatmightbesomeofthesignsthatsomeonehadaccessed
yourIoTdataillegally?Whatcouldyoudotoprotectthedatainyourdevice?

ImaginethatTonyanalyzeshisdataandfindshisweakestsalesrepresentativeforthisperiodisCraigSchultz.If
Tonyconsideredonlythisinformation,hemightconcludethatfiringCraigwasagoodbusinessdecision.However,
becauseTonyhasknowledgeabouthowthecompanyoperates,heknowsCraighasbeenoutonmedicalleavefor
severalweekshence,hissalesnumbersarelow.Withoutthisadditionalknowledge,Tonymighthaveexecuteda
badbusinessdecision,deliveredanegativemessagetotheotheremployees,andsenthisbestsales
representativesouttolookforotherjobs.
Thekeypointinthisscenarioisthatitissimplyimpossibletocollectalltheinformationabouteverysituation,and
yetwithoutthat,itcanbeeasytomisunderstandtheproblem.Usingdata,information,business
intelligence,andknowledgetomakedecisionsandsolveproblemsisthekeytofindingsuccessinbusiness.These
coredriversoftheinformationagearethebuildingblocksofbusinesssystems.

THECHALLENGEOFDEPARTMENTALCOMPANIESANDTHEMIS
SOLUTION
LO1.2:Explainsystems
thinkingandhow
managementinformation
systemsenablebusiness
communications.
Companiesaretypicallyorganizedbydepartmentorfunctionalareasuchas:
Accounting:Records,measures,andreportsmonetarytransactions.
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Finance:Dealswithstrategicfinancialissues,includingmoney,banking,credit,investments,andassets.
Humanresources:Maintainspolicies,plans,andproceduresfortheeffectivemanagementofemployees.
Marketing:Supportssalesbyplanning,pricing,andpromotinggoodsorservices.
Operationsmanagement:Managestheprocessofconvertingortransformingresourcesintogoodsorservices.
Sales:Performsthefunctionofsellinggoodsorservices(seeFigure1.6).

FIGURE1.6
DepartmentsWorkingIndependently

Eachdepartmentperformsitsownactivities.Salesandmarketingfocusonmovinggoodsorservicesintothehands
ofconsumerstheymaintaintransactionaldata.Financeandaccountingfocusonmanagingthecompany's
resourcesandmaintainmonetarydata.Operationsmanagementfocusesonmanufacturingandmaintainsproduction
datahumanresourcesfocusesonhiringandtrainingpeopleandmaintainsemployeedata.Althougheach
departmenthasitsownfocusanddata,nonecanworkindependentlyifthecompanyistooperateasawhole.Itis
easytoseehowabusinessdecisiononedepartmentmakescanaffectotherdepartments.Marketingneedsto
analyzeproductionandsalesdatatocomeupwithproductpromotionsandadvertisingstrategies.Productionneeds
tounderstandsalesforecaststodeterminethecompany'smanufacturingneeds.Salesneedstorelyoninformation
fromoperationstounderstandinventory,placeorders,andforecastconsumerdemand.Alldepartmentsneedto
understandtheaccountingandfinancedepartments'informationforbudgeting.Forthefirmtobesuccessful,all
departmentsmustworktogetherasasingleunitsharingcommoninformationandnotoperateindependentlyorina
silo(seeFigure1.7).

FIGURE1.7
DepartmentsWorkingTogether

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TheMISSolution
Youprobablyrecalltheoldstoryofthreeblindmenattemptingtodescribeanelephant.Thefirstman,feelingthe
elephant'sgirth,saidtheelephantseemedverymuchlikeawall.Thesecond,feelingtheelephant'strunk,declared
theelephantwaslikeasnake.Thethirdmanfelttheelephant'stusksandsaidtheelephantwaslikeatreeora
cane.Companiesthatoperatedepartmentallyareseeingonlyonepartoftheelephant,acriticalmistakethathinders
successfuloperation.
Successfulcompaniesoperatecrossfunctionally,integratingtheoperationsofalldepartments.Systemsarethe
primaryenablerofcrossfunctionaloperations.Asystem isacollectionofpartsthatlinktoachieveacommon
purpose.Acarisagoodexampleofasystem,sinceremovingapart,suchasthesteeringwheeloraccelerator,
causestheentiresystemtostopworking.
Beforejumpingintohowsystemswork,itisimportanttohaveasolidunderstandingofthebasicproductionprocess
forgoodsandservices.Goodsarematerialitemsorproductsthatcustomerswillbuytosatisfyawantorneed.
Clothing,groceries,cellphones,andcarsareallexamplesofgoodsthatpeoplebuytofulfilltheir
needs.Servicesaretaskspeopleperformthatcustomerswillbuytosatisfyawantorneed.Waitingtables,
teaching,andcuttinghairareallexamplesofservicesthatpeoplepayfortofulfilltheirneeds(seeFigure1.8).

FIGURE1.8
DifferentTypesofGoodsandServices

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Productionistheprocessbywhichabusinessprocessesrawmaterialsorconvertsthemintoafinishedproductfor
itsgoodsorservices.Justthinkaboutmakingahamburger(seeFigure1.9).First,youmustgatherallof
theinputsorrawmaterialssuchasthebun,patty,lettuce,tomato,andketchup.Second,youprocesstheraw
materials,sointhisexampleyouwouldneedtocookthepatty,washandchopthelettuceandtomato,andplaceall
oftheitemsinthebun.Finally,youwouldhaveyouroutputorfinishedproductyourhamburger!Productivityisthe
rateatwhichgoodsandservicesareproducedbasedontotaloutputgiventotalinputs.Givenourpreviousexample,
ifabusinesscouldproducethesamehamburgerwithlessexpensiveinputsormorehamburgerswiththesame
inputs,itwouldseeariseinproductivityandpossiblyanincreaseinprofits.Ensuringtheinput,process,andoutput
ofgoodsandservicesworkacrossallofthedepartmentsofacompanyiswheresystemsaddtremendousvalueto
overallbusinessproductivity.

FIGURE1.9
Input,Process,OutputExample

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SystemsThinking
Systemsthinkingisawayofmonitoringtheentiresystembyviewingmultipleinputsbeingprocessedor
transformedtoproduceoutputswhilecontinuouslygatheringfeedbackoneachpart(seeFigure1.10).Feedbackis
informationthatreturnstoitsoriginaltransmitter(input,transform,oroutput)andmodifiesthetransmitter'sactions.
Feedbackhelpsthesystemmaintainstability.Forexample,acar'ssystemcontinuouslymonitorsthefuelleveland
turnsonawarninglightifthegaslevelistoolow.Systemsthinkingprovidesanendtoendviewofhowoperations
worktogethertocreateaproductorservice.Businessstudentswhounderstandsystemsthinkingarevaluable
resourcesbecausetheycanimplementsolutionsthatconsidertheentireprocess,notjustasinglecomponent.

FIGURE1.10
OverviewofSystemsThinking

Managementinformationsystems(MIS)isabusinessfunction,likeaccountingandhumanresources,which
movesinformationaboutpeople,products,andprocessesacrossthecompanytofacilitatedecisionmakingand
problemsolving.MISincorporatessystemsthinkingtohelpcompaniesoperatecrossfunctionally.Forexample,to
fulfillproductorders,anMISforsalesmovesasinglecustomerorderacrossallfunctionalareas,includingsales,
orderfulfillment,shipping,billing,andfinallycustomerservice.Althoughdifferentfunctionalareashandledifferent
partsofthesale,thankstoMIS,tothecustomerthesaleisonecontinuousprocess.Ifonepartofthecompanyis
experiencingproblems,however,then,likethecarwithoutasteeringwheel,theentiresystemfails.Iforder
fulfillmentpackagesthewrongproduct,itwillnotmatterthatshipping,billing,andcustomerservicedidtheirjobs
right,sincethecustomerwillnotbesatisfiedwhenheorsheopensthepackage.
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MIScanbeanimportantenablerofbusinesssuccessandinnovation.ThisisnottosaythatMISequalsbusiness
successandinnovation,orthatMISrepresentsbusinesssuccessandinnovation.MISisatoolthatismost
valuablewhenitleveragesthetalentsofpeoplewhoknowhowtouseandmanageiteffectively.ToperformtheMIS
functioneffectively,almostallcompanies,particularlylargeandmediumsizedones,haveaninternalMIS
department,oftencalledinformationtechnology(IT),informationsystems(IS),ormanagementinformationsystems
(MIS).Forthepurposeofthistext,wewillrefertoitasMIS.

MISDepartmentRolesandResponsibilities
MISasadepartmentisarelativelynewfunctionalarea,havingbeenaroundformallyforabout40years.Jobtitles,
roles,andresponsibilitiesoftendifferfromcompanytocompany,butthemostcommonaredisplayedinFigure
1.11.Althoughmanycompaniesmaynothaveadifferentindividualforeachofthesepositions,theymusthavetop
managerswhotakeresponsibilityforalltheseareas.

FIGURE1.11
TheRolesandResponsibilitiesofMIS

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