Management and Business

Information Systems

Fundamentals of
Information Systems

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1. Information Systems
Concepts

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 What Is an Information System?

An information system includes the Computers,

People, Procedures, and Software required to store,
organize and deliver information

Examples: airline reservation systems; point of sales

(POS) systems

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Functions of an Information System

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Figure 1-6
 Discussion
• What input does a supermarket POS
system need to produce a receipt?

• When will the POS system provide you a

feedback?

• What information can be obtained from the

data captured by the POS system that is
useful to a store manager? 5
 Data vs. Information

• Data: raw facts

• Information: collection of facts organized in

such a way that they have value beyond the
facts themselves (meaningful and useful to
human beings in the processes such as
making decisions)

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Data and Information

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Figure 1-5
 Characteristics of Valuable Information
• Accurate
• Complete
• Economical (cost to obtain should not be too high)
• Reliable and Verifiable (source?)
• Simple and Relevant (vs. information overload)
• Timely
• Accessible
• Secure (can only be viewed by authorized parties)

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2. Information Systems
in the Enterprise

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 Ways to Organize Information Systems
• By the groups they serve
– Operational level
– Management level
– Strategic level
• By functional area
– Sales and marketing
– Manufacturing and production
– Finance and accounting
– Human resources

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Types of Information Systems by the Groups
They Serve and Functional Area

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Transaction Processing Systems (TPS)

• Basic business systems that serve the operational

level

• A computerized system that facilitates daily routine

transactions necessary to the conduct of the
business and captures and stores data associated
with the transaction

• Example: record sales and process payments

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 Management Information System
(MIS)

MIS serves the management level of the

organization, providing managers with
reports and online access to the
organization’s current performance and
historical records.

Example: generate summarized sales report

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Management Information Systems (MIS)
(continued)

A sample MIS report

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 Decision Support System (DSS)

DSS serves the management level and helps

managers make decision that are unique, rapidly
changing, and not easily specified in advance
(use of mathematical models)

Example: Profitability Analysis,

Break-even Analysis

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 Executive Support System (ESS)

ESS support strategic level managers to help make

decisions that are non-routine requiring
judgment, evaluation, and insight.

Example: 5-year sales trend forecast

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 Interrelationships Among Systems

• In contemporary digital firms, the different types of

systems are closely linked to one another.
– TPS are typically a major source of data for other
systems
– MIS are sources for DSS and ESS
– DSS is a source for ESS
– Sometimes a single system serves many purposes

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Relationship of Systems to
One Another
Interrelationships among systems

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Organizing Systems by Functional Area

• Sales and marketing

• Manufacturing and production

• Finance and accounting

• Human resources

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 Sales and Marketing
Systems

Major functions of systems:

• Sales management, market research, promotion,
pricing, new products

Major application systems:

• Sales order info system, market research system,
pricing system

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 Manufacturing and Production
Systems

Major functions of systems:

• Scheduling, purchasing, shipping, receiving,
engineering, operations

Major application systems:

• Materials resource planning systems, purchase
order control systems, engineering systems,
quality control systems

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 Financing and Accounting
Systems

Major functions of systems:

• Budgeting, general ledger, billing, cost
accounting

Major application systems:

• General ledger, accounts receivable, accounts
payable, budgeting, funds management systems

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 Human Resource Systems

Major functions of systems:

• Personnel records, benefits, compensation, labor
relations, training

Major application systems:

• Payroll, employee records, benefit systems,
career path systems, personnel training systems

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3. Strategic Role of Information
Systems in Organizations

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A General Model of an Organization
(Manufacturing Company)

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The Value Chain of a Manufacturing
Company

This is a value creation process of a manufacturing company

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 Discussion
• Ultimate goal of a company: Make P_____
• P_____ = R______ - C___ (or E______)
• To maximize P_____, you have to maximize R______,
and/or minimize C___.
• R______ = P____ x Demand
• To maximize R______, you may set a high price (if
demand is inelastic), find ways to increase demand,
and/or find new sources of R______.
• From the previous slide, can you identify some types of
cost associated with the value chain operation?
• Another way to maximize profit is to speed up the profit
generation cycle (cash conversion cycle) by making the
value chain operation more efficient!
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 What factors affect Long-term
Profitability?
• Michael Porter’s Five Forces Model
– Rivalry among Existing Competitors
 affects revenue
– Threat of New Entrants
 affects revenue, cost
– Threat of Substitute Products
 affects revenue
– Bargaining Power of Suppliers
 affects cost
– Bargaining Power of Customers
 affects revenue 28
 What factors affect Long-term
Profitability?
Rivalry among Existing Competitors
– Market growth, no. of firms in the market, relative
strength, basis of competition, difficulty to exit
Threat of New Entrants
– Entry barrier (licensing, setup cost, economy of scale
and scope, input barriers, brand loyalty)
Threat of Substitute Products
– Close substitutes, indirect substitutes
Bargaining Power of Customers
– no. of potential customers, reliance on customers
(portion of sales vs. portion of purchase)
Bargaining Power of Suppliers
– no. of qualified suppliers, reliance on suppliers
(portion of purchase vs. portion of sales)
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Common Strategies Seeking to Secure
Profitability
Rivalry among Existing Competitors
– Reach out to new markets, extend distribution network
– Intensify promotion
– Change basis of competition (e.g. value-added feature, service
and support, convenience, speed, customization,
personalization, experience)
– Lower cost and price by simplifying and automating operations
(e.g. direct selling, e-commerce)

Threat of New Entrants

– Expand production capacity and operation scale
– Increase customer penetration (increase usage, up/cross-
selling)
– Raise switching cost and build loyalty

Threat of Substitute Products

– Become first mover
– Track changes of customer needs/preference, develop new
products/improve products, shorten time to market 30
 Common Strategies Seeking to Secure
Profitability
Bargaining Power of Customers
– Broaden customer base
– Lock in customers for mutual reliance and benefit (efficient
customer response, lower inventory carrying cost and/or
transportation cost, shorten cash-to-cash cycle)

Bargaining Power of Suppliers

– Broaden choice of suppliers
– Lock in suppliers for mutual reliance and benefit (just-in-time
supply, lower inventory carrying cost, shorten cash-to-cash
cycle)

• How can information systems and the Internet support these

strategies?

• Most of these strategies require a seamless flow of information

across internal departments, external vendors, customers and
business partners. Information systems can support the flow and the
processing of information. 31