Data vs Information Systems

• Data consists of raw, unorganized facts, such as items scanned at a checkout.
• Information is data that has been organized into a meaningful and useful form for humans.
• Information Technology (IT) encompasses all hardware and software a firm uses to achieve business goals.

Youtube Example

• Youtube tracks data such as video uploads, views, likes, dislikes, subscriptions, and comments.
• This data can provide information such as the most popular videos and channels.
• Youtube's business objective is to make money through advertising by attracting viewers and keeping them engaged.
• Youtube can use viewer data to predict appealing videos and relevant advertisements, encouraging longer engagement.

Key Definitions

• An Information System (IS) is a network of components that collect, process, store, and distribute information to support decision-making and control within an organization.
• Information System Literacy involves the ability to understand:
  • Technical aspects
  • Organizational aspects
  • Management aspects of an information system.

Dimensions of an Information System

• Technical: includes processors, memory, storage, servers, databases, and networks.
• Organizational:
  • Various groups in a firm require different types of information.
  • Rules and embedded policies within the information system, such as course prerequisites or access levels, enable control.
• Management: supports decision-making, action planning, and the design/delivery of new products and services.
• Studying management information systems serves to broaden general information systems literacy.

The Mission of MIS

• To improve organizational performance by using IT.
• To automate data processes with IT and convert business data into actionable business intelligence (BI).
• Business intelligence (BI) involves using IT to assist in making better business decisions through data and software tools for analyzing data.

MIS vs. IS

• Some sources view MIS as a component of IS designed to support decision-making.
• The textbook defines MIS as an IS that considers both technical and behavioral aspects.

Why Have MIS?

• IT consists of hardware and software used to achieve business objectives.
• Data is raw, unorganized facts.
• Information is data organized in a meaningful way.
• Business Intelligence (BI) helps users make better business decisions.
• Information System (IS) supports decision making and control within an organization.
• Management IS (MIS) encompasses IS plus behavioral issues.

Strategic Objectives of an IS

• An Information System (IS) should be considered to:
  • Create or maintain a competitive edge.
  • Adapt to internal and external changes.
  • Analyze cost-benefit factors.
• Key considerations when developing and managing IS are:
  • Design, implementation and integration
  • Training and new practices
  • Privacy and Security

Create or Maintain a Competitive Advantage

• Operational excellence improves efficiency, impacting overhead costs and sales per square foot.
  • Walmart's overhead is 16.6% of sales, compared to the retail industry average of 20.7%.
  • Walmart averages $28 in monthly sales per square foot, while the retail industry averages $12.
  • Walmart uses real-time supplier links to manage inventories effectively.
• Development of new products, services, and business models:
  • CDs evolved into mp3, then iPod/iTunes, and later Spotify.
  • DVDs evolved into Netflix.
• Better understanding of customers and suppliers enhances loyalty and keeps suppliers informed.
• Improved decision-making uses relevant information to avoid over or under production.
• Competitive advantage arises from doing things better or more cheaply than competitors.

Adapt to Internal or External Change

• Companies should focus on the future and avoid stagnation through incremental improvements.
• Creative destruction involves new technologies that disrupt existing businesses.
• Creative destruction was coined by Joesph Schumpeter in his book Capitalism, Socialism and Democracy (1942).

Cost/Benefit Analysis

• Investing in an IS should provide real value and a better return on investment compared to other options.
• Complementary assets, such as new business models and training, are necessary to maximize the value of IS investments.
• Some companies achieve greater productivity boosts from IT investments due to optimization.

Technical Approaches

• Computer science focuses on computation, storage, and access methods.
• Operations research optimizes parameters like transportation costs.
• Management science develops models for decision-making and management practices.

Behavioral Approaches

• Sociology examines how information systems affect individuals and organizations.
• Economics studies the production of digital goods and the dynamics of digital markets.
• Psychology analyzes how human decision-makers use formal information, including cognitive heuristics.
  • Availability heuristic: easily remembered data is given too much weight.
  • Anchoring: excessive weight is given to initial data.

A Sociotechnical Approach

• Optimal organizational performance results from jointly optimizing social and technical systems.
• Both behavioral and technical aspects must be considered.
• Colors used in presentation slides illustrate the importance of behavioral consideration.
• Poor color contrast, like yellow on white, or conflicting colors like red and blue, can cause eye strain.

Case Study Example

• A university adopts a new course delivery platform requiring instructors to learn the system.
• Many senior professors resist learning the new system.
• Strategies to manage resistance would include surveying users, assessing needs, and including users in the decision process.
• Users are more likely to accept solutions they have been involved in creating.

CS330 299-324 Topic 5 - Business Processes and Types of Information System

Key concepts

• Business Processes (BP)
• Customer Relationship Management (CRM)
• Supply Chain Management (SCM)
• Accounting Information System (AIS)
• Human Resources Information System (HRIS)
• Transaction Processing Systems (TPS)
• Decision-support Systems (DSS)
• Management Information Systems (MIS)
• Executive Support Systems (ESS)
• Enterprise Resource Planning (ERP)

Business Processes

An Experiment in Behavioral Economics

• Ask people for help getting a car out of a pothole.

• Three Different Conditions

  1. randomly asked people passing by

  ⇒ many were willing to help

  2. told people if they helped, they would get $10

  ⇒ only a few helped

  3. after helping, he gave the volunteer a gift worth $1

  ⇒ all happily accepted the gift and thanked him

• What is going on here?

• He concluded:

  • We live in both a capital market (financial considerations, maximizing profit) and a social market (following the rules of society). Each has its own rules and value systems.
  • Different markets, different rules, different returns, different focus and different value systems.

• Our goal:

  • Understand the role of an IS both in both the capital market and in the social market (i.e. as opposed to personal use of an information system).

The Essence of a Business

• The basic operation of a business is to convert resources into products and services
• A business can also be seen as a collection of business processes
• Business processes are the collection of activities required to produce a product or service
  • ie. how is work organized, coordinated, focused
  • eg. customer places an order, what steps happen next?
• Goal: examine business processes with a view to understanding how they might be improved by using information systems to achieve greater efficiency, innovation and customer service

Major Business Functions for an Organization

• Each business is a collection of business functions

• Each business function is a collection of business processes

Examples of Business Processes (BP)

Business Processes and Functions

• A business process might run across several business functions eg. order fulfillment

How does an Information System (IS) fit in?

• Since we are taking a sociotechnical approach, consider

1. Technical aspect (ie. can we?)
   • first understand how the existing business process works
   • which parts of the business process steps can be automated?
   • can we modify the process to enable more automation (eg. line for date vs. boxes for digits on a cheque)
   • what changes need to be made?
2. Behavourial aspect (ie. should we?) eg. social market

• what is its impact on people and the organization?
• what is the impact on the organization’s structure and culture

How does an Information System (IS) fit in?

• Our goal is to use the information to enhance business processes through (partial or full) automation. Ask..
  • Can we enforce policy or regulation better?
  • Can we enable a new product or service that can transform the business?
  • Can we increase the efficiency of existing processes?, e.g.
    • Which parts of a hiring process can be automated?
    • Which parts of an order fulfillment process can be automated? e.g. Amazon warehouses.
  • Once a process is automated, can we use that data to make better decisions?

Class Exercise

A Business Process Example

• Travelling is expensive
• Processing expense claims adds to the cost
• On average, it takes $48 usd to process one claim
• What work needs to be done to process a claim?
  1. manager preapproval
  2. confirm budget
  3. collect receipts
  4. itemize
  5. manager approval
  6. expense clerk approval
  7. notify payroll
  8. get money via direct deposit

BP Automation

• What part of the process can be automated?
  • pretty well every step, to a certain extent
• What changes need to be made?
  • Get an electronic copy of receipt or scanning it in.
  • Use credit card companies that itemize receipts for us
  • Linking up systems
  • Create software

Business Intelligence (BI)

• Once a process is automated, what information can we obtain?
• Recall: Business intelligence is information technologies to help users make better business decisions.

1. Collect data: What kind of business data can you obtain?
2. Extract information to support decision making: What kind of information can you extract and you would like to extract?
3. Create business intelligence: How can you use this information to improve performance by making better decisions?

Creating Business Intelligence (BI)

• After automating the processing of a traveling claim, you observe the following facts:
  • Lots of business travels to California during the winter time.
  • Lots of taxi fares to and from the Pearson Airport.
  • Lots of international calls during business trips.
• How would this information help you improve your business?

Deriving Information

• Now focus on efficiency or enabling new business processes
  • Can the BP be improved by this technology?
    • Negotiate better rates, e.g. taxis
• Will this new technology bring new product/service?
  • Someone to negotiate prices

Types of Information Systems Approach for the Next Few Slides

• For each of these major business functions (from 304-305) A. Sales and Marketing B. Manufacturing and Production C. Finance and Accounting D. Human Resources
• Ask the following questions...
  1. Which business processes can be automated?
  2. What data can be gathered?
  3. What information can help improve business?

A. Sales and Marketing

1. Which business processes can be automated?
   • ordering process, order fulfillment, order inquiry, advertising and promotion etc.
2. What data can be gathered?
   • Individual orders: who ordered what, when, where, when was it filled, was there is any issues?
   • Customer data: name, contact info, purchases, returns.
3. What information can help improve business?
   • Purchase habits: who likes what, when and where sales trends: what is popular, when and where, efficiency of fulfillment, return rates.
   • Promotion strategy, production schedule, inventory level etc.
   • Terminology: called a Customer Relationship Management (CRM) system
     • Provides: Customer support, sales, and marketing
   • A point of sales system (partially) automates the in-store checkout process
   • It often produces standard sales-related (sales performance and sales trends) and customer-related information (like customer base)
   • Can you think of other useful information it might produce?
     • Say, employee-related information

B. Manufacturing and Production

1. Which business processes can be automated?
   • making of individual parts, assembling, testing, stocking/shelving etc.
2. What data can be gathered?
   • inventory of parts(input) and products (output), when, where, how many, whether there are any issues?
3. What information can help improve business?
   • Efficiency of the production process, defective rate, production/schedule status,
   • suppliers of defective parts, sources of error in process.

• Terminology: called a Supply Chain Management (SCM) system
  • Linked with suppliers and ensure materials and parts are available when needed.

Limitations of Manufacturing and Production Software

• Based on the data stored in these systems, can you answer the following questions:
  • If there is something wrong with an item sold to a customer, can you trace where it was sold and who the customer was?
  • Who else bought the same product?
  • Can you link it to a particular shipment?
  • Can you find out which sales representative handled the transaction?
• To answer these sorts of questions we need another type of system...

C. Finance and Accounting

1. Which business processes can be automated?

2. What data can be gathered?

   Just a sample...

   • Inventory: what parts do you have
   • Purchase Order: records company’s orders of inventory
   • Accounts payable (A/P): bills owed by your company
   • Sales Order: records customer’s orders
   • Billing: produces invoices for clients/customers
   • Accounts receivable (A/R): payment received by your company
   • Cash Book: collections and payments made with cash
   • Tax information: needed for tax returns
   • Sales reports: summaries of sales information
   • Payroll: payments to your employees

3. What information can help improve the business?

   • match purchase order, goods received, invoice paid
   • match customer order, invoice, receive payment
   • Cash flow, financial status of the firm

• Terminology: called an Accounting Information System (AIS)

D. Human Resources

1. Which business processes can be automated?
   • automatic deposits (pay cheque), tax forms, pay slips
2. What data can be gathered?
   • recruiting, hiring and reassignment
   • scheduling
   • payroll
   • time, attendance, absence and leave management
   • performance appraisal
   • benefits administration
   • grievance handling
   • learning management (CPR, hazardous materials, fire safety)
3. What information can help improve the business?
   • high employee turnover in a certain area
   • high absenteeism
   • cost of overtime vs. hiring more employees
   • trouble filling certain positions
   • Terminology: called a Human Resources Management System (HRMS) or a Human Resources Information System (HRIS).

• Sometimes a product meant for one area can also handle a task from another area, e.g. AIS that can also handle payroll.

The Scope of IS

• We have only covered four areas. There are a lot more categories of IS available to businesses

The IS Challenge

• Can you name a business process that currently is not automated or has nothing to with IT?
  • Can you foresee that it might be automated in the future?
• Can you think of a job that currently has nothing to with IT?
  • Can you foresee that it might be automated in the future?
• This avenue of thinking can lead to new business opportunities!

Types of Management

Three levels of management

• For the previous dozen slides, we looked at different business functions and their IS needs.
• For the next dozen slides, we will look at different levels of management and their IS needs.
• Senior Management is concerned with long range (e.g. 5 year) strategic decision (of great importance, i.e. success or failure could have a big impact on the financial success of the company.
• Middle Management is concerned with implementing the plans of the senior management (e.g. for the next 6 months).
• Operational Management is concerned with monitoring the day-to-day activities of the company.

Different IS Needs for Different Levels of Management

• Which level of management would be most interested at the following questions?

• Hint: look at how long it would take to solve that problem, whether it is routine or not, how much it would cost.

  • Is an order filled properly?
  • What is the percentage of orders filled properly?
  • What is the status of an order?
  • How much candy should we stock for Halloween?
  • How to promote our Halloween party package?
  • Should we open a branch in Guelph?
  • Should we be concerned about 5G?

• Different levels of management use different IS’s.

• Note: unfortunately MIS was also used to refer to IS + behavioural issues back on slides 282 and 292

Transaction Processing System (TPS)

• Role: Automates the business processes.
• Records routine transactions necessary to conduct day-to-day business. E.g.
  • tracking inventory, making purchase orders, checking packing lists, paying invoice (i.e. inputs from suppliers)
  • payroll, tracking sick days, efficiency of employees
  • processing sales order, order fulfillment, customer billing (i.e. outputs to customers)
• Allows frontline workers and managers to monitor the status of operations and relations with external environment (i.e. customers and suppliers).

Management Information System (MIS)

• Provides routine reports on department’s current performance to middle management.
• Routine reports contain the same type of information each time they are produced, e.g. monthly credit card statements.
• Confusing, MIS is used to refer to whole course (i.e. the study of information systems including behavioural issues).
• Based on and summarize data from the TPS.
• Typically have little analytic capability. E.g. they are capable of ...
  • sales and marketing summaries, comparing actual vs. predicted sales, sales by region, sales by product line.

Decision Support System (DSS)

• Supports ad-hoc (i.e. non-routine, the first time this question has been asked and this information has been created) decision making by middle management. E.g.
  • What is impact on the production schedule if December sales doubled?
  • What if we had more students? less students? more online courses? less online courses?
• Often uses external information as well as information from the TPS and MIS.
• E.g. create a statistical model of how sales relates to other factors, e.g. vacations abroad and the value of the Canadian dollar, car sales and the price of oil.
• Example in course textbook,
• Task: create competitive bids on transporting goods by ship
• DSS uses information about
  • ship speed, capacity and location of available ships,
  • port distance,
  • fuel consumption, fuel cost,
  • cost to hire crew for that ship,
  • expense to dock at port.

Executive Support System (ESS)

• Supports ad-hoc (i.e. non-routine) decisions requiring judgment, evaluation, and insight by senior management.
• An ESS provides a view of the entire company.
• Specialized version of DSS for senior executives with
  • graphical displays,
  • friendly user interface,
  • ability to drill down to info from MIS and DSS.
• An ESS provides a minute-to-minute view of firm’s financial performance as measured by working capital, accounts receivable, accounts payable, cash flow, and inventory.

Summary and Relationships Among Different IS’s

Enterprise Resource Planning (ERP)

• Integrates many of the existing IS’s (CRM, SCM, HRIS, AIS) into one big system, rather than buy separate systems and linking them together via MIS, DSS and ESS.
• Has a view of the entire company.
• Makes reports available for different levels of management.
• Has many additional IS’s that can be added if needed depending on the business.

Topic 6 - Organizations and IS

Overview of Organizations

Key Concepts

• The behavioural view of organizations
• The impact of IS on organizations
• Two Ways of Creating a Competitive Advantage
  1. Porter’s Competitive Forces Model
  2. The Value Chain Model

Motivation

1. In a high-tech company, other than the senior executives, which position/job pays the most?
   • technical sales: i.e. people who have both technical knowledge and the ability to influence other people
2. What is office politics?
   • the strategies people use to gain advantage in the workplace
3. Has anyone ever observed office politics taking place?

Office Politics Skills

What are some strategies for succeeding in an organization other than (or in addition to) excellent technical skills?

• Give and receive feedback in an effective manner.
• Be unconditionally cooperative.
• Develop good communications skills.
• Develop good interpersonal skills.
• Don’t pass on gossip.
• Seek advice from knowledgeable people.
• Consult with the people who will be affected by a decision you are making.

Quick Review

• Recall (from slides 292-295 in Topic 4 Management Information Systems) that this course is taking a Sociotechnical Approach, i.e.
  • optimal organizational performance is achieved by jointly optimizing both the social and technical systems used in production (course text pg 24)
  • both behavioural and technical aspects need to be considered (course text pg 24)
• Why?
  • Because organizations have both of these components.

Technical Microeconomic View

• The technical view: An organization is stable, formal social structure that uses capital and labour from the environment as input and processes them to produce products and services (course text pg 66).

Behavioural View

• The behavioural view of an organization looks at the structures and processes within the organization.

Behavioural View - Process

• Rights and obligations apply to everyone; whereas privileges and responsibilities depend on your role (e.g. student vs. instructor).
  • Students are expected to avoid committing an academic offences (Policy 71).
  • Students may appeal a decision made under Policy 71 if there is grounds to do so (Policy 72).
• Norms are how you would be expected to behave (i.e. what you do). Values are more general (i.e. why you should behave that way).
  • E.g. the value is to treat students fairly, and a norm is to have everyone write the same final exam.

Introducing an IS: the Behavioural View

• In order to introduce an IS into an organization you would have to take the following into account...
• Routines and Business Processes: organizations become very efficient over time because they develop routines (or standard operating procedures) to deal with (almost all) situations.
  • E.g. enrolling in courses at UW, returning an item at Amazon.
• Organizational Politics: people with different positions and backgrounds will have different points of view and will struggle for limited company resources.
  • Many will resist change they do not agree with
• Organizational Culture: the unquestioned assumptions that organizations make about their goals and products.
  • Anything that challenges these assumptions will be met with resistance.
  • E.g. education is a good thing; sellers must properly describe what they are selling.
• Organizational Environment: government (i.e. regulations), competitors, customers, financial institutions, culture, technology, knowledge.
  • An IS can help identify changes in the environment that the company should respond to.
  • E.g. in-store sales decreasing as more people use phone apps.
• Organizational Structure: different organizational structures would have different IS’s,
  • e.g. an entrepreneurial structure (simple flat structure) might have a single IS whereas professional bureaucracy (many independent departments, such as UW) may have several independent systems.
• Other Organizational Features
  • democratic vs. authoritarian leadership
  • benefit stock holders (for profit) vs. benefit society (non-profit)

IS Reduces the Cost of Information

• IS helps reduce transactional costs
  • i.e. the costs associated with an organization buying a product or service
  • e.g. the cost of communicating with suppliers, obtaining information about products, monitoring contract compliance
• IS helps reduce agency costs
  • i.e. the costs associated with managing agents (employees) so that they will act in the interests of the company rather than in their own self-interest.
  • E.g. employees can be monitored, web access restricted
• IT flattens organizations
  • management more efficient ⇒ need less of them
  • lower levels have easier access to relevant information
• IT innovations cause resistance because it affects
  • the organizational structure
  • the job tasks
  • the people
  • the information technology
• Key Point: the most common reason for IT innovation failure is the organization’s resistance to change.

Recall Case Study: IT in Walmart

• Walmart is the leader in retail sales, largely due to the fact that it is also among the leaders of utilizing information technology.

• They have a competitive advantage, i.e. they use commonly available resources more efficiently.

• How can a company create a competitive advantage?

  Answer: we will consider two models ...

  1. Porter’s Competitive Forces Model

  2. The Business Value Chain Model

Competitive Advantage

#1: Porter’s Competitive Forces Model

This model helps a firm determine

• if a new product or service is likely to be profitable, and

• gives you some strategies to make it more profitable.

• Traditional competitors try to attract your customers which can lead to increasing your advertising, increasing innovation, or decreasing your price.

• New market entrants are more likely when the cost of entry is low, not protected by patents, capital costs are low (i.e. interest rates are low), there are little economies of scale, profitability is high, there is easy access to suppliers, or brand identity is weak.

• Customers will seek substitute products (e.g. VOIP instead of telephone landline) if your prices get too high, switching costs are low, or little product differentiation.

• The power of customers increases if they can easily switch to a competitor’s products, if prices are transparent, products are undifferentiated, or there are a lot of competitors.

• The power of the company’s suppliers increase if there are less of them, switching costs are high or products are differentiated.

• The original model did not include governments and regulations but that factor has also been recognized as being important, e.g. carbon tax.

#1: Some Competitive Strategies

• Use information systems to ...
  • decrease costs (e.g. Walmart) or increase quality (e.g. cars).
• Since the original model was published other options have beenadded ...
  • differentiate products and enable new products and services (e.g. Apple)
  • to focus on a market niche, i.e. specialize (e.g. high-end hotels, all-inclusive hotels, motels).
  • develop strong ties with suppliers (e.g. Chrysler, Walmart) or customers (e.g. Amazon, Chapters).

Case Study: UWaterloo

• Which of the competitive forces in Porter’s Model is the biggest threat to UWaterloo? Why?
• Recently, Maclean’s ranked UW on top in Best Overall, Most Innovative, and Leaders of Tomorrow.
• However, UW only got an average in terms of student’s experience with their education. Based on that, which of the competitive forces in Porter’s Model is the biggest threat to UWaterloo?
• How does an IS help? Which IS strategy would you recommend?
• Products are different but there are plenty of the excellent universities out there.
• Textbooks and topics covered are common across many universities.
• From slide 354, UW could use an IS to develop strong ties with students. E.g. polls to see why they rate their experience with their education as average and is there something UW could do better?
• Emphasize our differences, e.g. strong coop program.

#2: The Business Value Chain Model

• More tied to information systems than is Porter’s Competitive Forces model.
• Identifies where information systems are particularly helpful in creating a competitive advantage.
• Two broad areas to consider
  • primary activities: directly related to creating the product or service
  • support activities: makes the primary activities possible
• Primary Activities (directly related to creating the product or service) include
  • automated warehouse systems
  • computer controlled manufacturing
  • computerized ordering systems (for your customers)
  • equipment maintenance systems
  • automated shipping
• Support Activities (makes the primary activities possible) include
  • electronic scheduling and messaging systems
  • workforce planning systems
  • computerize-aided design (CAD) systems
  • computerized ordering systems (from your suppliers)