· Review Ch. 2 in the text.
· Select two organizational departments in a business.
· Write a paragraph of at least 200 words in which you identify the roles of information systems within those departments.
· Format your paragraph according to APA guidelines (note: I am mainly looking for citations and references).
· Due Date: Friday (Assignment section of eCampus)
· Assignment should be submitted as attachment using Microsoft® Word format
Learning Objectives Chapter 2 1. Describe the components of
2. Describe the various types of
information systems by breadth of
3. Identify the major information
systems that support each
4. Describe strategic information
systems (SISs), and explain their
5. Describe Porter’s competitive
forces and value chain models,
and explain how IT helps
companies improve their
6. Describe ﬁve strategies that
companies can use to achieve
competitive advantage in their
7. Describe how information
resources are managed, and
discuss the roles of the
information systems department
and the end users. Information Systems:
Management Web Resources wiley.com/college/rainer
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• Web Quizzes
• Lecture Slides in PowerPoint
• Virtual Company ClubIT: Website and
Assignments WileyPLUS Chapter Outline • e-book
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(Premium Version ONLY) What’s in IT for me? ACC 2.1 Types of Information Systems
2.2 Competitive Advantage and Strategic
2.3 Why Are Information Systems So
Important to Us?
2.4 Managing Information Resources FIN MKT POM HRM MIS 29
29 POM Chevron Corporation
The Business Problem OPENING CASE 2 Information Systems: Concepts and Management The IT Solutions CHAPTER The Results 30 Chevron Corporation (www.chevron.com ) is huge. The company has over $200 billion in
sales, and it employs 56,000 people in 180 countries. Chevron, like many giant energy companies, has an “upstream side” that deals with exploration and production, and a “downstream side” that deals with reﬁning, marketing, transportation, and sales.
As for information technology, Chevron has 10,000 servers, handles 1 million e-mail messages every day, and has 3,500 people in its IT division. In addition, the company accumulates data at a rate of 2 terabytes per day, or 23 megabytes per second.
The IT organization had always had a reputation for innovation and technical strength,
and an ability to execute huge projects. It had shown that it could deliver IT services to the
company reliably and efﬁciently. However, top management wanted a stronger business
focus and a stronger alignment between IT and the business strategy. First, the IT executives instituted Project Everest. Everest is not an IT project in the conventional sense. Rather, it is a strategic framework for the company’s biggest and most important IT projects. The purpose of Everest is to ensure that the projects with the biggest
beneﬁt to the company as a whole receive the right funding at the right time and that they
get special management attention. What Everest does is make sure that the IT investments
go toward projects that earn the company the most money.
Not all projects fall under the Everest umbrella. Non-Everest projects are smaller initiatives that may be important to one ofﬁce or business unit but are not strategically important
to the entire company.
Second, Chevron has implemented two Global Information Link (GIL) projects and is
working on a third. GIL 1 standardized desktops, laptops, and operating systems, whereas GIL
2 completed the global integration of the company’s network and standardized its servers, providing connectivity to operations all over the world.
GIL 3 will focus on information management. It will employ Microsoft’s Vista operating
system and its SharePoint product suite for communication and collaboration. SharePoint,
which Microsoft says is intended to connect people, processes, and systems, will make it easier for employees, business partners, and customers to work together. Employees will be able
to use SharePoint to create and manage their own Web sites and make them available to
anyone at Chevron. In fact, the software will tag (or label) information so that it can be
more easily found and shared in real time.
GIL 1 and GIL 2 gave users the infrastructure they needed to work with one another, and
GIL 3 will give users the tools to do so. Standardizing platforms and software tools allows all
relevant parties at Chevron to closely monitor operations. Industry analysts have noted that Chevron’s IT initiatives are closing the gaps that exist at
some of the largest energy companies: disconnects among the scientiﬁc systems, the engineering systems, and the people involved in upstream activities; the systems and people involved in downstream activities; and the corporate-level people who have to oversee
everything that happens on both sides of the company.
Therefore, Chevron’s IT function is now closely aligned with the company’s strategy.
However, the IT group has not forgotten its responsibility to help Chevron reduce costs. In
just one example, the ﬁrm’s GIL 2 initiative saved Chevron $200 million in its ﬁrst four
years of operation. 2.1 Types of Information Systems The Chevron case illustrates the importance of information systems to organizations. The
case also points out how Chevron uses its information systems to support the company’s
strategy more effectively by integrating its upstream component, its downstream component, and corporate management.
In this chapter, we introduce you to the basic concepts of information systems in organizations, and we explore how businesses use information systems in every facet of their operations. Information systems collect, process, store, analyze, and disseminate information for
a speciﬁc purpose.
The two major determinants of IS support are the organization’s structure and the functions that employees perform within the organization. As this chapter shows, information
systems tend to follow the structure of organizations, and they are based on the needs of individuals and groups.
Information systems are located everywhere inside organizations, as well as among organizations. This chapter looks at the types of support that information systems provide to
organizational employees. We demonstrate that any information system can be strategic,
meaning that it can provide a competitive advantage, if it is used properly. At the same
time, we provide examples of information systems that have failed, often at great cost to
the enterprise. We then examine why information systems are important to organizations
and society as a whole. Because these systems are so diverse, managing them can be quite
difﬁcult. Therefore, we close this chapter by taking a look at how organizations manage
their IT systems.
Sources: Compiled from G. Anthes, “At Chevron Corp., Bigger Is Still Better,” Computerworld, October 30, 2006;
E. Chabrow, “Oil Companies Turn to IT to Shave Costs, Boost Efﬁciency, InformationWeek, June 5, 2006; “2006
IT Triumphs & Trip-Ups,” Baseline Magazine, December 6, 2006; www.chevron.com, accessed April 12, 2007. 2.1 Types of Information Systems
Today, organizations employ many different types of information systems. Figure 2.1 illustrates the different types of information systems within organizations, and Figure 2.2 shows
the different types of information systems among organizations. We discuss these interorganizational systems, which include supply chain management systems and customer relationship
management systems, in Chapter 8. Computer-Based Information Systems
The IT architecture and IT infrastructure provide the basis for all information systems in
the organization. Recall that an information system (IS) collects, processes, stores, analyzes,
and disseminates information for a speciﬁc purpose. A computer-based information system (CBIS) is an information system that uses computer technology to perform some or
all of its intended tasks. Although not all information systems are computerized, today
most are. For this reason the term information system (IS) is typically used synonymously
with computer-based information system. The basic components of information systems are
• Hardware is a device such as the processor, monitor, keyboard, and printer. Together,
these devices accept data and information, process them, and display them.
• Software is a program or collection of programs that enable the hardware to process data.
• A database is a collection of related ﬁles or tables containing data.
• A network is a connecting system (wireline or wireless) that permits different computers
to share resources. What We Learned from This Case SECTION 31 32 CHAPTER 2 Information Systems: Concepts and Management
Executives—Strategic decisions Knowledge workers Business intelligence systems,
Dashboards, Expert systems,
FAIS, OAS Middle managers—Tactical decisions Lower-level managers—
Operational decisions n
Re POM IS Finan
ce IS Dashboards, Expert systems,
FAIS, OAS Ac
gI S IS
Mark S Expert systems, Dashboards,
Business intelligence systems,
OAS ORGANIZATIONAL EMPLOYEES CBIS SUPPORTING DIFFERENT
ORGANIZATIONAL LEVELS Dashboards Clerical staff FAIS, OAS Enterprise Resource Planning Systems
Transaction Processing Systems ru ct ur e IT Services IT In fra st IT Personnel
Platform IT Components FIGURE 2.1
CUSTOMER SIDE R Su
Ma pply C
ent P ro d u ct s ents
ORGANIZATION HA SU IES p
M D L
So Cu SUPPLIER SIDE
Electronic commerce HARD PR OD T Business-to-consumer
Electronic commerce U TS er
s C C s
Payment Internet PR U
ers HARD p
On Individuals S O e O rders
n li n du
ents SUPPLIERS FIGURE 2.2 Information technology outside your organization (your supply chain). Businesses
on Customer Side Major Capabilities of Information Systems
• Perform high-speed, high-volume, numerical computations.
• Provide fast, accurate communication and collaboration within and among
• Store huge amounts of information in an easy-to-access, yet small, space.
• Allow quick and inexpensive access to vast amounts of information, worldwide.
• Interpret vast amounts of data quickly and efﬁciently.
• Increase the effectiveness and efﬁciency of people working in groups in one place or in
several locations, anywhere.
• Automate both semiautomatic business processes and manual tasks. • Procedures are the set of instructions about how to combine the above components in
order to process information and generate the desired output.
• People are those individuals who use the hardware and software, interface with it, or use
Computer-based information systems have many capabilities. Table 2.1 summarizes the
most important ones. Application Programs
An application program is a computer program designed to support a speciﬁc task or business process. Each functional area or department within a business organization uses dozens
of application programs. Note that application programs are synonymous with applications.
For instance, the human resources department sometimes uses one application for screening
job applicants and another for monitoring employee turnover. The collection of application
programs in a single department is usually referred to as a departmental information system.
For example, the collection of application programs in the human resources area is called
the human resources information system (HRIS). We can see in Figure 2.1 that there are collections of application programs—that is, information systems—in the other functional
areas as well, such as accounting and ﬁnance. IT’s About Business 2.1 shows how a variety
of applications enable CarMax to successfully serve its customers.
Breadth of Support of Information Systems
Certain information systems support parts of organizations, others support entire organizations, and still others support groups of organizations.
As we have seen, each department or functional area within an organization has its own
collection of application programs, or information systems. These functional area information systems are located at the top of Figure 2.1. Each information system supports a particular functional area in the organization. Examples are accounting IS, ﬁnance IS, production/
operations management (POM) IS, marketing IS, and human resources IS.
Just below the functional area IS are two information systems that support the entire
organization: enterprise resource planning systems and transaction processing systems.
Enterprise resource planning (ERP) systems are designed to correct a lack of communication among the functional area ISs. ERP systems were an important innovation because
the various functional area ISs were often developed as standalone systems and did not
communicate effectively (if at all) with one another. ERP systems resolve this problem by
tightly integrating the functional area ISs via a common database. In doing so, they enhance
communications among the functional areas of an organization. For this reason, experts
credit ERP systems with greatly increasing organizational productivity. Nearly all ERP systems are transaction processing systems, but transaction processing systems are not all ERP
systems. 2.1 2.1 Types of Information Systems Table SECTION 33 34 CHAPTER 2 Information Systems: Concepts and Management
MKT IT’s About Business POM 2.1 No Haggling, No Hassle, at CarMax
CarMax (www.carmax.com) is a large, successful,
retail company that sells used cars. The company’s
supercenters are concentrated in the U.S. Sun Belt,
and they use a mix of information technology and
marketing savvy to treat customers like royalty.
CarMax lots are stocked with more cars than most
dealerships sell in a year. Most importantly, however, CarMax has nonnegotiable sticker prices, and
it pays its salespeople ﬂat commissions. Therefore,
its salespeople have no incentive to push the priciest cars. Customers go to CarMax for the wide
range of choices, the nonthreatening environment,
and the price.
However, it is CarMax’s information systems that
truly differentiate it from its competitors. In the same
way that Wal-Mart revolutionized the logistics of retailing, CarMax set out to ﬁnd the optimal combination of inventory and pricing through exhaustive
analysis of sales data. Its proprietary software helps
the company determine which models to sell and to
closely track shifts in customer demand. Each car is ﬁtted with a radio frequency identiﬁcation (RFID) tag to
track how long the car sits in the lot and when it
is taken for a test drive. (We discuss RFID tags in
Chapter 7.) Showroom computers give customers access to CarMax’s nationwide catalog of 20,000 cars.
Therefore, if a customer ﬁnds a car he or she wants in
another location, CarMax can transfer the car for a fee.
Without its information systems, stocking CarMax
lots would not be feasible. Each store carries 300 to 500 cars at any given time, and unlike Wal-Mart, the
company has no vendors to replace inventory that
is sold. Instead, CarMax depends on 800 car buyers,
who use the company’s data to appraise vehicles. CarMax acquires half of its inventory through trade-ins
and the remainder via wholesale auctions.
How successful is CarMax’s system? While overall
used car sales have stagnated, CarMax’s sales have
increased dramatically. In 2006, the company sold
more than 300,000 cars, totaling $6.3 billion in sales
and $148 million in proﬁt.
Sources: Compiled from M. Myser, “The Wal-Mart of Used
Cars,” Business 2.0, September 2006; “CarMax Offers Vehicle
Histories,” Physorg.com, April 24, 2006; J. Milligan, “In the Driver’s Seat,” Virginia Business Magazine, April 2006; G. Jordan,
“Online, Used Car Lots that Cover the Nation,” New York
Times, October 22, 2003; D. Schell, “RFID: A Welcome Addition to the Car Sales Industry,” BusinessSolutions, March 2002. QUESTIONS
1. Identify the various computer-based information
systems used by CarMax.
2. What is CarMax’s biggest competitive advantage?
Is this advantage related to information systems?
Support your answer.
3. Can CarMax sustain its competitive advantage?
Why or why not? Hint: What are the barriers to
entry for a used-car dealership (see Section 2.2). A transaction processing system (TPS) supports the monitoring, collection, storage, and
processing of data from the organization’s basic business transactions, each of which generates
data. For example, when you are checking out of Wal-Mart, each time the cashier swipes an
item across the bar code reader, that is one transaction. The TPS collects data continuously, typically in real time—that is, as soon as the data are generated—and provides the input data for
the corporate databases. The TPSs are considered critical to the success of any enterprise because
they support core operations. We discuss both TPSs and ERP systems in detail in Chapter 8.
Information systems that connect two or more organizations are referred to as interorganizational information systems (IOSs). IOSs support many interorganizational operations, of which supply chain management is the best known. An organization’s supply
chain describes the ﬂow of materials, information, money, and services from suppliers of
raw material through factories and warehouses to the end customers.
Note that the supply chain in Figure 2.2 shows physical ﬂows, information ﬂows, and
ﬁnancial ﬂows. Information ﬂows, ﬁnancial ﬂows, and digitizable products (soft products) are SECTION 2.1 Types of Information Systems represented with dotted lines, and physical products (hard products) as solid lines. Digitizable
products are those that can be represented in electronic form, such as music and software.
Information ﬂows, ﬁnancial ﬂows, and digitizable products go through the Internet, where
physical products are shipped. For example, when you order a computer from www.dell.com,
your information goes to Dell via the Internet. When your transaction is complete (that is,
your credit card is approved and your order is processed), Dell ships your computer to you.
Electronic commerce systems are another type of interorganizational information system. These systems enable organizations to conduct transactions, called business-to-business
(B2B) electronic commerce, and customers to conduct transactions with businesses, called
business-to-consumer (B2C) electronic commerce. All transactions are typically Internetbased. Figure 2.2 illustrates B2B and B2C electronic commerce. Electronic commerce systems are so important that we discuss them at length throughout the book. Support for Organizational Employees
So far we have concentrated on information systems that support speciﬁc functional areas
and operations. We now consider information systems that support particular employees
within the organization. The right side of Figure 2.1 identiﬁes these employees. Note that
they range from clerical workers all the way up to executives.
Clerical workers, who support managers at all levels of the organization, include bookkeepers, secretaries, electronic ﬁle clerks, and insurance claim processors. Lower-level managers handle the day-to-day operations of the organization, making routine decisions such as
assigning tasks to employees and placing purchase orders. Middle managers make tactical
decisions, which deal with activities such as short-term planning, organizing, and control.
Knowledge workers are professional employees such as ﬁnancial and marketing analysts,
engineers, lawyers, and accountants. All knowledge workers are experts in a particular subject area. They create information and knowledge, which they integrate into the business.
Knowledge workers act as advisors to middle managers and executives. Finally, executives
make decisions that can signiﬁcantly change the manner in which business is done. Examples of executive decisions are introducing a new product line, acquiring other businesses,
and relocating operations to a foreign country. IT support for each level of employee appears
on the left side of Figure 2.1.
Ofﬁce automation systems (OASs) typically support the clerical staff, lower and middle
managers, and knowledge workers. These employees use OASs to develop documents (word
processing and desktop publishing software), schedule resources (electronic calendars), and
communicate (e-mail, voice mail, videoconferencing, and groupware).
Functional area information systems (FAISs) summarize data and prepare reports, primarily for middle managers but sometimes for lower-level managers as well. Because these
reports typically concern a speciﬁc functional area, report generators (RPGs) are an important type of functional area IS.
Business intelligence (BI) systems provide computer-based support for complex, nonroutine decisions, primarily for middle managers and knowledge workers. (They also support lower-level managers, though to a lesser extent.) These systems are typically used with a
data warehouse and allow users to perform their own data analysis. We discuss BI systems in
Expert systems (ESs) attempt to duplicate the work of human experts by applying reasoning capabilities, knowledge, and expertise within a speciﬁc domain. These systems are
primarily designed to support knowledge workers. We discuss ES in Chapter 9.
Dashboards (also called digital dashboards) support all managers of the organization.
They provide rapid access to timely information and direct access to structured information
in the form of reports. Dashboards (discussed in Chapter 9) that are tailored to the information needs of executives are called executive dashboards. Table 2.2 provides an overview of the
different types of information systems used by organizations. 35 2 Information Systems: Concepts and Management
2.2 CHAPTER Table 36 Types of Organizational Information Systems
Type of System Function Example Functional area IS Support the activities within
a speciﬁc functional area. System for
processing payroll Transaction processing
system Process transaction data
from business events. Wal-Mart checkout
point-of-sale terminal Enterprise resource
planning system Integrate all functional areas
of the organization. Oracle, SAP Ofﬁce automation
system Support daily work activities
of individuals and groups. Microsoft Ofﬁce Management
information system Produce reports summarized
from transaction data, usually
in one functional area. Report on total sales
for each customer Decision support
system Provide access to data and
analysis tools. “What-if” analysis of
changes in budget Expert system Mimic human expert in a
particular area and
make a decision. Credit card approval
analysis Executive dashboard Present structured,
about aspects of business
important to executives. Status of sales by
product Supply chain
management system Manage ﬂows of products,
services, and information
among organizations. Wal-Mart retail link
suppliers to Wal-Mart Electronic commerce
system Enable transactions among
organizations and between
organizations and customers. www.dell.com Before you go on . . .
1. What is the difference between applications and computer-based information
2. Explain how information systems provide support for knowledge workers.
3. As we move up the organization’s hierarchy from clerical workers to executives, how does the type of support provided by information systems change? 2 .2 Competitive Advantage and Strategic
I nformation Systems
A competitive strategy is a statement that identiﬁes a business’s strategies to compete, its goals,
and the plans and policies that will be required to carry out those goals (Porter, 1985). Through
its competitive strategy, an organization seeks a competitive advantage in an industry. That is,
it seeks to outperform its competitors in some measure such as cost, quality, or speed. Competitive advantage helps a company control a market and generate larger-than-average proﬁts. SECTION 2.2 Competitive Advantage and Strategic Information Systems 37 Competitive advantage is increasingly important in today’s business environment, as we
demonstrate throughout the book. In general, the core business of companies has remained the
same. That is, information technologies simply offer the tools that can increase an organization’s
success through its traditional sources of competitive advantage, such as low cost, excellent customer service, and superior supply chain management. Strategic information systems (SISs)
provide a competitive advantage by helping an organization implement its strategic goals and increase its performance and productivity. Any information system that helps an organization gain
a competitive advantage, or reduce a competitive disadvantage, is a strategic information system. Porter’s Competitive Forces Model
The best-known framework for analyzing competitiveness is Michael Porter’s competitive forces model (Porter, 1985). Companies use Porter’s model to develop strategies to increase their competiti...
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