View the step-by-step solution to: Learning Objectives Chapter 2 1. Describe the components

CheckPoint: The Information Systems Depa...
CheckPoint: The Information Systems Department

· 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
Intro_to_Information_Systems_Ch02[1].pdf

Learning Objectives

Chapter 2

1. Describe the components of
computer-based information
systems.
2. Describe the various types of
information systems by breadth of
support.
3. Identify the major information
systems that support each
organizational level.
4. Describe strategic information
systems (SISs), and explain their
advantages.
5. Describe Porters competitive
forces and value chain models,
and explain how IT helps
companies improve their
competitive positions.
6. Describe ve strategies that
companies can use to achieve
competitive advantage in their
industries.
7. Describe how information
resources are managed, and
discuss the roles of the
information systems department
and the end users.

Information Systems:
Concepts and
Management

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Whats in IT for me?

ACC

2.1 Types of Information Systems
2.2 Competitive Advantage and Strategic
Information Systems
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 rening, 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 efciently. 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 companys biggest and most important IT projects. The purpose of Everest is to ensure that the projects with the biggest
benet 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 ofce 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 companys network and standardized its servers, providing connectivity to operations all over the world.
GIL 3 will focus on information management. It will employ Microsofts 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 Chevrons IT initiatives are closing the gaps that exist at
some of the largest energy companies: disconnects among the scientic 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, Chevrons IT function is now closely aligned with the companys strategy.
However, the IT group has not forgotten its responsibility to help Chevron reduce costs. In
just one example, the rms GIL 2 initiative saved Chevron $200 million in its rst 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 companys
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 specic purpose.
The two major determinants of IS support are the organizations 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
difcult. 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 Efciency, 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 specic 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
as follows.
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 les 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
ExecutivesStrategic decisions

Knowledge workers

Business intelligence systems,
Dashboards, Expert systems,
FAIS, OAS

Middle managersTactical decisions

Lower-level managers
Operational decisions

n
ma
Hu

sI
rce
ou
s
Re

POM IS

Finan
ce IS

Dashboards, Expert systems,
FAIS, OAS

Ac
co
un
tin
gI

S

IS
eting
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
nag ha
em in
ent

P ro

d u ct s

ents
aym
P
Internet

YOUR
ORGANIZATION

HA

SU

IES

p
shi
tion
ela ent
rR
me gem
sto ana
M

D

L
PP

ft
So

Cu

SUPPLIER SIDE
(B2B)
Business-to-business
Electronic commerce

HARD

PR

OD

T

Business-to-consumer
(B2C)
Electronic commerce

U

TS

er
s

C

C

s
Payment

Internet

PR

U
OD

ro
tP
Sof
d
Or
ine
Onl

pli
es
up
ply
Ord
ers

HARD

p
Su
Soft
S
line
On

Individuals

S

O

e O rders
n li n

du
cts

Paym
ents

SUPPLIERS

FIGURE 2.2 Information technology outside your organization (your supply chain).

Businesses
Business-to-business
(B2B)
Electronic commerce
on Customer Side

Major Capabilities of Information Systems
Perform high-speed, high-volume, numerical computations.
Provide fast, accurate communication and collaboration within and among
organizations.
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 efciently.
Increase the effectiveness and efciency 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
its output.
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 specic 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 programsthat is, information systemsin the other functional
areas as well, such as accounting and nance. ITs 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, nance 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

ITs 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 companys
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 at 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 CarMaxs 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 nd 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 tted with a radio frequency identication (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 CarMaxs nationwide catalog of 20,000 cars.
Therefore, if a customer nds 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 companys data to appraise vehicles. CarMax acquires half of its inventory through trade-ins
and the remainder via wholesale auctions.
How successful is CarMaxs system? While overall
used car sales have stagnated, CarMaxs sales have
increased dramatically. In 2006, the company sold
more than 300,000 cars, totaling $6.3 billion in sales
and $148 million in prot.
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 Drivers 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 CarMaxs 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 organizations 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 timethat is, as soon as the data are generatedand 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 organizations supply
chain describes the ow 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 ows, information ows, and
nancial ows. Information ows, nancial ows, 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 ows, nancial ows, 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 specic functional areas
and operations. We now consider information systems that support particular employees
within the organization. The right side of Figure 2.1 identies 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 le 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 nancial 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 signicantly 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.
Ofce 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 specic 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
Chapter 9.
Expert systems (ESs) attempt to duplicate the work of human experts by applying reasoning capabilities, knowledge, and expertise within a specic 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 specic 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

Ofce automation
system

Support daily work activities
of individuals and groups.

Microsoft Ofce

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,
summarized information
about aspects of business
important to executives.

Status of sales by
product

Supply chain
management system

Manage ows of products,
services, and information
among organizations.

Wal-Mart retail link
system connecting
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
systems?
2. Explain how information systems provide support for knowledge workers.
3. As we move up the organizations 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 identies a businesss 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 prots.

SECTION

2.2 Competitive Advantage and Strategic Information Systems 37

Competitive advantage is increasingly important in todays 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 organizations
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.

Porters Competitive Forces Model
The best-known framework for analyzing competitiveness is Michael Porters competitive forces model (Porter, 1985). Companies use Porters model to...

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