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section1.1 BusinessDrivenMIS

LEARNING OUTCOMES

1.1Describetheinformationageandthedifferencesamongdata,information,businessintelligence,andknowledge.

1.2Explainsystemsthinkingandhowmanagementinformationsystemsenablebusinesscommunications.

COMPETINGINTHEINFORMATIONAGELO.1.1:Describetheinformationageandthedifferencesamongdata,information,businessintelligence,andknowledge.

Didyouknowthat

ThemovieAvatartookmorethanfouryearstocreateandcost$450million?

LadyGaga'srealnameisStefaniJoanneAngelinaGermanotta?

Customerspay$2.6millionfora30secondadvertisingtimeslotduringtheSuperBowl?

A istheconfirmationorvalidationofaneventorobject.Inthepast,peopleprimarilylearnedfactsfrombooks.Today,bysimplypushingabutton,peoplecanfindoutanything,fromanywhere,atanytime.Weliveinthe ,wheninfinitequantitiesoffactsarewidelyavailabletoanyonewhocanuseacomputer.Theimpactofinformationtechnologyontheglobalbusinessenvironmentisequivalenttotheprintingpress'simpactonpublishingandelectricity'simpactonproductivity.Collegestudentstartupsweremostlyunheardofbeforetheinformationage.Now,it'snotatallunusualtoreadaboutabusinessstudentstartingamultimilliondollarcompanyfromhisorherdormroom.ThinkofMarkZuckerberg,whostartedFacebookfromhisdorm,orMichaelDell(DellComputers)andBillGates(Microsoft),whobothfoundedtheirlegendarycompaniesascollegestudents.

Youmaythinkonlystudentswellversedinadvancedtechnologycancompeteintheinformationage.Thisissimplynottrue.Manybusinessleadershavecreatedexceptionalopportunitiesbycouplingthepoweroftheinformationagewithtraditionalbusinessmethods.Herearejustafewexamples:

Amazonisnotatechnologycompanyitsoriginalbusinessfocuswastosellbooks,anditnowsellsnearlyeverything.

Netflixisnotatechnologycompanyitsprimarybusinessfocusistorentvideos.

Zapposisnotatechnologycompanyitsprimarybusinessfocusistosellshoes,bags,clothing,andaccessories.

Amazon'sfounder,JeffBezos,atfirstsawanopportunitytochangethewaypeoplepurchasebooks.Usingthepoweroftheinformationagetotailorofferingstoeachcustomerandspeedthepaymentprocess,heineffectopenedmillionsoftinyvirtualbookstores,eachwithavastlylargerselectionandfarcheaperproductthantraditionalbookstores.ThesuccessofhisoriginalbusinessmodelledhimtoexpandAmazontocarrymanyothertypesofproducts.ThefoundersofNetflixandZapposhavedonethesamethingforvideosandshoes.Alltheseentrepreneurswerebusinessprofessionals,nottechnologyexperts.However,theyunderstoodenoughabouttheinformationagetoapplyittoaparticularbusiness,creatinginnovativecompaniesthatnowleadentireindustries.

isaworldwhereinterconnected,Internetenableddevicesorthingscancollectand

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fact

informationage

TheInternetofThings(IoT)

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sharedatawithouthumanintervention.AnothertermcommonlyassociatedwiththeInternetofThingsis,whichreferstodevicesthatconnectdirectlytootherdevices.Studentswhounderstandbusiness

alongwiththepowerassociatedwiththeinformationageandIoTwillcreatetheirownopportunitiesandperhapsevennewindustries.Realizingthevalueofobtainingrealtimedatafromconnectedthingswillallowyoutomakebetterinformeddecisions,identifynewopportunities,andanalyzecustomerpatternstopredictnewbehaviors.Ourprimarygoalinthiscourseistoarmyouwiththeknowledgeyouneedtocompeteintheinformationage.Thecoredriversoftheinformationageare:

Data

Information

Businessintelligence

Knowledge(seeFigure1.2)

FIGURE1.2TheDifferencesamongData,Information,BusinessIntelligence,andKnowledge

APPLYYOURKNOWLEDGE

BUSINESSDRIVENDISCUSSION

ViewfromaFlatWorldBillGates,founderofMicrosoft,statedthat20yearsagomostpeoplewouldratherhavebeenaBstudentinNewYorkCitythanageniusinChinabecausetheopportunitiesavailabletostudentsindevelopedcountrieswerelimitless.Today,manyarguethattheoppositeisnowtrueduetotechnologicaladvancesmakingiteasiertosucceedasageniusinChinathanaBstudentinNewYork.Asagroup,discusswhetheryouagreeordisagreewithBillGate'sstatement.

machinetomachine(M2M)

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Dataarerawfactsthatdescribethecharacteristicsofaneventorobject.Beforetheinformationage,managers

manuallycollectedandanalyzeddata,atimeconsumingandcomplicatedtaskwithoutwhichtheywouldhavelittleinsightintohowtoruntheirbusiness.Lackingdata,managersoftenfoundthemselvesmakingbusinessdecisionsabouthowmanyproductstomake,howmuchmaterialtoorder,orhowmanyemployeestohirebasedonintuitionorgutfeelings.Intheinformationage,successfulmanagerscompile,analyze,andcomprehendmassiveamountsofdatadaily,whichhelpsthemmakemoresuccessfulbusinessdecisions.

APPLYYOURKNOWLEDGE

BUSINESSDRIVENMIS

WhoReallyWonthe2014WinterOlympics?Ifyouwerewatchingthe2014WinterOlympics,Ibetyouwereexcitedtoseeyourcountryanditsamazingathletescompete.AsyouwerefollowingtheOlympicsdaybyday,youwereprobablycheckingdifferentwebsitestoseehowyourcountryranked.Anddependingonthewebsiteyouvisited,youcouldgetaverydifferentanswertothisseeminglyeasyquestion.OntheNBCandESPNnetworks,theUnitedStatesrankedsecond,andontheofficialSochieOlympicwebsite,theUnitedStatesrankedfourth.Thesimplequestionofwhowonthe2014WinterOlympicschangessignificantly,dependingonwhomyouasked.

Inagroup,takealookatthefollowingtwochartsandbrainstormthereasonseachinternationallyrecognizedsourcehasadifferentlistingforthetopfivewinners.Whatmeasurementiseachchartusingtodeterminethewinner?Whodoyoubelieveisthewinner?Asamanager,whatdoyouneedtounderstandwhenreadingorlisteningtobusinessforecastsandreports?

WinterOlympics2014MedalRankingAccordingtoNBCNews

Rank Country Gold Silver Bronze Total

1 RussianFed 13 11 9 33

2 UnitedStates 9 7 12 28

3 Norway 11 5 10 26

4 Canada 10 10 5 25

5 Netherlands 8 7 9 24

WinterOlympics2014MedalRankingAccordingtoOfficialSochieOlympicWebsite

Rank Country Gold Silver Bronze Total

1 RussianFed. 13 11 9 33

2 Norway 11 5 10 26

3 Canada 10 10 5 25

Data

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4 UnitedStates 9 7 12 28

5 Netherlands 8 7 9 24

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

FIGURE1.3Tony'sSnackCompanyData

Whoaremybestcustomers?

Whoaremyleastprofitablecustomers?

Whatismybestsellingproduct?

Whatismyslowestsellingproduct?

Whoismystrongestsalesrepresentative?

Whoismyweakestsalesrepresentative?

WhatTonyneeds,inotherwords,isnotdatabutinformation.

Informationisdataconvertedintoameaningfulandusefulcontext.Havingtherightinformationattherightmoment

intimecanbeworthafortune.Havingthewronginformationattherightmoment,ortherightinformationatthewrongmoment,canbedisastrous.Thetruthaboutinformationisthatitsvalueisonlyasgoodasthepeoplewhouseit.Peopleusingthesameinformationcanmakedifferentdecisionsdependingonhowtheyinterpretoranalyzetheinformation.Thusinformationhasvalueonlyinsofarasthepeopleusingitdoaswell.

Information

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Tonycananalyzehissalesdataandturnthemintoinformationtoansweralltheprecedingquestionsandunderstandhowhisbusinessisoperating.Figures1.4and1.5,forinstance,showusthatWalmartisRobertaCross'sbestcustomerandthatRufflesisTony'sbestproductmeasuredintermsoftotalsales.Armedwiththisinformation,Tonycanidentifyandthenaddresssuchissuesasweakproductsandunderperformingsalesrepresentatives.

FIGURE1.4Tony'sDataSortedbyCustomerWalmartandSalesRepresentativeRobertaCross

FIGURE1.5InformationGainedafterAnalyzingTony'sData

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A isadatacharacteristicthatstandsforavaluethatchangesorvariesovertime.Forexample,inTony'sdata,priceandquantityorderedcanvary.Changingvariablesallowsmanagerstocreatehypotheticalscenariostostudyfuturepossibilities.Tonymayfinditvaluabletoanticipatehowsalesorcostincreasesaffectprofitability.Toestimatehowa20percentincreaseinpricesmightimproveprofits,Tonysimplychangesthepricevariableforallorders,whichautomaticallycalculatestheamountofnewprofits.Toestimatehowa10percentincreaseincostshurtsprofits,Tonychangesthecostvariableforallorders,whichautomaticallycalculatestheamountoflostprofits.Manipulatingvariablesisanimportanttoolforanybusiness.

BusinessIntelligenceisinformationcollectedfrommultiplesourcessuchassuppliers,customers,

competitors,partners,andindustriesthatanalyzespatterns,trends,andrelationshipsforstrategicdecisionmaking.BImanipulatesmultiplevariablesandinsomecasesevenhundredsofvariables,includingsuchitemsasinterestrates,weatherconditions,andevengasprices.TonycoulduseBItoanalyzeinternaldata,suchascompanysales,alongwithexternaldataabouttheenvironmentsuchascompetitors,finances,weather,holidays,andevensportingevents.Bothinternalandexternalvariablesaffectsnacksales,andanalyzingthesevariableswillhelpTonydetermineorderinglevelsandsalesforecasts.Forinstance,BIcanpredictinventoryrequirementsforTony'sbusinessfortheweekbeforetheSuperBowlif,say,thehometeamisplaying,averagetemperatureisabove80degrees,andthestockmarketisperformingwell.ThisisBIatitsfinest,incorporatingalltypesofinternalandexternalvariablestoanticipatebusinessperformance.

Abigpartofbusinessintelligenceisanareacalled ,whichextractsinformationfromdataandusesittopredictfuturetrendsandidentifybehavioralpatterns.Topmanagersusepredictiveanalyticstodefinethefutureofthebusiness,analyzingmarkets,industries,andeconomiestodeterminethestrategicdirectionthecompanymustfollowtoremainprofitable.Tonywillsetthestrategicdirectionforhisfirm,whichmightincludeintroducingnewflavorsofpotatochipsorsportsdrinksasnewproductlinesorschoolsandhospitalsasnewmarketsegments.

Knowledgeincludestheskills,experience,andexpertise,coupledwithinformationandintelligence,thatcreatea

person'sintellectualresources. areindividualsvaluedfortheirabilitytointerpretandanalyze

variable

Businessintelligence(BI)

predictiveanalytics

KnowledgeKnowledgeworkers

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information.Today'sworkersarecommonlyreferredtoasknowledgeworkersandtheyuseBIalongwithpersonalexperiencetomakedecisionsbasedonbothinformationandintuition,avaluableresourceforanycompany.

APPLYYOURKNOWLEDGE

BUSINESSDRIVENETHICSANDSECURITY

TheInternetofThingsIsWideOpenForEveryone!IoTistransformingourworldintoalivinginformationsystemaswecontrolourintelligentlightingfromoursmartphonetoadailyhealthcheckfromoursmarttoilet.Ofcourse,withallgreattechnologicaladvancescomeunexpectedrisks,andyouhavetobepreparedtoencountervarioussecurityissueswithIoT.Justimagineifyourdevicesarehackedbysomeonewhonowcanshutoffyourwater,takecontrolofyourcar,orunlockthedoorsofyourhomefromthousandsofmilesaway.WearejustbeginningtounderstandthesecurityissuesassociatedwithIoTandM2M,andyoucanbesurethatsensitivedataleakagefromyourIoTdeviceissomethingyouwillmostlikelyencounterinyourlife. (FormoreinformationaboutIoT,refertotheOpeningCaseStudy.)

Inagroup,identifyafewIoTdevicesyouareusingtoday.ThesecanincludefitnesstrackersthatreporttoyouriPhone,sportsequipmentthatprovidesimmediatefeedbacktoanapp,orevensmartvacuumcleaners.IfyouarenotusinganyIoTdevicestoday,brainstormafewyoumightpurchaseinthefuture.HowcouldacriminalorhackeruseyourIoTtostealyoursensitivedata?Whatpotentialproblemsorissuescouldyouexperiencefromthesetypesofillegaldatathefts?WhatmightbesomeofthesignsthatsomeonehadaccessedyourIoTdataillegally?Whatcouldyoudotoprotectthedatainyourdevice?

ImaginethatTonyanalyzeshisdataandfindshisweakestsalesrepresentativeforthisperiodisCraigSchultz.IfTonyconsideredonlythisinformation,hemightconcludethatfiringCraigwasagoodbusinessdecision.However,becauseTonyhasknowledgeabouthowthecompanyoperates,heknowsCraighasbeenoutonmedicalleaveforseveralweekshence,hissalesnumbersarelow.Withoutthisadditionalknowledge,Tonymighthaveexecutedabadbusinessdecision,deliveredanegativemessagetotheotheremployees,andsenthisbestsalesrepresentativesouttolookforotherjobs.

Thekeypointinthisscenarioisthatitissimplyimpossibletocollectalltheinformationabouteverysituation,andyetwithoutthat,itcanbeeasytomisunderstandtheproblem.Usingdata,information,businessintelligence,andknowledgetomakedecisionsandsolveproblemsisthekeytofindingsuccessinbusiness.Thesecoredriversoftheinformationagearethebuildingblocksofbusinesssystems.

THECHALLENGEOFDEPARTMENTALCOMPANIESANDTHEMISSOLUTION

LO1.2:Explainsystemsthinkingandhowmanagementinformationsystemsenablebusinesscommunications.

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).

FIGURE1.6DepartmentsWorkingIndependently

Eachdepartmentperformsitsownactivities.Salesandmarketingfocusonmovinggoodsorservicesintothehandsofconsumerstheymaintaintransactionaldata.Financeandaccountingfocusonmanagingthecompany'sresourcesandmaintainmonetarydata.Operationsmanagementfocusesonmanufacturingandmaintainsproductiondatahumanresourcesfocusesonhiringandtrainingpeopleandmaintainsemployeedata.Althougheachdepartmenthasitsownfocusanddata,nonecanworkindependentlyifthecompanyistooperateasawhole.Itiseasytoseehowabusinessdecisiononedepartmentmakescanaffectotherdepartments.Marketingneedstoanalyzeproductionandsalesdatatocomeupwithproductpromotionsandadvertisingstrategies.Productionneedstounderstandsalesforecaststodeterminethecompany'smanufacturingneeds.Salesneedstorelyoninformationfromoperationstounderstandinventory,placeorders,andforecastconsumerdemand.Alldepartmentsneedtounderstandtheaccountingandfinancedepartments'informationforbudgeting.Forthefirmtobesuccessful,alldepartmentsmustworktogetherasasingleunitsharingcommoninformationandnotoperateindependentlyorinasilo(seeFigure1.7).

FIGURE1.7DepartmentsWorkingTogether

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TheMISSolutionYouprobablyrecalltheoldstoryofthreeblindmenattemptingtodescribeanelephant.Thefirstman,feelingtheelephant'sgirth,saidtheelephantseemedverymuchlikeawall.Thesecond,feelingtheelephant'strunk,declaredtheelephantwaslikeasnake.Thethirdmanfelttheelephant'stusksandsaidtheelephantwaslikeatreeoracane.Companiesthatoperatedepartmentallyareseeingonlyonepartoftheelephant,acriticalmistakethathinderssuccessfuloperation.

Successfulcompaniesoperatecrossfunctionally,integratingtheoperationsofalldepartments.Systemsaretheprimaryenablerofcrossfunctionaloperations.A isacollectionofpartsthatlinktoachieveacommonpurpose.Acarisagoodexampleofasystem,sinceremovingapart,suchasthesteeringwheeloraccelerator,causestheentiresystemtostopworking.

Beforejumpingintohowsystemswork,itisimportanttohaveasolidunderstandingofthebasicproductionprocessforgoodsandservices. arematerialitemsorproductsthatcustomerswillbuytosatisfyawantorneed.Clothing,groceries,cellphones,andcarsareallexamplesofgoodsthatpeoplebuytofulfilltheirneeds. aretaskspeopleperformthatcustomerswillbuytosatisfyawantorneed.Waitingtables,teaching,andcuttinghairareallexamplesofservicesthatpeoplepayfortofulfilltheirneeds(seeFigure1.8).

FIGURE1.8DifferentTypesofGoodsandServices

system

Goods

Services

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istheprocessbywhichabusinessprocessesrawmaterialsorconvertsthemintoafinishedproductforitsgoodsorservices.Justthinkaboutmakingahamburger(seeFigure1.9).First,youmustgatheralloftheinputsorrawmaterialssuchasthebun,patty,lettuce,tomato,andketchup.Second,youprocesstherawmaterials,sointhisexampleyouwouldneedtocookthepatty,washandchopthelettuceandtomato,andplacealloftheitemsinthebun.Finally,youwouldhaveyouroutputorfinishedproductyourhamburger! istherateatwhichgoodsandservicesareproducedbasedontotaloutputgiventotalinputs.Givenourpreviousexample,ifabusinesscouldproducethesamehamburgerwithlessexpensiveinputsormorehamburgerswiththesameinputs,itwouldseeariseinproductivityandpossiblyanincreaseinprofits.Ensuringtheinput,process,andoutputofgoodsandservicesworkacrossallofthedepartmentsofacompanyiswheresystemsaddtremendousvaluetooverallbusinessproductivity.

FIGURE1.9Input,Process,OutputExample

Production

Productivity

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SystemsThinkingisawayofmonitoringtheentiresystembyviewingmultipleinputsbeingprocessedor

transformedtoproduceoutputswhilecontinuouslygatheringfeedbackoneachpart(seeFigure1.10). isinformationthatreturnstoitsoriginaltransmitter(input,transform,oroutput)andmodifiesthetransmitter'sactions.Feedbackhelpsthesystemmaintainstability.Forexample,acar'ssystemcontinuouslymonitorsthefuellevelandturnsonawarninglightifthegaslevelistoolow.Systemsthinkingprovidesanendtoendviewofhowoperationsworktogethertocreateaproductorservice.Businessstudentswhounderstandsystemsthinkingarevaluableresourcesbecausetheycanimplementsolutionsthatconsidertheentireprocess,notjustasinglecomponent.

FIGURE1.10OverviewofSystemsThinking

isabusinessfunction,likeaccountingandhumanresources,whichmovesinformationaboutpeople,products,andprocessesacrossthecompanytofacilitatedecisionmakingandproblemsolving.MISincorporatessystemsthinkingtohelpcompaniesoperatecrossfunctionally.Forexample,tofulfillproductorders,anMISforsalesmovesasinglecustomerorderacrossallfunctionalareas,includingsales,orderfulfillment,shipping,billing,andfinallycustomerservice.Althoughdifferentfunctionalareashandledifferentpartsofthesale,thankstoMIS,tothecustomerthesaleisonecontinuousprocess.Ifonepartofthecompanyisexperiencingproblems,however,then,likethecarwithoutasteeringwheel,theentiresystemfails.Iforderfulfillmentpackagesthewrongproduct,itwillnotmatterthatshipping,billing,andcustomerservicedidtheirjobsright,sincethecustomerwillnotbesatisfiedwhenheorsheopensthepackage.

SystemsthinkingFeedback

Managementinformationsystems(MIS)

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MIScanbeanimportantenablerofbusinesssuccessandinnovation.ThisisnottosaythatMISequalsbusinesssuccessandinnovation,orthatMISrepresentsbusinesssuccessandinnovation.MISisatoolthatismostvaluablewhenitleveragesthetalentsofpeoplewhoknowhowtouseandmanageiteffectively.ToperformtheMISfunctioneffectively,almostallcompanies,particularlylargeandmediumsizedones,haveaninternalMISdepartment,oftencalledinformationtechnology(IT),informationsystems(IS),ormanagementinformationsystems(MIS).Forthepurposeofthistext,wewillrefertoitasMIS.

MISDepartmentRolesandResponsibilitiesMISasadepartmentisarelativelynewfunctionalarea,havingbeenaroundformallyforabout40years.Jobtitles,roles,andresponsibilitiesoftendifferfromcompanytocompany,butthemostcommonaredisplayedinFigure1.11.Althoughmanycompaniesmaynothaveadifferentindividualforeachofthesepositions,theymusthavetopmanagerswhotakeresponsibilityforalltheseareas.

FIGURE1.11TheRolesandResponsibilitiesofMIS