This is Dr. Nancy Zeliff, and I present to you Chapter 1, The Information Age in Which you Live, and an introduction to Management Information Systems.
After reading the chapter and viewing/listening to the lecture, you will meet these objectives. Define MIS and describe the three resources within it-people, information, and information technology. Describe how to use break-even analysis to assess the financial impact of IT. Describe how to use Porter’s Five Forces Model to evaluate an industry. And, compare and contrast Porter’s three generic strategies and the RGT framework as approaches to the development of business strategy
Management information systems deals with the planning for, development, management, and use of information technology tools to help people perform all tasks related to information processing and management. Stated another way more simply, people use information technology (IT) to work with information.
MIS deals with the coordination and use of three very important organizational resources: people, information, and technology. We will explore numerous aspects of many different technologies like databases and artificial intelligence, but our real focus is on how people in organizations use technologies to work with and massage information to help an organization in achieving its goals of a competitive advantage, doing things cheaper and faster, increasing revenue, and innovating new processes.
The first MIS resource is information. Data consists of raw facts that describe a particular phenomenon such as the current temperature, the price of a movie, or your age. Information consists of data that have a particular meaning within a specific context. The current temperature becomes information if you are planning what to wear today; you don’t care what the price of a movie rental is at that point. When you stand before a Red Box, you then care about the price of a movie rental. Information is often aggregated data that has meaning such as average temperature for a particular city or region or the coldest or highest temperature on record for that city or region.
Business Intelligence or BI is collective information about your customers, competitors, business partners, the competitive environment, and your internal operations---it’s information on steroids, as the saying goes. BI allows organizations to make important, strategic decisions.
Information exhibits high quality only if it is pertinent, relevant, and useful. Attributes of high quality information include timeliness, location, form, and validity. Timeliness has two aspects. Do you have access to information when you need it and does the information describe the time period you want? If you want to know the current temperature to decide what to wear, it is of no value to know that the high temperature of the day for July 4 was 101 degrees. You want to know what the high temperature today will be so you can make plans. The location of information is of no value to you if you can’t access it. IT can create quality information by bringing information through mobile commerce, workplace virtualization, and cloud computing. Two aspects of form include the format and accuracy. Information can be in the format of text, audio, video, or other physical formats and must be error free. The lack of any of these four attributes can lead to GIGO or garbage-in, garbage out. If the information coming in is bad, then the decision made with that information is bad. Validity addresses the credibility of the information. The Internet today is a primary source of information, but its credibility or accuracy is questionable because of the lack of quality control or verification.
Information flows through an organization in an upward direction, originating at the lowest level and is passed upward through various levels. Along the way, information takes on a finer level of granularity, which is the extent of detail within the information. Information is finer at the lower levels because people need to work with information in great detail. At the upper organizational levels, information becomes coarser because it is summarized or aggregated in some way. Strategies, goals, and directives that originate at a higher level are passed to lower levels in downward information flows. Information flows horizontally between functional business units and work teams. All units of an organization need to inform other units of their processes and be informed by the other units regarding their processes. Information is communicated from and to customers, suppliers, distributors, and other partners for the purpose of doing business. These flows of information are inward and outward.
Internal information describes specific operational aspects of an organization. External information describes the environment surrounding the organization. Objective information quantifiably describes something that is known. Subjective information attempts to describe something that is unknown. Consider a bank that faces the decision about the interest rate to offer on a CD. That bank will use internal information on how many customers it has who can afford to buy a CD, external information on what rate other banks are offering, objective information on what is today’s prime interest rate, and subjective information on what the prime interest rate is expected to be in the future.
The second MIS resource is people. A technology-literate worker knows how and when to apply technology. An information-literate knowledge worker knows how and where to obtain information, understands the information once it is received, and can act appropriately based on the information to help the organization achieve the greatest advantage. Ethical responsibilities are also important. Ethics are the principles and standards that guide our behavior toward other people. Being ethically and socially responsible involves not only the actions one person initiates but also what is done to protect oneself and one’s organizations against the actions of others.
The third MIS resource is information technology or IT, which includes computer-based tools that people use to work with information. Hardware is a physical device that makes up a computer such as the CPU, storage device, input device such as a mouse, and an output device such as a monitor or printer. Software consists of system software (operating system) and application software such as spreadsheet, presentation, database, or word processing.
When considering the use of any resource in an organization, you need to assess its financial impact. A simple and powerful tool for assessing the financial impact of a resource is called break-even analysis. Consider fixed costs, variable costs, and revenue in figuring the break-even analysis. IT can definitely impact break-even analysis.
IT can reduce fixed costs. Digital storefronts, such as eBay and Amazon, only have a presence in the virtual world and have no fixed costs of retail space. Telecommuting allows employees to work from home or “anywhere” and can reduce expenses related to office space, utilities, parking, and support staff. VoIP or Voice over Internet protocol allows workers to use the Internet for making phone calls instead of leasing traditional telephone lines. Cloud computing reduces the need for hardware infrastructure like servers or software. Throughout this course, IT-enabled opportunities for reducing fixed costs will be highlighted.
IT can also reduce variable costs. Virtual goods are digital and have no cost to duplicate and sell again and again. In virtual worlds such as Farmville or Second Life, a better tractor for farming or cool clothes to go dancing are sold, with absolutely no variable costs involved. Crowdsourcing is a great way to create value for free. Non-paid employees do your work. eBay doesn’t employ anyone to buy or sell in its marketplace. eBay buyers and sellers do the work! YouTube doesn’t hire people to post videos. Instead YouTube account holders work to capture and upload a video.
IT can also increase revenues. Recommendation engines make recommendations to customers based on likes, dislikes, and past purchases. Amazon buyers are shown additional book titles to purchase based on past purchases or searches. Long-tail economics refers to the 80/20 rule, which states that 20 percent of the total available products are worth selling. But iTunes offers millions of songs and Amazon has over 1 million book titles, while retail music and book stores have a much smaller inventory. There are lower fixed costs with digital storefronts, which has already been discussed.
Business strategy drives technology decisions. In one’s personal life, you might buy a new technology because it’s cool. Not in the business world. Businesses carefully scrutinize their technology purchases, seeking to find and justify a competitive advantage. A competitive advantage is providing a product or service in a way that customers value more than what the competition is able to do. Porter’s Five Forces Model helps business people understand the related attractiveness of an industry and the industry’s competitive pressures regarding buyer power, supplier power, threat of substitute products or services, threat of new entrants, and rivalry among existing competitors.
Buyer power is high when buyers have many choices and low when their choices are few. Competitive advantages are created to get buyers to stay with a given company. Loyalty programs such as frequent flyer programs are an example of what companies offer to keep buyers when buyer power is high. NetFlix had first-mover advantage in that they were the first to offer movie rentals using the Internet as the primary platform. As a buyer or customer, you want buyer power to be high and supplier power to be low.
Supplier power is high when buyers have few choices and low when choices are many. As a supplier organization, you want supplier power to be high and buyer power to be low. Suppliers use patents and trademarks to minimize the extent that products and services can be duplicated and offered by other organizations. Switching costs are often in place to deter customers from leaving.
The threat of new entrants is high when it is easy for new competitors to enter the market and low when there are significant barriers to entering a market. Switching costs can reduce this threat. Switching costs are a true monetary cost or a non-cost that makes buyers reluctant to switch to another product or service. Cell phone contracts are often one or two years in length. If one leaves that contract, there is a monetary fee assessed. A noncost switching cost can occur because one’s service will be reduced or lost if there is a move to another supplier.
The threat of new entrants is high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market. An entry barrier is a product or service feature that customers have come to expect from organizations in a particular industry and that must be offered by an entering organization to compete and survive. This is a vicious business cycle of building a competitive advantage, enjoying first-mover advantage, and then watching your competition develop similar initiatives thereby nullifying your competitive advantage.
Rivalry among existing competitors is high when competition is fierce and low when competition is more complacent. Rarely can you identify an industry that exhibits complacent competition.
Among varied business models is Porter’s three generic strategies and RGT. Porter identified three generic business strategies for beating the competition: overall cost leadership, differentiation, and focus.
Overall cost leadership is offering the same or better quality product or service at a price that is less than what any of the competition is able to do. Wal-mart’s slogan of “Always Low Prices” and “Every Day Low Prices” accurately describe the strategy of overall cost leadership. Automobile makers of Hyundai and Kia similarly attempt to sell reliable low-cost vehicles. IT can help tighten the supply chain and help you capture customer information to better understand buying patterns.
Differentiation is offering a product or service that is perceived as being “unique” in the marketplace. Hummer is an example with its unique design and eye appeal. Even its slogan “Like Nothing Else” attempts to differentiate it from any other vehicles in the world. Apple also has provided unique technology over the years with the iPhone and iPad.
Focus is a strategy defined as focusing on offering products and services to a particular market segment or buyer group, within a segment of a product line, and/or to a specific geographic market. Restaurants focus on only a certain type of food - Mexican, Chinese, Italian.
Run-Grow-Transform Framework or RGT is a helpful conceptual framework for viewing the bigger organizational picture and determining the use of IT. This approach allocates in terms of percentages how you will spend your IT dollars on various types of business strategies. If you wanted to run your business “as usual” and cheaper and faster than the competition, you would allocate more IT dollars to the “run” strategy. If you wanted to transform your business in some way, you would allocate more IT dollars to a transformation strategy.
Run is optimizing the execution of existing processes. Grow is increasing the market share, product or service offerings, and expanding markets. Transform includes innovating businesses processes and/or products or services in a completely new way.
RGT is very similar to Porter’s three generic strategies. Run is overall cost leadership. Grow is focus and differentiation. Transform is differentiation (new).
This concludes the lecture for Chapter 1.