Information Systems & Engineering Economics

Basics of Management Theory and Practices

UNIT-I

Mr. Sumit Shinde

Assistant Professor
Computer Engineering Department

Pune Institute of Computer Technology

1
Organizations and Information Systems
 Organization: Collection of actors engaged in
interactions that serve a common broader goal.

 Information System: Binds organization

internally as well as enables its interaction with
the outside world through the internet.
Tata Motors
 One of India‟s largest automobile
manufacturers.
 Gained worldwide prominence when, in
2009, it launched the “TATA NANO”.

 WHY????
Advanced Information Systems
 Consist many computers, a network , complex
software.
 IS as a digital nervous system.
 Transmits connections across.
 Informs employees working at different layers.
 Enable manager to view their business and
operations in comprehensive manner and to
take decisions accordingly.
 Supply Chain Management System
 Company informs its production schedule
(Production Plan).
 Supplier inform the client of their own schedule of
manufacture.
 Supplier Dispatches required parts along with
dispatch details.
 Supplies are checked.
 Quality checking & Inventory Update.
 Payment

 Information required for and about activities is

managed by IS.
 IS for managing marketing channel
 Dealers sell and service TM automobiles.
 Dealers report about orders, sells, payments,
deliveries, service requests and other business
data.
 TM inform dealers about delivery of vehicles,
shipping notices, amounts received, amount billed.

 Information received from dealers about demand for

products helps TM plan its production schedule.
 TM can plan promotion campaign, new design for specific
model etc.
Modern Organization
 Group of motivated people with shared
goals.
 Organization with name and usually with
physical location by which it is identified.
 Commercial Organization.
 Non-governmental organization.
 Government Organization.
 IT Enabled Organization- infrastructure
with components of IT.
 Networked Organization- organizations are
linked as nodes on the network where they
receive and transmit information. Sensing and
responding to this flow of information.
 Dispersed Organization- Organization has
operations in many cities in India and in other
parts of world. To meet customer needs or to
locate functions where resources are available.
 Knowledge Organization- Organization with
knowledge workers (who enjoy greater
autonomy in their work)
 Information
 Used to achieve organizational goals.
 It is like a glue that binds organization and its
functions together.
 It is key component for competing in the market.
 It is stored, processed and converted into forms
that make it an integral part of an organization.
 Referred as organizations knowledge base
Role of Information systems in
Organization
 Computers and IT are key ingredients of modern IS.
IT:
 constitute the material aspects of IS.
 IT is what people buy and configure and use.
IS:
 constituted by the artefacts of technology as well as the
people and organizations that use them.
 IS is the manner in which we understand , conceptually,
the use of IT in organizations and by people.

 Ex. Printer in office

 Operational level- simple transaction processing
 Strategic Level- Making important and
Competitive decisions.

 Three fundamental Roles:

 Information systems support business processes
and operations
 support decision making of employees and
managers
 support strategies for competitive advantage
 Information systems support business
processes and operations:
 Room checkin checkout
 Hotel booking etc.
 The running of an organization has now become
smoother with well integrated information systems.
 support decision making of employees and
managers
 Use of internal and external information for decision
making.
 Decision making is an integral part of management.
 IS types like MIS, DSS and EIS are specially designed to
help management in their decision making process.
 support strategies for competitive
advantage
 Convert Information to knowledge so that they
can provide services and products that are
ahead of their competitors.
 hospitality operations with the innovative
mediums for comparative advantage over their
competitors.
 hospitality industry
 Reduced cost of goods.
 brand awareness
 good customer-organizational relationship
 robustness and security of the system are equally
important to ensure system confidentiality, integrity
and availability (CIA).
 Operational Challenges
 Bad Communication
 Unclear Requirements
 Increasing Cost
 Delayed Project Delivery
 Market Pressure

 In order for the project to succeed from an

operational perspective all stakeholders including the
end-user (customers), managers who influence
direction and budget, and software developers must
be in full collaboration to ensure successful delivery
of the new information system.
 Technical Challenges
 Technical challenges determine the true system
functionality, reliability and availability
 Knowing the Technical needs
 Right Design Patterns
 Quality Control
 Security:
 Educating your employees about reverse
engineering is also another key important
thing that developers and technical staff
overlook.
 Always Debugging
 ENIAC: way to commercial
Computers
 Electronic Numerical Integrator and Computer
(ENIAC).
 Built by john mouchly and presper Eckert.
 With the lesson from ENIAC in 1950‟s development of
commercial computers started.
 Computing hardware was separated from the
instructions and separate stream in software evolved.
 In 1960‟s set of technology evolved allowed data
interchange.
 Set of standards were developed.
 First was ALOHA in 1970
 In India first computer was obtained by the Indian
statistical Institute in Kolkata.
 Advent of Artificial Intelligence
 Research in this field began in 1956 in USA.
 It dealt with building computers and writing
software that could emulate human capabilities in
problem solving.
 Initiated with sister field robotics.
 Researchers examined prospects of keeping
information about the world in computer memory
to generate useful conclusion.
Advent of Personal Computing
 Size of computing hardware decreased and
became available in 1980s
 Technology was standardized and distributed
 Software used on personal computers also
became a product.

Free software movement: Initiated by Richard

Stallman, a researcher in USA.
Advent of the Internet
 Commercial organizations were linked by data
networks based on standard known as IP.
 In france, the minitel network was popular in the 1980s,
which provided text on prices, ticket booking, news.
 Late 1980s LAN were widely used. Companies started
production of networking equipment's.
 In 1990s Tim Berners-Lee, a British scientist designed
and implemented HTTP, which was to become basic for
WWW.
 Internet was opened for commercial access in 1993.
 The 2000 saw the growth of social networking sites on
the web.
 Managing Information Systems in
Organization
- Managing IS is a challenging task
- Organizations change to respond to the needs of the
business and economic environment.
- Organization also change as their employees gain
experience and learn.
- When organizations introduce new IS they expect certain
changes to happen.
- The new IS could also lead to better employee satisfaction
.
- Resistance to change in organization.
 First, second and third order effects:
 First Order:
 The outcomes that arises as a direct consequences of
the introduction of an IS are known as first-order
effects.
 Usually visible in organization, as increased speed of
processing, increased volume processing.
 Second Order:
 Such effects would not be immediately visible as they
may require years to become visible or measurable.
 Ex. Payroll system: hiring, transfer and promotion
process are easier to manage, further able to implement
some innovative schemes for user.
 Third order:
 Competitive pressure may force all firms in the industry
to adopt such an IS to retain their competitive position.
 Effects of Competition and
Organizational Traits

 Competitive environment
 Competitive Strategy
 Culture / Work Culture
- Competitive Culture- autonomy in IS
- Cooperative Culture- Central IS
 Effects of organizational Structure
 Hierarchy Structure
- Functions of different people in the hierarchy would
also be different, these functional differences are used to
create divisions, departments and groups within larger
departments.
 Matrix Structure
- Employees are assigned to groups based on projects and
tasks they are working on and reporting structure is
established for the duration of project.

*Workflow systems in government departments

 Support for organizational processes
 A process is a set of steps required to
accomplish a task.
 IS are widely used to support processes. And to
automate many manual processes.
 Ex. Account office
 When new system is introduced, it has to blend
itself with existing IT infrastructure.
 CRM
 Choosing and Implementing Information
Systems
 From vendor or build it In-house
 Organization have to weigh the implications of
getting a CRM system in the context of its culture,
structure, current processes and infrastructure.
 Detailed assessment of how system can be
integrated with current systems already in use.
 Effects of using IS will prompt people to imagine
how they could further modify the system to
better suit their needs.
 IS and organization interact in dynamic and
evolving manner.
 The Information System Manager
and his challenges
 CIO (Chief Information Officer)
 What information System to build?
 How much to spend on Information Systems?
 What level of capabilities should be created with
IS?
 How centralized should the services be?
 What security levels are required?
 What is the technology road map for the
organization?
What information System to build?
 Addresses the fundamental need of IS.
 IS serves many, determine which to be addressed.
 Identifying and prioritizing the need.
 Determining which system(out of many available) best
suits the firm‟s needs.
 Determine which one suits the firm given its resources.
 Determined by competitive and organizational
considerations.
 Examine existing culture, structure and infrastructure of
the firm.
How much to spend on Information
Systems?
 Decide how much money has to be allocated
for the system and in what manner. (budgeting
decision)
 Considering how much competitors are
spending on similar systems. (Information may
be available from industry reports and financial
information)
 Estimating strategic importance of system
 Computing a ROI (Return on Investment)
What level of capabilities should be
created with IS?
 Ex. Sales Organization
- Should the system support entire sales / marketing
team or particular department?
- Should the system include collecting data and providing
reports to primary sales partner?
- Should the system be available through internet or
through internal network?

 Questions clearly identify needs and priorities of system

 Decide issue of scalability
 Outsourcing a function
How centralized should the
services be?
 Decision for centralized Vs decentralized computing
facilities.
 Each choice has different implications for scalability and
flexibility.
 Centralized is easier- can be deployed for many
divisions
 Decentralized - have flexibility to configure the system
to suit their special needs and can move rapidly to
acquire change.
What security levels are required?
 Threats from internal and external sources.
 Managers decision is to ensure an adequate level of
safety and security to IS.
 Excessive security measures are difficult to work with,
expensive to maintain.
 Low security leads to problems of data theft, viruses
etc.
 The best security level has to be an organization wide
decision.
 What is the technology road map
for the organization?
 Challenge of ensuring that IS remain current, relevant and useful.
 Create technology road map for organization.
 Road map includes organization‟s strategic goals and plans.
 Road map decisions includes answering following
questions
- What is the horizon for desktop computers and what will
replace them?
- Which proprietary software in the organization should be
replaced by FOSS?
- How should the current enterprise applications be upgraded and
expanded?
- Which of the current networking components being used are
going to phase out?
- What will be the future requirements for networking and
telecommunications and how should infrastructure be created?
Concepts of Information
Systems
 Data and Information
Ex. Railway ticket booking
 Data is used to produce information
 Information can be treated as raw data
 Hence, Information forms the basis for
managing the organization
 Information as a resource
 Commercial firm resources- money (capital),
Labor, materials
 Resources can be used as specific or general use.
 Economic productivity is measured by the units
of outputs per units of input resources (as
money)
 Information as a resource.
 Why??
 Information resources are assets created by an
organization
 Information in organizational functions
 Tasks among various departments or functions.
 Hierarchy
 Information, data and IS are extensively used in
organization.
 Data is used to create information about money.(for
accounting organization)
 Data created and used by different members of the
function vary. (Ex. marketing)
 Workers and managers use the same systems but see
and use different aspects. (production process and
production target)
 Human resource function of firm.
 Types of Information Technology
 Modern IS are designed largely to support
individuals, groups or enterprise functions.
 Functional IT: Used by individual, highly
valuable to the user who is able to function
with them.
 Network IT: used by individuals in group.
Allows pattern of work to „emerge‟
 Enterprise IT: supports individuals, groups and
entire functions across organization.
Types of Information Systems
 Transaction Processing Systems
- Transaction is an activity that generates information.
- It record all the transactions as they happen.
- Considered to be online system.
- Systems respond in pre-specified manner.
- Present carefully designed interfaces to the user.
- Transaction data is recorded as transaction proceeds.
- Enables day-to-day functioning of the enterprise.
- Preserves digital record of the functioning
- Ex. ATM transaction
 Management Information Systems
- Process the information generated by transaction
processing system and create reports.
- Helps to sense the organization by seeing and
reviewing all the activities.
- Real time vs batch mode.
- Drill down approach

- ESS (executive support systems)

- Decision support system (MIS)
- Knowledge workers use MIS for strategic level
plans.
 Decision Making with MIS
 Tactical Decision
- Minute, low level decisions
- Sales person
- Shop floor assembly line worker
- Nurse attending to patients
 Operational Decisions
- Decisions made by managers, medium level
- Supported by decision support system.
- Ex.
- Operation manager- decision on inventory level
- Finance manager- best allocation for investments
- Software project manager- software plan and schedule
- Marketing manager- find least cost route
 Operational Decision Cont….

- Travelling salesman problem

- Control and planning

- Control means monitoring activities against given
objectives, and taking actions relevant to situations.
- Planning means forecasting situations in the future
and arranging for activities that will address them.
 Strategic Decisions
- Decisions by top managers
- Decisions are related to vision and mission.
- Executive information systems are used for
making such decisions.
- Ex.
- Pharmaceutical companies
- Revenue department of state in india
- Indian railway
Communication in Organization
 Types of communication
- Synchronous
- Asynchronous
- Simplex
- Half duplex
- Duplex
 Examples of Communication in organization
- Mobile phones to call clients
- Smart mobile phones to connect with CRM
- Hand held computers to doctors
- GPS system in taxi
- GPS in bus services (Germany)
 Decision making with communication
technology

- Fuel retailer
- RFID in banking systems
 Information Systems and
Management Strategy
 Case Study: Flipkart.com
- Established in September 2007
- 24-h shopping experience
- Great experience of buying books
- Partnership with courier companies and Postal service
of Indian government
- Cash on delivery facility
- Customer care service, free and on-time delivery
- Low maintenance cost
- Threats from eBook readers, laptop and tablet
computers
- Added more distribution centers
- Increased production line by including music, movies
and electronic gadgets.
 Competitive Environment of
Business
 All firms have rivals in the industry in which they operate
 Firms have to compete with each other and also maintain
relations with their vendors and partners.
 Firms not only compete with buyers of their products but
also compete to get best vendors for buying components.
 Partnering for Mutual Benefit

- Partnering to provide services is beneficial to both

parties
(mutually beneficial)
- Electric utility
- Banking firm
- Allows firm to focus on their core competence
(set of skills for doing business in unique manner)
- Rely on core competence of partner firm
- Costs incurred on running a function through
partnership are called transaction costs.
- Partnership are possible when the cost of doing
business or making partnership is low.
- Transaction costs are lowered by Information
Systems. (By providing convenient and speedy
transfer of information)
 Bargaining Power of Suppliers
- Competitive position of firm is being decided by set of
„forces‟.
- theory of competitive forces was propounded by
economist Michael E. Porter and is know as „Porter‟s
Competitive Forces Model‟.
- If supplier has strong bargaining power then firm is in weak
competitive position.
- Ex. Power utility
- Best competitive strategy is to partner with many vendors.
- Information System have ability to reduce transaction costs
and help to establish partnerships to improve bargaining
power.
- Ex. Direct Digital Connection between firm and bank
 Bargaining power of Buyers and Customers

- Buyers can bargain over prices, delivery schedules

- Buyers can seek for other firms for better prices
or delivery schedules.
- Firm can increase bargaining power over buyer
with superior product or better service
- Offer complementary products or offers to attract
buyers. Ex. High quality car servicing
- Information System assist sellers- by creating
exclusive online channels, reduce costs using it,
offer faster and efficient service than their
competitors.
 Barriers to Entry
- Prevent new firms from competing.
- Can not be done physically as it is illegal and
against fair competition in some nations.
- It can be done by adopting some policies, like
making patents on product. Ex. Drug patent
- Secondly by creating strong links with buyers,
having long- term contract
- Information System assist by allowing formation
of partnership by linking together partnering
firms across regions and countries.
 Threat of Substitutes
- One of the biggest threat
- Substitute product- cassette vs CD‟s
- Substitute Services- ATM Vs Human Teller
- Mobile Phones Vs Landline Phones
- E-commerce Vs Traditional Marketting
- Online Store Vs Physical Stores
- Search Engines Vs Physical Directories
 Industry Regulations

- Regulations and laws implemented by nations

- IT is also subject to regulations in most countries
- Ex. Use of radio frequencies, availability of high
end computing devices, taxation, audit procedure
- Software services firms and IT hardware sector
 Using IT for Competing
 Competing on Low cost
- Providing low cost substitutes for rival products
- Ex. Walmart (American retail chain)
- Ex. Mobile telephony in India

 Competing on Differentiation
- Differentiate product from rivals
- To compete in this manner may take high price and high
quality stance.
- Ex. Macintosh personal computers, United Parcel Service
(UPS), Amazon.com
Information Goods
 Digital Products consumed over digital devices
 Ex. MP3 music files, Digital versions of books, cricket
scores,

 Properties of information goods:

- Expensive to produce but very cheap to reproduce
- They can be converted into versions quite easily
- Many information goods are experience goods.
 Technology Lock-in and switching costs:

- Technology platform is a combination of hardware,

software and networks which create environment
through which information goods are created, stored,
retrieved and reproduced.
- Lock-in is created due to particular platform
selection.
- May result due to contractual causes
- May result due to databases and information stores
already built.

- Lock-in can be overcome by incurring switching costs

 Network Externalities
- When group of people use the same technology then
each member of group benefits from the common use
of the same technology.
- This benefit is referred as network externality.
- Ex. Word processor application
- Value of using it is far higher if many are using it, cost
remains same.

 Positive Feedback
- When there is a benefit for individual users and they
encourages others too, and usage of technology grows.
This is positive feedback.
- Positive feedback has been observed in many
technologies that have network externalities.
- The growth in users of a network technology that has
positive feedback follows an S- shaped curve.
 Tippy Market
- Combination of network externalities and
positive feedback leads to tippy markets.
- Tippy market results when there are two or
more products competing in the market.
- Each product is tippy in the sense that it could
either succeed or fail.
- With effect of positive feedback only one
succeed and other fails.
Information Systems and Competitive
Strategy
 Information systems enable the
competitive strategy.
 Competitive strategy of a commercial
firm is its long-term competitive position.
 Create barriers to entry for competition.
 Reduce bargaining power of suppliers
 Reduce bargaining power of buyers
 Provide low cost products
 Provide niche products
The value chain
 Analysis of competitive strategy is based
on value chain model.
 Series of activities are available to carry
out organizations functions.
 These activities consist of primary and
secondary (support activities)
 Primary Activities:
- Inbound Logistics
- Production
- Outbound Logistics
- Sales and Marketing
- Maintenance Activities
 Support Activities
- Infrastructure Management
- Human Resource Management
- Research and Development
- Procurement
Information Systems for Value Chain
 IS are used to support and enhance all the
primary activities.
 Supply Chain Management System (SCM)
- Inbound Logistics
 Enterprise Resource Planning (ERP)
- Production, support activities, Outbound Logistics
 Customer Relationship Management
System (CRM)
- Sales & Marketing, Maintenance
Case Studies - Information Systems
in the Indian Railways
Information Systems in an e-
Commerce Organization
THANK YOU !!