Stage 1 Assignment

Introduction to Information Systems in Organizations

As the course catalogue describes IFSM 300, this is an "overview of information systems, their role in organizations, and the relationship between information systems and the objectives and structure of an organization." Information systems collect, organize, process, and make available or distribute data. The systems involve people, technology, and processes. Students in this class come from a variety of different majors and disciplines; however, in today's business and personal world, each of us is impacted by information systems on a regular basis.

Many of you have been or will be involved in a project where processes are analyzed in anticipation of incorporating or revising an information technology solution to increase productivity and meet business needs. Even as a user within a functional department (human resources, marketing, finance, etc.), you may be asked to test systems to ensure they meet business requirements or otherwise be involved in technology implementation. There may be a specific role or position of business analyst that can exist in a functional department, or an Information Technology department, and is tasked with this type of work. In addition, you may be inputting data into an information system and receiving information from a system as part of your job responsibilities. Whatever your specific role is, understanding how businesses use information technology effectively is a critical skill in today’s business world.

IT management must be sensitive to the business and its needs, rather than being in awe of or driven by technology. Conversely, business managers must be aware that systems can and should be used in the business to solve problems and improve the various functions, and that the advice of IT management is essential to the success of the business. This also implies that business managers should be conversant with IT terminology and its possible uses if they are going to achieve the maximum benefits of IT systems. It is in the best interests of the organization that both business managers and IT managers recognize each other's importance and strengths in maximizing systems' effectiveness in solving problems. This will ultimately lead to better business solutions enabled by IT that will lead to achievement of business goals and strategic objectives.

There is a clear relationship between information (derived from raw data), information technology (the computer-based tools used to work with information), and people (you). What is critical to keep in mind is that they all contribute (together) to supporting and improving business processes to achieve business success. Investments in technology and information systems are worthless if they do not support or contribute to the business's success. The processes are the business activities of the organization. In order for those processes to work, information is needed. Information, therefore, becomes the lifeblood of the organization. It is one of the most important assets in an organization, and the primary way that people get information is through information technology. Information technology in and of itself is not useful unless it delivers the right information to the right people at the right time. Since people, information, and information technology (in that order of priority) are inextricably linked, if one fails, they all fail.

So, we will begin our study of "Information Systems in Organizations" with developing an understanding of the business environment. We will use the term business to represent a variety of organizational types: government entities, nonprofit organizations, educational institutions, and general businesses, both large and small. The concepts apply in all of those environments. As you approach each week's work, you should read the assigned items in the order presented. They are grouped by topic to aid your understanding of the topic and to prepare you to demonstrate your learning when it comes time to complete the assignments.

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What Is an Information System?

Introduction

If you are reading this, you are most likely taking a course in information systems, but do you even know what the course is going to cover? When you tell your friends or your family that you are taking a course in information systems, can you explain what it is about? Sometimes when students are asked what they think an information system is, they give answers such as "computers," "databases," or "Excel." These are good answers, but definitely incomplete ones. The study of information systems goes far beyond understanding some technologies. Let’s begin our study by defining information systems.

Defining Information Systems

Almost all programs in business require students to take a course in something called information systems. But what exactly does that term mean? Let’s take a look at some of the more popular definitions, first from Wikipedia and then from a couple of textbooks:

· "Information systems (IS) is the study of complementary networks of hardware and software that people and organizations use to collect, filter, process, create, and distribute data (“Information Systems,” 2012).

· "Information systems are combinations of hardware, software, and telecommunications networks that people build and use to collect, create, and distribute useful data, typically in organizational settings (Valacich & Schneider, 2010).

· "Information systems are interrelated components working together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis, and visualization in an organization (Laudon & Laudon, 2012).

As you can see, these definitions focus on two different ways of describing information systems: the components that make up an information system and the role that those components play in an organization. Let’s take a look at each of these.

The Components of Information Systems

Many students understand that an information system has something to do with databases, spreadsheets, computers and e-commerce. And they are all right, at least in part: information systems are made up of different components that work together to provide value to an organization.

Information systems are made up of five components: hardware, software, data, people, and process. The first three, fitting under the category technology, are generally what most students think of when asked to define information systems. But the last two, people and process, are really what separate the idea of information systems from more technical fields, such as computer science. In order to fully understand information systems, students must understand how all of these components work together to bring value to an organization.

Technology

Technology can be thought of as the application of scientific knowledge for practical purposes. From the invention of the wheel to the harnessing of electricity for artificial lighting, technology is a part of our lives in so many ways that we tend to take it for granted. As discussed before, the first three components of information systems—hardware, software, and data—all fall under the category of technology. Each will be discussed in more detail in later sections, but we will take a moment here to introduce them so we can get a full understanding of what an information system is.

Hardware

Information systems hardware is the part of an information system you can touch—the physical components of the technology. Computers, keyboards, disk drives, iPads, and flash drives are all examples of information systems hardware.

Software

Software is a set of instructions that tells the hardware what to do. Software is not tangible—it cannot be touched. When programmers create software programs, what they are really doing is simply typing out lists of instructions that tell the hardware what to do. There are several categories of software, with the two main categories being operating-system software, which makes the hardware usable, and application software, which does something useful. Examples of operating systems include Microsoft Windows on a personal computer and Google’s Android on a mobile phone. Examples of application software are Microsoft Excel and Angry Birds.

Data

The third component is data. You can think of data as a collection of facts. For example, your street address, the city you live in, and your phone number are all pieces of data. Like software, data is also intangible. By themselves, pieces of data are not really very useful. But aggregated, indexed, and organized together into a database, data can become a powerful tool for businesses. In fact, all of the definitions presented at the beginning of this section focused on how information systems manage data. Organizations collect all kinds of data and use it to make decisions. These decisions can then be analyzed as to their effectiveness and the organization can be improved. The reading, Data and Databases, will cover their uses in organizations.

Networking Communication: A Fourth Technology Piece?

Besides the components of hardware, software, and data, which have long been considered the core technology of information systems, it has been suggested that one other component should be added: communication. An information system can exist without the ability to communicate—the first personal computers were stand-alone machines that did not access the internet. However, in today’s hyper-connected world, it is an extremely rare computer that does not connect to another device or to a network. Technically, the networking communication component is made up of hardware and software, but it is such a core feature of today’s information systems that it has become its own category.

People

When thinking about information systems, it is easy to get focused on the technology components and forget that we must look beyond these tools to fully understand how they integrate into an organization. A focus on the people involved in information systems is the next step. From the frontline help-desk workers, to systems analysts, to programmers, all the way up to the chief information officer, the people involved with information systems are an essential element that must not be overlooked.

Process

The last component of information systems is process. A process is a series of steps undertaken to achieve a desired outcome or goal. Information systems are becoming more and more integrated with organizational processes, bringing more productivity and better control to those processes. But simply automating activities using technology is not enough; businesses looking to effectively utilize information systems do more. Using technology to manage and improve processes, both within a company and externally with suppliers and customers, is the ultimate goal. Technology buzzwords such as "business process reengineering," "business process management," and "enterprise resource planning" all have to do with the continued improvement of these business procedures and the integration of technology with them. Businesses hoping to gain an advantage over their competitors are highly focused on this component of information systems.

The Role of Information Systems

Now that we have explored the different components of information systems, we need to turn our attention to the role that information systems play in an organization. From our definitions above, we see that these components collect, store, organize, and distribute data throughout the organization. In fact, we might say that one of the roles of information systems is to take data and turn it into information, and then transform that into organizational knowledge. As technology has developed, this role has evolved into the backbone of the organization. To get a full appreciation of the role information systems play, we will review how they have changed over the years.

The Mainframe Era

From the late 1950s through the 1960s, computers were seen as a way to more efficiently do calculations. These first business computers were room-sized monsters, with several refrigerator-sized machines linked together. The primary work of these devices was to organize and store large volumes of information that were tedious to manage by hand. Only large businesses, universities, and government agencies could afford them, and they took a crew of specialized personnel and specialized facilities to maintain. These devices served dozens to hundreds of users at a time through a process called time-sharing. Typical functions included scientific calculations and accounting, under the broader umbrella of "data processing."

In the late 1960s, the Manufacturing Resources Planning (MRP) systems were introduced. This software, running on a mainframe computer, gave companies the ability to manage the manufacturing process, making it more efficient. From tracking inventory to creating bills of materials to scheduling production, the MRP systems (and later the MRP II systems) gave more businesses a reason to want to integrate computing into their processes. IBM became the dominant mainframe company. Nicknamed "Big Blue," the company became synonymous with business computing. Continued improvement in software and the availability of cheaper hardware eventually brought mainframe computers (and their little sibling, the minicomputer) into most large businesses.

The PC Revolution

In 1975, the first microcomputer was announced on the cover of Popular Mechanics: the Altair 8800. Its immediate popularity sparked the imagination of entrepreneurs everywhere, and there were quickly dozens of companies making these "personal computers." Though at first just a niche product for computer hobbyists, improvements in usability and the availability of practical software led to growing sales. The most prominent of these early personal computer makers was a little company known as Apple Computer, headed by Steve Jobs and Steve Wozniak, with the hugely successful "Apple II." Not wanting to be left out of the revolution, in 1981 IBM (teaming with a little company called Microsoft for their operating-system software) hurriedly released their own version of the personal computer, simply called the "PC." Businesses that had used IBM mainframes for years to run their businesses finally had the permission they needed to bring personal computers into their companies, and the IBM PC took off. The IBM PC was named Timemagazine’s "Man of the Year" for 1982.

Because of the IBM PC’s open architecture, it was easy for other companies to copy, or "clone" it. During the 1980s, many new computer companies sprang up, offering less expensive versions of the PC. This drove prices down and spurred innovation. Microsoft developed its Windows operating system and made the PC even easier to use. Common uses for the PC during this period included word processing, spreadsheets, and databases. These early PCs were not connected to any sort of network; for the most part they stood alone as islands of innovation within the larger organization.

Client-Server

In the mid-1980s, businesses began to see the need to connect their computers together as a way to collaborate and share resources. This networking architecture was referred to as client-server because users would log in to the local area network (LAN) from their PC (the "client") by connecting to a powerful computer called a "server," which would then grant them rights to different resources on the network (such as shared file areas and a printer). Software companies began developing applications that allowed multiple users to access the same data at the same time. This evolved into software applications for communicating, with the first popular use of email appearing at this time.

This networking and data sharing all stayed within the confines of each business, for the most part. While there was sharing of electronic data between companies, this was a very specialized function. Computers were now seen as tools to collaborate internally, within an organization. In fact, these networks of computers were becoming so powerful that they were replacing many of the functions previously performed by the larger mainframe computers at a fraction of the cost. It was during this era that the first Enterprise Resource Planning (ERP) systems were developed and run on the client-server architecture. An ERP system is a software application with a centralized database that can be used to run a company’s entire business. With separate modules for accounting, finance, inventory, human resources, and many, many more, ERP systems, with Germany’s SAP leading the way, represented the state of the art in information systems integration.

The World Wide Web and E-Commerce

Invented in 1969, the internet was confined to use by universities, government agencies, and researchers for many years. The internet’s rather arcane commands and user applications made it unsuitable for mainstream use in business. One exception to this was the ability to expand email outside the confines of a single organization. While the first email messages on the internet were sent in the early 1970s, companies that wanted to expand their LAN-based email started hooking up to the internet in the 1980s. Companies began connecting their internal networks to the internet in order to allow communication between their employees and employees at other companies. It was with these early internet connections that the computer truly began to evolve from a computational device to a communications device.

In 1989, Tim Berners-Lee developed a simpler way for researchers to share information over the network at CERN laboratories, a concept he called the World Wide Web (CERN, n.d.). This invention became the launching point of the growth of the internet as a way for businesses to share information about themselves. As web browsers and internet connections became the norm, companies rushed to grab domain names and create websites.

In 1991, the National Science Foundation, which governed how the internet was used, lifted restrictions on its commercial use. In 1994, eBay and Amazon.com were established, two true pioneers in the use of the new digital marketplace. A mad rush of investment in internet-based businesses led to the dot-com boom through the late 1990s, and then the dot-com bust in 2000. While much can be learned from the speculation and crazy economic theories espoused during that bubble, one important outcome for businesses was that thousands of miles of internet connections were laid around the world during that time. The world became truly "wired" heading into the new millenium, ushering in the era of globalization.

As more companies were expected to be connected to the internet, the digital world also became a more dangerous place. Computer viruses and worms, once slowly propagated through the sharing of computer disks, could now grow with tremendous speed via the internet. Software written for a disconnected world found it very difficult to defend against these sorts of threats. A whole new industry of computer and internet security has arisen.

Web 2.0

As the world recovered from the dot-com bust, the use of technology in business continued to evolve at a frantic pace. Websites became interactive; instead of just visiting a site to find out about a business and purchase its products, customers wanted to be able to customize their experience and interact with the business. This new type of interactive website, where you did not have to know how to create a web page or do any programming in order to put information online, became known as web 2.0. Web 2.0 is exemplified by blogging, social networking, and interactive comments being available on many websites. This new web-2.0 world, in which online interaction became expected, had a big impact on many businesses and even whole industries. Some industries, such as bookstores, found themselves relegated to a niche status. Others, such as video rental chains and travel agencies, simply began going out of business as they were replaced by online technologies. This process of technology replacing a middleman in a transaction is called disintermediation.

As the world became more connected, new questions arose. Should access to the internet be considered a right? Can I copy a song that I downloaded from the internet? How can I keep information that I have put on a website private? What information is acceptable to collect from children? Technology moved so fast that policymakers did not have enough time to enact appropriate laws, making for a Wild West–type atmosphere.

The Post-PC World

After 30 years of the PC being the primary computing device used in most businesses, sales of the PC are now beginning to decline as sales of tablets and smartphones are taking off. Just as the mainframe before it, the PC will continue to play a key role in business, but will no longer be the primary way that people interact and do business. The limited storage and processing power of these devices is being offset by a move to "cloud" computing, which allows for storage, sharing, and backup of information on a massive scale. This will require new rounds of thinking and innovation on the part of businesses as technology continues to advance.

The Eras of Business Computing
Era	Hardware	Operating System	Applications
Mainframe (1970s)	Terminals connected to mainframe computer.	Time-sharing(TSO) on MVS	Custom-written MRP software
PC (mid-1980s)	IBM PC or compatible. Sometimes connected to mainframe computer via expansion card.	MS-DOS	WordPerfect, Lotus 1-2-3
Client-Server (late 80s to early 90s)	IBM PC "clone" on a Novell Network.	Windows for Workgroups	Microsoft Word, Microsoft Excel
World Wide Web (mid-90s to early 2000s)	IBM PC "clone" connected to company intranet.	Windows XP	Microsoft Office, Internet Explorer
Web 2.0 (mid-2000s to present)	Laptop connected to company Wi-Fi.	Windows 7	Microsoft Office, Firefox
Post-PC (today and beyond)	Apple iPad	iOS	Mobile-friendly websites, mobile apps

Can Information Systems Bring Competitive Advantage?

It has always been the assumption that the implementation of information systems will, in and of itself, bring a business competitive advantage. After all, if installing one computer to manage inventory can make a company more efficient, won’t installing several computers to handle even more of the business continue to improve it?

In 2003, Nicholas Carr wrote an article in the Harvard Business Review that questioned this assumption. The article, entitled "IT Doesn’t Matter," raised the idea that information technology has become just a commodity. Instead of viewing technology as an investment that will make a company stand out, it should be seen as something like electricity: managed to reduce costs, ensure that it is always running, and be as risk-free as possible.

As you might imagine, this article was both hailed and scorned. Can IT bring a competitive advantage? It sure did for Walmart.

What Is an Information System?

Registered trademark of Wal-mart

Walmart is the world’s largest retailer, earning $15.2 billion on sales of $443.9 billion in the fiscal year that ended on January 31, 2012. Walmart currently serves over 200 million customers every week, worldwide (Walmart, 2012). Walmart’s rise to prominence is due in no small part to its use of information systems.

One of the keys to this success was the implementation of Retail Link, a supply-chain management system. This system, unique when initially implemented in the mid-1980s, allowed Walmart’s suppliers to directly access the inventory levels and sales information of their products at any of Walmart’s more than 10,000 stores. Using Retail Link, suppliers can analyze how well their products are selling at one or more Walmart stores, with a range of reporting options. Further, Walmart requires the suppliers to use Retail Link to manage their own inventory levels. If a supplier feels that their products are selling out too quickly, they can use Retail Link to petition Walmart to raise the levels of inventory for their products.

This has essentially allowed Walmart to "hire" thousands of product managers, all of whom have a vested interest in the products they are managing. This revolutionary approach to managing inventory has allowed Walmart to continue to drive prices down and respond to market forces quickly.

Today, Walmart continues to innovate with information technology. Using its tremendous market presence, Walmart can require suppliers to immediately implement technology, which becomes a business standard.

Summary

In this section, you have been introduced to the concept of information systems. We have reviewed several definitions, with a focus on the components of information systems: technology, people, and process. We have reviewed how the business use of information systems has evolved over the years, from the use of large mainframe computers for number crunching, through the introduction of the PC and networks, all the way to the era of mobile computing. During each of these phases, new innovations in software and technology allowed businesses to integrate technology more deeply.

We are now to a point where every company is using information systems and asking the question: Does it bring a competitive advantage? Every business person should understand what an information system is and how it can be used to bring a competitive advantage. And that is the task we have before us.

Study Questions

1. What are the five components that make up an information system?

2. What are three examples of information system hardware?

3. Microsoft Windows is an example of which component of information systems?

4. What is application software?

5. What roles do people play in information systems?

6. What is the definition of a process?

7. What was invented first, the personal computer or the internet (ARPANET)?

8. In what year were restrictions on commercial use of the internet first lifted? When were eBay and Amazon founded?

9. What does it mean to say we are in a "post-PC world"?

10. What is Carr’s main argument about information technology?

References

CERN (n.d.). The birth of the web. Retrieved from http://public.web.cern.ch/public/en/about/web-en.html

Information Systems. In Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Information_systems_(discipline)

Laudon, K. & Laudon, J.P. (2012). Management information systems, 12th ed., Upper Saddle River, NJ: Prentice-Hall.

Valacich, J., & Schneider, C. (2010).  Information systems today—Managing in the digital world, 4th ed. Upper Saddle River, NJ: Prentice-Hall.

Walmart. (2012). 2012 annual report.

Licenses and Attributions

Chapter 1: What Is an Information System from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

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Business Strategy

This section presents a high-level overview of the strategic planning process for business. All companies want to formulate technology solutions that effectively support the business and its objectives. To do so, the company must first understand its business model, the fundamentals of its business type (manufacturing, finance, service, etc.), and its strategy. Only once the company has understood these, should it begin to focus on its systems. Information systems are only tools that are used to support a business; therefore, if the tools are not aligned with business requirements, then its resources (time, money, and people) may be wasted, triggering an undesirable outcome.

Many businesses establish an overall mission or vision statement—Why are we in business? Following is a list of companies with their mission statements:

Amazon—"to be earth's most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online." (Amazon Jobs, 2018)

Marriott—"to be the world's favorite travel company" (Marriott Investor Relations).

Google—“to organize the world’s information and make it universally accessible and useful” (Google.com, 2018).

As you can see, these mission and vision statements are very broad and overarching; however, to achieve these, organizations need more specifics with actionable areas to accomplish to help support the mission/vision. In order to define the goals and objectives, first organizations scan the environment looking at several factors, such as competition, business environment, customers, employees, and location. This analysis helps identify threats and opportunities. A frequent tool used in business is SWOT Analysis: identifying Strengths, Weaknesses, Opportunities and Threats. The section Does IT Matter? also looks at further methods to analyze the competitive environment.

This analysis can result in organizations defining business goals and objectives and the specific actions needed to be successful. When these objectives are defined, opportunities can be identified to use information technology to help reach those objectives.

It’s important that technology support the business objectives rather than drive the objectives. For example, looking back at Amazon’s mission statement, specific goals and objectives would need to be defined (e.g., How can customer-centric be increased?). One approach is customizing the user experience so customers feel valued and that Amazon really “knows” them. A strategic goal might be to maximize the customer’s experience through personalization of the online shopping experience. With technology, information regarding customers’ browsing and shopping habits can be stored and retrieved when a customer returns to the Amazon site, prompting with messages such as “Hello John—Recommended Links for You” or “John—Buy it Again,” followed by a list of recent purchases John has made. The benefits of the information technology can be increased sales and increased customer loyalty, which give Amazon a competitive advantage in the online retail arena.

This information would then be documented for everyone in the company to understand and be able to do their part to support the business strategy. For example, Amazon might document as follows:

Mission/Vision: Our vision is to be earth's most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online.

Business Strategy (derived from the Mission/Vision): to be earth's most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online.

Technology Support: A robust online shopping system would accommodate millions of customers and products and focus on the individual customer's searches and buying habits.

Competitive Advantage: Availability of millions of products would increase sales, and a focus on the customer would increase customer loyalty.

Strategic Goal 1: Increase customer-centricity by maximizing the customer's experience through personalization of the online shopping experience.

Objective: Provide customer with at least five other items they might be interested in based on previous purchases by the end of the first quarter.

Technology Support: The system would store each customer's purchases and retrieve that information when the customer returns to the Amazon site, and present a message such as "Hello, John – Recommended for you" with icons of several items related to his recent purchases.

Strategic Goal 2: Increase the number of items available.

Objective: Add 10% more items to the inventory.

Technology Support: The system would provide the ability to store and retrieve items for display to customers.

To achieve success, an organization should translate its high-level mission into specific objectives so it can align its technology support to those objectives. The alignment can provide clear direction and enable all levels of the organization to work towards maximizing their investments in information technology.

References

Amazon Jobs (2018). Retrieved from https://www.amazon.jobs/en/working/working-amazon

Google.com/About. (n.d.). Retrieved from https://www.google.com/about/

Marriott. (2018). Marriott investor relations: Frequently asked questions. Retrieved from https://marriott.gcs-web.com/investor-faqs

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Does IT Matter?

Introduction

For over 50 years, computing technology has been a part of business. Organizations have spent trillions of dollars on information technologies. But has all this investment in IT made a difference? Have we seen increases in productivity? Are companies that invest in IT more competitive? In this reading, we will look at the value IT can bring to an organization and try to answer these questions. We will begin by highlighting two important works from the past two decades.

The Productivity Paradox

In 1991, Erik Brynjolfsson wrote an article, published in the Communications of the ACM, entitled “The Productivity Paradox of Information Technology: Review and Assessment.” By reviewing studies about the impact of IT investment on productivity, Brynjolfsson was able to conclude that the addition of information technology to business had not improved productivity at all—the “productivity paradox.” From the article, he does not draw any specific conclusions from this finding and provides the following analysis (Brynjolfsson, 1991):

Although it is too early to conclude that IT’s productivity contribution has been subpar, a paradox remains in our inability to unequivocally document any contribution after so much effort. The various explanations that have been proposed can be grouped into four categories:

1. Mismeasurement of outputs and inputs,

2. Lags due to learning and adjustment,

3. Redistribution and dissipation of profits, and

4. Mismanagement of information and technology.

In 1998, Brynjolfsson and Lorin Hitt published a follow-up paper entitled “Beyond the Productivity Paradox” (Brynjolfsson & Hitt, 1998). In this paper, the authors utilized new data that had been collected and found that IT did, indeed, provide a positive result for businesses. Further, they found that sometimes the true advantages in using technology were not directly relatable to higher productivity, but to “softer” measures, such as the impact on organizational structure. They also found that the impact of information technology can vary widely between companies.

IT Doesn’t Matter

Just as a consensus was forming about the value of IT, the internet stock market bubble burst. Just two years later, in 2003, Harvard professor Nicholas Carr wrote his article “IT Doesn’t Matter” in the Harvard Business Review. In this article, Carr asserts that as information technology has become more ubiquitous, it has also become less of a differentiator. In other words, because information technology is so readily available and the software used so easily copied, businesses cannot hope to implement these tools to provide any sort of competitive advantage. Carr goes on to suggest that since IT is essentially a commodity, it should be managed like one: low cost, low risk. Using the analogy of electricity, Carr describes how a firm should never be the first to try a new technology, thereby letting others take the risks. IT management should see themselves as a utility within the company and work to keep costs down. For IT, providing the best service with minimal downtime is the goal.

As you can imagine, this article caused quite an uproar, especially from IT companies. Many articles were written in defense of IT; many others in support of Carr. Carr released a book based on the article in 2004, entitled “Does IT Matter?”

Probably the best thing to come out of the article and subsequent book was that it opened up discussion on the place of IT in a business strategy, and exactly what role IT could play in competitive advantage, which is addressed in this reading.

Competitive Advantage

What does it mean when a company has a competitive advantage? What are the factors that play into it? While there are entire courses and many different opinions on this topic, let’s go with one of the most accepted definitions, developed by Michael Porter (2001) in his book Competitive Advantage: Creating and Sustaining Superior Performance. A company is said to have a competitive advantage over its rivals when it is able to sustain profits that exceed average for the industry. According to Porter, there are two primary methods for obtaining competitive advantage: cost advantage and differentiation advantage. So the question becomes: how can information technology be a factor in one or both of these methods? In the sections below, we will explore this question using two of Porter’s analysis tools: the value chain and the five forces model. We will also use Porter’s analysis in his 2001 article “Strategy and the Internet,” which examines the impact of the internet on business strategy and competitive advantage, to shed further light on the role of information technology in competitive advantage.

The Value Chain

In his book, Porter describes exactly how a company can create value (and therefore, profit). Value is built through the value chain: a series of activities undertaken by the company to produce a product or service. Each step in the value chain contributes to the overall value of a product or service. While the value chain may not be a perfect model for every type of company, it does provide a way to analyze just how a company is producing value. The value chain is made up of two sets of activities: primary activities and support activities. We will briefly examine these activities and discuss how information technology can play a role in creating value by contributing to cost advantage, differentiation advantage, or both.

Porter’s Value Chain

Series of activities that contribute to the overall value of a product or service

The primary activities are the functions that directly impact the creation of a product or service. The goal of the primary activities is to add more value than they cost. The primary activities are:

· Inbound logistics: These are the functions performed to bring in raw materials and other needed inputs. Information technology can be used here to make these processes more efficient, such as with supply-chain management systems, which allow the suppliers to manage their own inventory.

· Operations: Any part of a business that is involved in converting the raw materials into the final products or services is part of operations. From manufacturing to business process management (covered in Business Processes), information technology can be used to provide more efficient processes and increase innovation through flows of information.

· Outbound logistics: These are the functions required to get the product out to the customer. As with inbound logistics, IT can be used here to improve processes, such as allowing for real-time inventory checks. IT can also be a delivery mechanism itself.

· Sales/Marketing: The functions that will entice buyers to purchase the products are part of sales and marketing. Information technology is used in almost all aspects of this activity. From online advertising to online surveys, IT can be used to innovate product design and reach customers like never before. The company website can be a sales channel itself.

· Service: The functions a business performs after the product has been purchased to maintain and enhance the product’s value are part of the service activity. Service can be enhanced via technology as well, including support services through websites and knowledge bases.

The support activities are the functions in an organization that support, and cut across, all of the primary activities. The support activities are:

· Firm infrastructure: This includes organizational functions such as finance, accounting, and quality control, all of which depend on information technology; the use of enterprise resource planning (ERP) systems (to be covered in The People in Information Systems) is a good example of the impact that IT can have on these functions.

· Human resource management: This activity consists of recruiting, hiring, and other services needed to attract and retain employees. Using the internet, HR departments can increase their reach when looking for candidates. There is also the possibility of allowing employees to use technology for a more flexible work environment.

· Technology development: Here we have the technological advances and innovations that support the primary activities. These advances are then integrated across the firm or within one of the primary activities to add value. Information technology would fall specifically under this activity.

· Procurement: The activities involved in acquiring the raw materials used in the creation of products and services are called procurement. Business-to-business e-commerce can be used to improve the acquisition of materials.

This analysis of the value chain provides some insight into how information technology can lead to competitive advantage. Let’s now look at another tool that Porter developed—the “five forces” model.

Porter’s Five Forces

Porter developed the “five forces” model as a framework for industry analysis. This model can be used to help understand just how competitive an industry is and to analyze its strengths and weaknesses. The model consists of five elements, each of which plays a role in determining the average profitability of an industry. In 2001, Porter wrote an article entitled ”Strategy and the Internet,” in which he takes this model and looks at how the internet impacts the profitability of an industry. Below is a quick summary of each of the five forces and the impact of the internet.

Porter’s Five Forces Model

Five elements that determine an industry’s competitiveness and average profitability

 

· Threat of substitute products or services: How easily can a product or service be replaced with something else? The more types of products or services there are that can meet a particular need, the less profitability there will be in an industry. For example, the advent of the mobile phone has replaced the need for pagers. The internet has made people more aware of substitute products, driving down industry profits in those industries being substituted.

· Bargaining power of suppliers: When a company has several suppliers to choose from, it can demand a lower price. When a sole supplier exists, then the company is at the mercy of the supplier. For example, if only one company makes the controller chip for a car engine, that company can control the price, at least to some extent. The internet has given companies access to more suppliers, driving down prices. On the other hand, suppliers now also have the ability to sell directly to customers.

· Bargaining power of customers: A company that is the sole provider of a unique product has the ability to control pricing. But the internet has given customers many more options to choose from.

· Barriers to entry: The easier it is to enter an industry, the tougher it will be to make a profit in that industry. The internet has an overall effect of making it easier to enter industries. It is also very easy to copy technology, so new innovations will not last that long.

· Rivalry among existing competitors: The more competitors there are in an industry, the bigger a factor price becomes. The advent of the internet has increased competition by widening the geographic market and lowering the costs of doing business. For example, a manufacturer in Southern California may now have to compete against a manufacturer in the South, where wages are lower.

Porter’s five forces are used to analyze an industry to determine the average profitability of a company within that industry. Adding in Porter’s analysis of the internet, we can see that the internet (and by extension, information technology in general) has the effect of lowering overall profitability (Porter, 2001). While the internet has certainly produced many companies that are big winners, the overall winners have been the consumers, who have been given an ever-increasing market of products and services and lower prices.

Using Information Systems for Competitive Advantage

Now that we have an understanding of competitive advantage and some of the ways that IT may be used to help organizations gain it, we will turn our attention to some specific examples. A strategic information system is an information system that is designed specifically to implement an organizational strategy meant to provide a competitive advantage. These sorts of systems began popping up in the 1980s, as noted in a paper by Charles Wiseman entitled “Creating Competitive Weapons From Information Systems” (Wiseman & MacMillan, 1984).

Specifically, a strategic information system is one that attempts to do one or more of the following:

· deliver a product or a service at a lower cost;

· deliver a product or service that is differentiated;

· help an organization focus on a specific market segment; or

· enable innovation.

Following are some examples of information systems that fall into this category.

Business Process Management Systems

In their 2003 book, IT Doesn’t Matter—Business Processes Do, Smith and Fingar argued that it is the integration of information systems with business processes that leads to competitive advantage. They then go on to state that Carr’s article is dangerous because it gave CEOs and IT managers the green light to start cutting their technology budgets, putting their companies in peril. They go on to state that true competitive advantage can be found with information systems that support business processes. In the reading, Business Processes, we will focus on the use of business processes for competitive advantage.

Electronic Data Interchange

One of the ways that information systems have participated in competitive advantage is through integrating the supply chain electronically. This is primarily done through a process called electronic data interchange, or EDI. EDI can be thought of as the computer-to-computer exchange of business documents in a standard electronic format between business partners. By integrating suppliers and distributors via EDI, a company can vastly reduce the resources required to manage the relevant information. Instead of manually ordering supplies, the company can simply place an order via the computer and the next time the order process runs, it is ordered.

Manual Order Process

Graphic comparison of the manual order process

Order Process with EDI

Graphic comparison of the order process with electronic data exchange (EDI)

Collaborative Systems

As organizations began to implement networking technologies, information systems emerged that allowed employees to begin collaborating in different ways. These systems allowed users to brainstorm ideas together without the necessity of physical, face-to-face meetings. Utilizing tools such as discussion boards, document sharing, and video, these systems made it possible for ideas to be shared in new ways and the thought processes behind these ideas to be documented.

Broadly speaking, any software that allows multiple users to interact on a document or topic could be considered collaborative. Electronic mail, a shared Word document, social networks, and discussion boards would fall into this broad definition. However, many software tools have been created that are designed specifically for collaborative purposes. These tools offer a broad spectrum of collaborative functions. Here is just a short list of some collaborative tools available for businesses today:

· Google Drive. Google Drive offers a suite of office applications (such as a word processor, spreadsheet, drawing, presentation) that can be shared between individuals. Multiple users can edit the documents at the same time and threaded comments are available.

· Microsoft SharePoint. SharePoint integrates with Microsoft Office and allows for collaboration using tools most office workers are familiar with. SharePoint is covered in more detail in the reading, Networking and Communication.

· Cisco WebEx. WebEx is a business communications platform that combines video and audio communications and allows participants to interact with each other’s computer desktops. WebEx also provides a shared whiteboard and the capability for text-based chat to be going on during the sessions, along with many other features. Mobile editions of WebEx allow for full participation using smartphones and tablets.

· Atlassian Confluence. Confluence provides an all-in-one project-management application that allows users to collaborate on documents and communicate progress. The mobile edition of Confluence allows the project members to stay connected throughout the project.

· IBM Lotus Notes/Domino. One of the first true “groupware” collaboration tools, Lotus Notes (and its web-based cousin, Domino) provides a full suite of collaboration software, including integrated email.

Decision Support Systems

A decision support system (DSS) is an information system built to help an organization make a specific decision or set of decisions. DSSs can exist at different levels of decision-making with the organization, from the CEO to the first-level managers. These systems are designed to take inputs regarding a known (or partially known) decision-making process and provide the information necessary to make a decision. DSSs generally assist a management-level person in the decision-making process, though some can be designed to automate decision making.

An organization has a wide variety of decisions to make, ranging from highly structured decisions to unstructured decisions. A structured decision is usually one that is made quite often, and one in which the decision is based directly on the inputs. With structured decisions, you know the decision that needs to be made once you know the necessary information. For example, inventory reorder levels can be structured decisions: Once our inventory of widgets gets below a specific threshold, automatically reorder 10 more. Structured decisions are good candidates for automation, but we don’t necessarily build decision support systems for them.

An unstructured decision involves a lot of unknowns. Many times, unstructured decisions are decisions being made for the first time. An information system can support these types of decisions by providing decision-makers with information-gathering tools and collaborative capabilities. An example of an unstructured decision might be dealing with a labor issue or setting policy for a new technology.

Decision support systems work best when decision-makers are making semi-structured decisions. A semi-structured decision is one in which most of the factors needed for making the decision are known, but human experience and other outside factors may still play a role. A good example of an semi-structured decision would be diagnosing a medical condition (see sidebar).

As with collaborative systems, DSSs can come in many different formats. A nicely designed spreadsheet that allows for input of specific variables and then calculates required outputs could be considered a DSS. Another DSS might be one that assists in determining which products a company should develop. Input into the system could include market research on the product, competitor information, and product development costs. The system would then analyze these inputs based on the specific rules and concepts programmed into it. Finally, the system would report its results, with recommendations and/or key indicators to be used in making a decision. A DSS can be looked at as a tool for competitive advantage in that it can give an organization a mechanism to make wise decisions about products and innovations.

Isabel—A Health Care DSS

DSSs are best applied to semi-structured decisions, in which most of the needed inputs are known, but human experience and environmental factors also play a role. A good example that is in use today is Isabel, a health-care DSS. The creators of Isabel explain how it works:

Isabel uses the information routinely captured during your workup, whether free text or structured data, and instantaneously provides a diagnosis checklist for review. The checklist contains a list of possible diagnoses with critical “Don’t Miss Diagnoses” flagged. When integrated into your EMR system, Isabel can provide “one click” seamless diagnosis support with no additional data entry (http://www.isabelhealthcare.com/home/ourmission).

Investing in IT for Competitive Advantage

In 2008, Brynjolfsson and McAfee published a study in the Harvard Business Review on the role of IT in competitive advantage, entitled “Investing in the IT That Makes a Competitive Difference.” Their study confirmed that IT can play a role in competitive advantage, if deployed wisely. In their study, they draw three conclusions (McAfee & Brynjolfsson, 2008):

· First, the data show that IT has sharpened differences among companies instead of reducing them. This reflects the fact that while companies have always varied widely in their ability to select, adopt, and exploit innovations, technology has accelerated and amplified these differences.

· Second, good management matters. Highly qualified vendors, consultants, and IT departments might be necessary for the successful implementation of enterprise technologies themselves, but the real value comes from the process innovations that can now be delivered on those platforms. Fostering the right innovations and propagating them widely are both executive responsibilities that can’t be delegated.

· Finally, the competitive shakeup brought on by IT is not nearly complete, even in the IT-intensive US economy. We expect to see these altered competitive dynamics in other countries, as their IT investments grow.

· Information systems can be used for competitive advantage, but they must be used strategically. Organizations must understand how they want to differentiate themselves and then use all the elements of information systems (hardware, software, data, people, and process) to accomplish that differentiation.

Summary

Information systems are integrated into all components of business today, but can they bring competitive advantage? Over the years, there have been many answers to this question. Early research could not draw any connections between IT and profitability, but later research has shown that the impact can be positive. IT is not a panacea; just purchasing and installing the latest technology will not, by itself, make a company more successful. Instead, the combination of the right technologies and good management, together, will give a company the best chance of a positive result.

Study Questions

1. What is the productivity paradox?

2. Summarize Carr’s argument in “Does IT Matter?”

3. How is the 2008 study by Brynjolfsson and McAfee different from previous studies? How is it the same?

4. What does it mean for a business to have a competitive advantage?

5. What are the primary activities and support activities of the value chain?

6. What has been the overall impact of the internet on industry profitability? Who has been the true winner?

7. How does EDI work?

8. Give an example of a semi-structured decision and explain what inputs would be necessary to provide assistance in making the decision.

9. What does a collaborative information system do?

10. How can IT play a role in competitive advantage, according to the 2008 article by Brynjolfsson and McAfee?

References

Brynjolfsson, E. (1991). The productivity paradox of information technology: review and assessment. Communications of the ACM, 36(12), 66-77.

Brynjolfsson, E., & Hitt, L. (1998). Beyond the productivity paradox. Communications of the ACM, 41(8), 49–55.

McAfee, A., & Brynjolfsson, E. (2008, July - August). Investing in the IT that makes a competitive difference. Harvard Business Review. Retrieved from https://hbr.org/2008/07/investing-in-the-it-that-makes-a-competitive-difference

Porter, M. (2001). Strategy and the internet. Harvard Business Review, 79(3), Retrieved from http://hbswk.hbs.edu/item/2165.html

Smith, H. & Fingar, P. (2003). IT doesn’t matter—Business processes do. Tampa, FL: Meghan-Kiffer Press.

Wiseman, C., & MacMillan, I. C. (1984). Creating competitive weapons from information systems. Journal of Business Strategy, 5(2), 42.

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Chapter 7: Does IT Matter? from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

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How Organizations Use Information Systems Strategically

So far you’ve learned about what is meant by information system and how IT matters in organizations, as well as how businesses align their strategy with the use of information technology.  It’s important to keep in mind that organizations have basically two ways to increase profits—either raise prices or reduce expenses (or a combination of the two). Organizations can’t just focus on money coming in because there are expenses that must be paid out of that income resulting in a net income (Gross Income ₋ Expenses = Net Income). Even governmental agencies and nonprofit companies need to take in money (governmental budgets, taxpayers, donations, etc.), pay the expenses incurred in achieving the organization's mission, and have money left over to reinvest in the business.  

In the section Does IT Matter?, the concept of the value chain was presented. Each of the five primary areas of the value chain along with the support activities (frequently referred to as back-office functions) provide opportunities to improve profitability and identify where technology can help improve processes. Each business would define specifically what its primary activities are and then analyze where there are opportunities within each area.  

Porter's Value Chain

Series of activities that contribute to the overall value of a product or service

Does IT Matter? also introduced Porter’s Five Forces, a framework to help organizations assess its environment. Understanding how the five forces impact the organization can help organizations determine where to focus to increase their competitive advantage. For example, if operating in a highly competitive environment (many companies offering the same or very similar products or services), then the company could establish a strategy to provide its goods and services at a lower cost or to target a specific market niche.  When a company has decided its strategy, then it’s time to look at how to achieve that strategy. Here’s where the use of information technology and information systems can come into play. Improving the ability to deliver goods and services at a lower cost or in a unique way can be enabled by information systems.

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Chapter 7: Does IT Matter? from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

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Globalization and the Digital Divide

Globalization is the term used to refer to the integration of goods, services, and culture among the nations of the world. Globalization is not necessarily a new phenomenon; in many ways, we have been experiencing globalization since the days of European colonization. Further advances in telecommunication and transportation technologies accelerated globalization. The advent of the worldwide internet has made all nations next-door neighbors.  The internet has wired the world. Today it is just as simple to communicate with someone on the other side of the world as it is to talk to someone next door.

The new era of globalization allows any business to become international. Some of the advantages include the following:

· The ability to locate expertise and labor around the world. Instead of drawing employees from their local area, organizations can now hire people from the global labor pool. This also allows organizations to pay a lower labor cost for the same work based on the prevailing wage in different countries.

· The ability to operate 24 hours a day. With employees in different time zones all around the world, an organization can literally operate around the clock, handing off work on projects from one part of the world to another. Businesses can also keep their digital storefront (their website) open all the time.

· A larger market for their products. Once a product is being sold online, it is available for purchase from a worldwide consumer base. Even if a company's products do not appeal beyond its own country's borders, being online has also made the product more visible to consumers within that country.

In order to fully take advantage of these new capabilities, companies need to understand that there are also challenges in dealing with employees and customers from different cultures. Some of these challenges include:

· Infrastructure differences. Each country has its own infrastructure, many of which are not of the same quality as the US.

· Labor laws and regulations. Different countries (even different states in the United States) have different laws and regulations. A company that wants to hire employees from other countries must understand the different regulations and concerns.

· Legal restrictions. Many countries have restrictions on what can be sold or how a product can be advertised. It is important for a business to understand what is allowed.

· Language, customs, and preferences. Every country has its own (or several) unique culture(s), which a business must consider when trying to market a product there. Additionally, different countries have different preferences. For example, in some parts of the world, people prefer to eat their french fries with mayonnaise instead of ketchup; in other parts of the world, specific hand gestures (such as the thumbs-up) are offensive. 

· International shipping. Shipping products between countries in a timely manner can be challenging. Inconsistent address formats, dishonest customs agents, and prohibitive shipping costs are all factors that must be considered when trying to deliver products internationally.

Digital Divide

As the internet continues to make inroads across the world, it is also creating a separation between those who have access to this global network and those who do not. This separation is called the digital divideand is of great concern. The digital divide can occur between countries, regions, or even neighborhoods. In many US cities, there are pockets with little or no internet access, while just a few miles away high-speed broadband is common. Solutions to the digital divide have had mixed success over the years. Many times, just providing internet access and/or computing devices is not enough to bring true internet access to a country, region, or neighborhood. Organizations must evaluate this potential issue as they seek to operate in different geographical areas to determine whether technology solutions are readily accessible and usable to their target audience.  

Licenses and Attributions

Chapter 11: Globalization and the Digital Divide from Information Systems for Business and Beyond was adapted by The Saylor Foundation and is available under a Creative Commons Attribution 3.0 Unportedlicense. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

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Data

This week we will take a closer look at data, how it is stored and used, and how it is organized. While it is not expected that you will become database experts, it is critical that you understand the fundamentals of how data is stored, arranged, classified, linked together, and secured for efficiency in providing information. Data is the key to information systems. Data is the raw facts collected from various transactions and events throughout an organization. Individually, the data represents a specific item such as a product code, customer address, invoice amount, etc. Collectively, information systems transform the data into useful information.  For example, collecting the totals of all the invoices for a given month lets us know how much was sold. Therefore, if information is derived from data, it is critical that the data be correct both in content and format. Accuracy and data integrity enable the organization to rely on the information to effectively manage, control, plan, and oversee what's going on in the business.

In today's business environment, there is tremendous power in linking databases throughout the enterprise to get the right information to the right people at the right time. In addition, databases can provide strategic business intelligence to effectively support decision making. However, it's important to emphasize that ultimately it is the ability of employees and managers to interpret the information, understand how to apply it effectively, and use their experience and knowledge that maximizes the value of the information in their decision making.

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Data and Databases

Introduction

You have been introduced to the five key components of information systems. However, two components, hardware and software, by themselves do not make a computer useful. Imagine if you turned on a computer, started the word processor, but could not save a document. Imagine if you opened a music player, but there was no music to play. Imagine opening a web browser, but there were no web pages. Without data, hardware and software are not very useful.

Data, Information, and Knowledge

Data is the raw bits and pieces of information with no context. If I told you, “15, 23, 14, 85,” you would not have learned anything. But I would have given you data.

Data can be quantitative or qualitative. Quantitative data is numeric, the result of a measurement, count, or some other mathematical calculation. Qualitative data is descriptive. “Ruby Red,” the color of a 2013 Ford Focus, is an example of qualitative data. A number can be qualitative too: If I tell you my favorite number is 5, that is qualitative data because it is descriptive, not the result of a measurement or mathematical calculation.

By itself, data is not that useful. To be useful, it needs to be given context. Returning to the example above, if I told you that “15, 23, 14, and 85″ are the numbers of students that had registered for upcoming classes, that would be information. By adding the context—that the numbers represent the count of students registering for specific classes—I have converted data into information.

Once we have put our data into context, aggregated and analyzed it, we can use it to make decisions for our organization. We can say that this consumption of information produces knowledge. This knowledge can be used to make decisions, set policies, and even spark innovation.

The final step up the information ladder is the step from knowledge (knowing a lot about a topic) to wisdom. We can say that someone has wisdom when they can combine their knowledge and experience to produce a deeper understanding of a topic. It often takes many years to develop wisdom on a particular topic, and requires patience.

Information Ladder

Progression of the usefulness of data with information, knowledge, and wisdom

Examples of Data

Almost all software programs require data to do anything useful. For example, if you are editing a document in a word processor such as Microsoft Word, the document you are working on is the data. The word-processing software can manipulate the data: create a new document, duplicate a document, or modify a document. Some other examples of data are an MP3 music file, a video file, a spreadsheet, a web page, and an e-book. In some cases, such as with an e-book, you may only have the ability to read the data.

Databases

The goal of many information systems is to transform data into information in order to generate knowledge that can be used for decision making. In order to do this, the system must be able to take data, put the data into context, and provide tools for aggregation and analysis. A database is designed for just such a purpose.

A database is an organized collection of related information. It is an organized collection, because in a database, all data is described and associated with other data. All information in a database should be related as well; separate databases should be created to manage unrelated information. For example, a database that contains information about students should not also hold information about company stock prices. Databases are not always digital—a filing cabinet, for instance, might be considered a form of database. For the purposes of this text, we will only consider digital databases.

Relational Databases

Databases can be organized in many different ways, and thus take many forms. The most popular form of database today is the relational database. Popular examples of relational databases are Microsoft Access, MySQL, and Oracle. A relational database is one in which data is organized into one or more tables. Each table has a set of fields, which define the nature of the data stored in the table. A record is one instance of a set of fields in a table. To visualize this, think of the records as the rows of the table and the fields as the columns of the table. In the example below, we have a table of student information, with each row representing a student and each column representing one piece of information about the student.

Relational Database

Students’ names and information about the students

In a relational database, all the tables are related by one or more fields, so that it is possible to connect all the tables in the database through the field(s) they have in common. For each table, one of the fields is identified as a primary key. This key is the unique identifier for each record in the table. To help you understand these terms further, let’s walk through the process of designing a database.

Designing a Database

Suppose a university wants to create an information system to track participation in student clubs. After interviewing several people, the design team learns that the goal of implementing the system is to give better insight into how the university funds clubs. This will be accomplished by tracking how many members each club has and how active the clubs are. From this, the team decides that the system must keep track of the clubs, their members, and their events. Using this information, the design team determines that the following tables need to be created:

· Clubs: This table will track the club name, the club president, and a short description of the club.

· Students: The table will contain student name, email, and year of birth.

· Memberships: This table will correlate students with clubs, allowing us to have any given student join multiple clubs.

· Events: This table will track when the clubs meet and how many students showed up.

Now that the design team has determined which tables to create, they need to define the specific information that each table will hold. This requires identifying the fields that will be in each table. For example, Club Name would be one of the fields in the Clubs table. First Name and Last Name would be fields in the Students table. Finally, since this will be a relational database, every table should have a field in common with at least one other table (in other words: They should have a relationship with each other).

In order to properly create this relationship, a primary key must be selected for each table. This key is a unique identifier for each record in the table. For example, in the Students table, it might be possible to use students’ last name as a way to uniquely identify them. However, it is more than likely that some students will share a last name (like Rodriguez, Smith, or Lee), so a different field should be selected. A student’s email address might be a good choice for a primary key, since email addresses are unique. However, a primary key cannot change, so this would mean that if students changed their email address, we would have to remove them from the database and then re-insert them—not an attractive proposition. Our solution is to create a value for each student—a user ID—that will act as a primary key. We will also do this for each of the student clubs. This solution is quite common and is the reason you have so many user IDs.

You can see the final database design in the figure below:

Student Clubs Database

A user ID  is the primary key that relates one table to another

With this design, not only do we have a way to organize all of the information we need to meet the requirements, but we have also successfully related all the tables together. Here’s what the database tables might look like with some sample data. Note that the Memberships table has the sole purpose of allowing us to relate multiple students to multiple clubs.

Clubs Database Table
Club ID	Club Name	President	Short desc
1	Cheese Club	14	To talk about our love of cheese.
2	Chess Club	1	To learn how to become better chess players.
3	Archery Club	6	To compete in archery.
Sample data on specific clubs
Students Database Table
ID	First Name	Last Name	Email	Year of Birth
1	Peter	Lee	[email protected]	1992
2	Jonathan	Edwards	[email protected]	1994
3	Marilyn	Johnson	[email protected]	1993
6	Joe	Kim	[email protected]	1992
12	Haley	Martinez	[email protected]	1993
14	John	Mfume	[email protected]	1991
15	David	Letty	[email protected]	1995
Sample data on students

Memberships Database Table
Club ID	Student ID
1	1
1	2
1	14
2	1
2	3
2	5
2	6
3	1
3	6
3	12
3	14
3	15
Sample data on memberships
Events Database Table
Club ID	Event name	Date	Attendance
1	Cheese promo	1/10/2013	6
2	MLK Tournament	1/21/2013	17
3	January meeting	1/22/2013	12
2	January meeting	1/28/2013	10
Sample data on events

Normalization

When designing a database, one important concept to understand is normalization. In simple terms, to normalize a database means to design it in a way that: 1) reduces duplication of data between tables and 2) gives the table as much flexibility as possible.

In the Student Clubs database design, the design team worked to achieve these objectives. For example, to track memberships, a simple solution might have been to create a Members field in the Clubs table and then just list the names of all of the members there. However, this design would mean that if a student joined two clubs, then his or her information would have to be entered a second time. Instead, the designers solved this problem by using two tables: Students and Memberships.

In this design, when a student joins their first club, we first must add the student to the Students table, where their first name, last name, email address, and birth year are entered. This addition to the Students table will generate a student ID. Now we will add a new entry to denote that the student is a member of a specific club. This is accomplished by adding a record with the student ID and the club ID in the Memberships table. If this student joins a second club, we do not have to duplicate the entry of the student’s name, email, and birth year; instead, we only need to make another entry in the Memberships table of the second club’s ID and the student’s ID.

The design of the Student Clubs database also makes it simple to change the design without major modifications to the existing structure. For example, if the design team was asked to add functionality to the system to track faculty advisors to the clubs, we could easily accomplish this by adding a Faculty Advisors table (similar to the Students table) and then adding a new field to the Clubs table to hold the Faculty Advisor ID.

Data Types

When defining the fields in a database table, we must give each field a data type. For example, the field Birth Year is a year, so it will be a number, while First Name will be text. Most modern databases allow for several different data types to be stored. Some of the more common data types are listed here:

· Text: for storing non-numeric data that is brief, generally under 256 characters. The database designer can identify the maximum length of the text.

· Number: for storing numbers. There are usually a few different number types that can be selected, depending on how large the largest number will be.

· Yes/No: a special form of the number data type that is (usually) one byte long, with a 0 for “No” or “False” and a 1 for “Yes” or “True.”

· Date/Time: a special form of the number data type that can be interpreted as a number or a time.

· Currency: a special form of the number data type that formats all values with a currency indicator and two decimal places.

· Paragraph Text: data type that allows for text longer than 256 characters.

· Object: data type that allows for the storage of data that cannot be entered via keyboard, such as an image or a music file.

There are two important reasons that we must properly define the data type of a field. First, a data type tells the database what functions can be performed with the data. For example, if we wish to perform mathematical functions with one of the fields, we must be sure to tell the database that the field is a number data type. So if we have, say, a field storing birth year, we can subtract the number stored in that field from the current year to get age.

The second important reason to define data type is so that the proper amount of storage space is allocated for our data. For example, if the First Name field is defined as a text(50) data type, this means 50 characters are allocated for each first name we want to store. However, even if the first name is only 5 characters long, 50 characters (bytes) will be allocated. While this may not seem like a big deal, if our table ends up holding 50,000 names, we are allocating 50 * 50,000 = 2,500,000 bytes for storage of these values. It may be prudent to reduce the size of the field so we do not waste storage space.

The Difference Between a Database and a Spreadsheet

Many times, when introducing the concept of databases to students, they quickly decide that a database is pretty much the same as a spreadsheet. After all, a spreadsheet stores data in an organized fashion, using rows and columns, and looks very similar to a database table. This misunderstanding extends beyond the classroom: spreadsheets are used as a substitute for databases in all types of situations every day, all over the world.

To be fair, for simple uses, a spreadsheet can substitute for a database quite well. If a simple listing of rows and columns (a single table) is all that is needed, then creating a database is probably overkill. In our Student Clubs example, if we only needed to track a listing of clubs, the number of members, and the contact information for the president, we could get away with a single spreadsheet. However, the need to include a listing of events and the names of members would be problematic if tracked with a spreadsheet.

When several types of data must be mixed together, or when the relationships between these types of data are complex, then a spreadsheet is not the best solution. A database allows data from several entities (such as students, clubs, memberships, and events) to all be related together into one whole. While a spreadsheet does allow you to define what kinds of values can be entered into its cells, a database provides more intuitive and powerful ways to define the types of data that go into each field, reducing possible errors and allowing for easier analysis.

Though not good for replacing databases, spreadsheets can be ideal tools for analyzing the data stored in a database. A spreadsheet package can be connected to a specific table or query in a database and used to create charts or perform analysis on that data.

Structured Query Language

Once you have a database designed and loaded with data, how will you do something useful with it? The primary way to work with a relational database is to use Structured Query Language, SQL (pronounced “sequel,” or simply stated as S-Q-L). Almost all applications that work with databases (such as database management systems, discussed below) make use of SQL as a way to analyze and manipulate relational data. As its name implies, SQL is a language that can be used to work with a relational database. From a simple request for data to a complex update operation, SQL is a mainstay of programmers and database administrators. To give you a taste of what SQL might look like, here are a couple of examples using our Student Clubs database.

· The following query will retrieve a list of the first and last names of the club presidents:

SELECT "First Name", "Last Name" FROM "Students" WHERE "Students.ID" = "Clubs.President"

· The following query will create a list of the number of students in each club, listing the club name and then the number of members:

SELECT "Clubs.Club Name", COUNT("Memberships.Student ID") FROM "Clubs" LEFT JOIN "Memberships" ON "Clubs.Club ID" = "Memberships.Club ID"

An in-depth description of how SQL works is beyond the scope of this introductory text, but these examples should give you an idea of the power of using SQL to manipulate relational data. Many database packages, such as Microsoft Access, allow you to visually create the query you want to construct and then generate the SQL query for you.

Other Types of Databases

The relational database model is the most used database model today. However, many other database models exist that provide different strengths than the relational model. The hierarchical database model, popular in the 1960s and 1970s, connected data together in a hierarchy, allowing for a parent/child relationship between data. The document-centric model allowed for a more unstructured data storage by placing data into “documents” that could then be manipulated.

Perhaps the most interesting new development is the concept of NoSQL (from the phrase “not only SQL”). NoSQL arose from the need to solve the problem of large-scale databases spread over several servers or even across the world. For a relational database to work properly, it is important that only one person be able to manipulate a piece of data at a time, a concept known as record-locking. But with today’s large-scale databases (think Google and Amazon), this is just not possible. A NoSQL database can work with data in a looser way, allowing for a more unstructured environment, communicating changes to the data over time to all the servers that are part of the database.

Database Management Systems

To the computer, a database looks like one or more files. In order for the data in the database to be read, changed, added, or removed, a software program must access it. Many software applications have this ability: iTunes can read its database to give you a listing of its songs (and play the songs); your mobile-phone software can interact with your list of contacts. But what about applications to create or manage a database? What software can you use to create a database, change a database’s structure, or simply do analysis? That is the purpose of a category of software applications called database management systems (DBMS).

DBMS packages generally provide an interface to view and change the design of the database, create queries, and develop reports. Most of  these packages are designed to work with a specific type of database, but generally are compatible with a wide range of databases.

For example, Apache OpenOffice.org Base (see screenshot) can be used to create, modify, and analyze databases in open-database (ODB) format. Microsoft’s Access DBMS is used to working with databases in its own Microsoft Access Database format. Both Access and Base have the ability to read and write to other database formats as well.

Apache OpenOffice.org Base

Database management system

Microsoft Access and Open Office Base are examples of personal database-management systems. These systems are primarily used to develop and analyze single-user databases. These databases are not meant to be shared across a network or the internet, but are instead installed on a particular device and work with a single user at a time.

Enterprise Databases

A database that can only be used by a single user at a time is not going to meet the needs of most organizations. As computers have become networked and are now joined worldwide via the internet, a class of database has emerged that can be accessed by two, ten, or even a million people. These databases are sometimes installed on a single computer to be accessed by a group of people at a single location. Other times, they are installed over several servers worldwide, meant to be accessed by millions. These relational enterprise database packages are built and supported by companies such as Oracle, Microsoft, and IBM. The open-source MySQL is also an enterprise database.

As stated earlier, the relational database model does not scale well. The term scale here refers to a database getting larger and larger, being distributed on a larger number of computers connected via a network. Some companies are looking to provide large-scale database solutions by moving away from the relational model to other, more flexible models. For example, Google now offers the App Engine Datastore, which is based on NoSQL. Developers can use the App Engine Datastore to develop applications that access data from anywhere in the world. Amazon.com offers several database services for enterprise use, including Amazon RDS, which is a relational database service; and Amazon DynamoDB, a NoSQL enterprise solution.

Big Data

A new buzzword that has been capturing the attention of businesses lately is big data. The term refers to such massively large data sets that conventional database tools do not have the processing power to analyze them. For example, Walmart must process over one million customer transactions every hour. Storing and analyzing that much data is beyond the power of traditional database-management tools. Understanding the best tools and techniques to manage and analyze these large data sets is a problem that governments and businesses alike are trying to solve.

Data Warehouse

As organizations have begun to utilize databases as the centerpiece of their operations, the need to fully understand and leverage the data they are collecting has become more and more apparent. However, directly analyzing the data that is needed for day-to-day operations is not a good idea; we do not want to tax the operations of the company more than we need to. Further, organizations also want to analyze data in a historical sense: How does the data we have today compare with the same set of data this time last month, or last year? From these needs arose the concept of the data warehouse.

What Is Metadata?

The term metadata can be understood as "data about data." For example, when looking at one of the values of Year of Birth in the Students table, the data itself may be "1992." The metadata about that value would be the field name Year of Birth, the time it was last updated, and the data type (integer). Another example of metadata could be for an MP3 music file; information such as the length of the song, the artist, the album, the file size, and even the album cover art, are classified as metadata. When a database is being designed, a "data dictionary" is created to hold the metadata, defining the fields and structure of the database.

The concept of the data warehouse is simple: extract data from one or more of the organization’s databases and load it into the data warehouse (which is itself another database) for storage and analysis. However, the execution of this concept is not that simple. A data warehouse should be designed so that it meets the following criteria:

· It uses nonoperational data. This means that the data warehouse is using a copy of data from the active databases that the company uses in its day-to-day operations, so the data warehouse must pull data from the existing databases on a regular, scheduled basis.

· The data is time-variant. This means that whenever data is loaded into the data warehouse, it receives a time stamp, which allows for comparisons between different time periods.

· The data is standardized. Because the data in a data warehouse usually comes from several different sources, it is possible that the data does not use the same definitions or units. For example, our Events table in our Student Clubs database lists the event dates using the mm/dd/yyyy format (e.g., 01/10/2013). A table in another database might use the format yy/mm/dd (e.g., 13/01/10) for dates. In order for the data warehouse to match up dates, a standard date format would have to be agreed upon and all data loaded into the data warehouse would have to be converted to use this standard format. This process is called extraction-transformation-load (ETL).

There are two primary schools of thought when designing a data warehouse: bottom-up and top-down. The bottom-up approach starts by creating small data warehouses, called data marts, to solve specific business problems. As these data marts are created, they can be combined into a larger data warehouse. The top-down approach suggests that we should start by creating an enterprise-wide data warehouse and then, as specific business needs are identified, create smaller data marts from the data warehouse.

Benefits of Data Warehouses

Organizations find data warehouses quite beneficial for a number of reasons:

· The process of developing a data warehouse forces an organization to better understand the data that it is currently collecting and, equally important, what data is not being collected.

· A data warehouse provides a centralized view of all data being collected across the enterprise and provides a means for determining data that is inconsistent.

· Once all data is identified as consistent, an organization can generate one version of the truth. This is important when the company wants to report consistent statistics about itself, such as revenue or number of employees.

· By having a data warehouse, snapshots of data can be taken over time. This creates a historical record of data, which allows for an analysis of trends.

· A data warehouse provides tools to combine data, which can provide new information and analysis.

Data warehouse process (top-down)

Data Mining

Data mining is the process of analyzing data to find previously unknown trends, patterns, and associations in order to make decisions. Generally, data mining is accomplished through automated means against extremely large data sets, such as a data warehouse. Some examples of data mining include:

· An analysis of sales from a large grocery chain might determine that milk is purchased more frequently the day after it rains in cities with a population of less than 50,000.

· A bank may find that loan applicants whose bank accounts show particular deposit and withdrawal patterns are not good credit risks.

· A baseball team may find that collegiate baseball players with specific statistics in hitting, pitching, and fielding make for more successful major league players.

In some cases, a data-mining project is begun with a hypothetical result in mind. For example, a grocery chain may already have some idea that buying patterns change after it rains and want to get a deeper understanding of exactly what is happening. In other cases, there are no presuppositions and a data-mining program is run against large data sets in order to find patterns and associations.

Privacy Concerns

The increasing power of data mining has caused concerns for many, especially in the area of privacy. In today’s digital world, it is becoming easier than ever to take data from disparate sources and combine them to do new forms of analysis. In fact, a whole industry has sprung up around this technology: data brokers. These firms combine publicly accessible data with information obtained from the government and other sources to create vast warehouses of data about people and companies that they can then sell.

Business Intelligence and Business Analytics

With tools such as data warehousing and data mining at their disposal, businesses are learning how to use information to their advantage. The term business intelligence is used to describe the process that organizations use to take data they are collecting and analyze it in the hopes of obtaining a competitive advantage. Besides using data from their internal databases, firms often purchase information from data brokers to get a big-picture understanding of their industries. Business analytics is the term used to describe the use of internal company data to improve business processes and practices.

Knowledge Management

We end the chapter with a discussion on the concept of knowledge management (KM). All companies accumulate knowledge over the course of their existence. Some of this knowledge is written down or saved, but not in an organized fashion. Much of this knowledge is not written down; instead, it is stored inside the heads of its employees. Knowledge management is the process of formalizing the capture, indexing, and storing of the company’s knowledge in order to benefit from the experiences and insights that the company has captured during its existence.

Summary

We have learned about the role that data and databases play in the context of information systems. Data is made up of small facts and information without context. If you give data context, then you have information. Knowledge is gained when information is consumed and used for decision making. A database is an organized collection of related information. Relational databases are the most widely used type of database, where data is structured into tables, and all tables must be related to each other through unique identifiers. A database management system (DBMS) is a software application that is used to create and manage databases and can take the form of a personal DBMS, used by one person, or an enterprise DBMS that can be used by multiple users. A data warehouse is a special form of database that takes data from other databases in an enterprise and organizes it for analysis. Data mining is the process of looking for patterns and relationships in large data sets. Many businesses use databases, data warehouses, and data-mining techniques in order to produce business intelligence and gain a competitive advantage.

Study Questions

1. What is the difference between data, information, and knowledge?

2. Explain in your own words how the data component relates to the hardware and software components of information systems.

3. What is the difference between quantitative data and qualitative data? In what situations could the number 42 be considered qualitative data?

4. What are the characteristics of a relational database?

5. When would using a personal DBMS make sense?

6. What is the difference between a spreadsheet and a database? List three differences between them.

7. Describe what the term normalization means.

8. Why is it important to define the data type of a field when designing a relational database?

9. Name a database you interact with frequently. What would some of the field names be?

10. What is metadata?

11. Name three advantages of using a data warehouse.

12. What is data mining?

Licenses and Attributions

Chapter 4: Data and Databases from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

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Characteristics of Quality Data

People depend on the systems they use to contain high-quality data. If they find the data to be wrong, outdated, or incomplete, they begin to distrust the system and will likely stop using it. If the data in the system is personally important to the individual, such as the data in payroll or medical systems, then there is a strong need to have it corrected as quickly as possible.

What are the characteristics of good-quality data? There are a variety of characteristics, but we will focus on six. Let's look at the data that may be in a payroll system and how each of the characteristics of quality data are important, and consider an example of each.

· Accuracy – Is the information correct? For example, is the annual salary correct?

· Completeness – Is all the information there? For example, if overtime was worked, is it included?

· Timeliness – Is the information current and pertaining to a specific, identified time period? Does the payroll data pertain to the current pay period? For example, is old, outdated data used, which could change the amount paid to the employee?

· Uniqueness – Does each record have its own individual identifier (often referred to as a unique identifier)? Does the payroll record apply to a specific individual? For example, does a specific payroll record pertain to a specific employee?

· Validity – Is the information appropriate for defined parameters? Is the data in the payroll record based on the acceptable ranges? For example, is the hourly rate within the accepted range and is the number of hours worked reasonable?

· Consistency – Does the data correctly align with other data in the system? For example, if the employee is a salaried employee does the payroll record reflect that vs. hourly employee data?

It is important that the data in information systems is of high quality. As systems are developed, the testing should include ensuring that the quality of data is maintained throughout the system, from its source to the final output. Therefore, data needs to have these characteristics when it is entered into the system. The data entry process should include validation that it meets these quality attributes, and then it needs to be protected as it resides in and flows through the system. If any of these characteristics are missing, the system must be analyzed to discover where the problem lies. The correction may be as simple as fixing an individual record; or, if it is not clear where the problem lies, the system may be considered unreliable overall and may need to be taken offline until corrections are applied. When migrating data to a new system, it is also important to maintain accuracy and integrity. Inconsistency or redundancy in data will reduce the acceptance of a new system by users. Part of a system implementation plan should include specifics about how data will be transferred, entered, and verified to ensure a high degree of accuracy (often referenced as a data migration plan).

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How Information Supports Decision Making

Now that you have been introduced to the basics of data, how it can be stored, and the importance of data quality, let’s look at how data transformed into information supports organizational decision making. In their simplest form, information systems are all about getting the right information in the most usable format to the right people, at the right time and place. Advances in integrated software applications, the internet, and better data management practices provide businesses with better tools to support that goal.  

A key competitive advantage of an organization is the ability to react to changes quickly. Being able to make the right decision to address a potential threat or seize an opportunity could make the difference in whether or not the company stays in business or continues to increase profits. The key to making good decisions is having the relevant information readily available in the form that is needed. There are three basic levels of decision making in an organization: operational, managerial, and strategic as illustrated below.

Let's look at the process of creating an invoice. An invoice contains several pieces of data, such as customer name, number, address, shipping method, items ordered, and quantities. This data is required at an operational level to update inventories, handle logistics, add to accounts receivable, and so forth. At the mid-level of our pyramid, the management level, the data from each individual invoice are not as important as the cumulative information that many invoices can provide. For example, sales have increased 25% on product A, orders for product B are shipping consistently behind schedule, and shipping costs with shipper X are increasing more than with other shippers. With this information on trends or patterns, management can investigate further and make decisions on production schedules, supplier relationships, or preferred shipping vendors.

At the senior or executive level of an organization, the company leadership is less concerned than middle management about the trends or patterns—their concerns are strategic. Senior management looks at information, both from within the organization and external. For example, suppose a key component needed in the manufacturing process is petroleum-based. Rising oil prices, coupled with industry forecasts that prices will continue to rise, call for addressing this situation at a strategic level. Senior management might consider whether a price increase can be justified, how much of an increase the market can bear, or whether there are alternatives that would not degrade the product.

A primary advantage of an information system is its ability to support and improve decision making throughout the organization by turning data into useful information. However, the system is just a tool and does not replace the human factor; people are still required to make the choices involved in the decisions. Individuals at all levels of the organization can use the information provided by the system as they make their decisions. In the invoice example above, the creation and use of the invoice data could all be done by hand, using paper invoices. However, the use of a system to capture, store, and share that information throughout the organization significantly increases the efficiency and effectiveness of the process and makes the information immediately and readily available to those who need it to make their decisions.

We can see that information moves through the organization and is viewed for different purposes by different levels within the organization. However, the data are captured at the operational level (transaction-processing systems) and made available in appropriate forms (summary of product, customer, geographic distribution differences, and so on) at the various managerial levels.

It is important to note that information can flow both up and down the levels within an organization. Information that is useful for monitoring ("How are we doing?") typically flows from the operational level upward. Control information ("Is business going as planned?") typically flows from the top level downward. For example, a senior manager notes that sales figures are declining. She queries down through the organization to find more information to control the declining sales. From mid-level management, she may learn that only the Midwest region is experiencing a decline. From the operational level, she may learn that the sales force in that region has had significant turnover and that 40 percent of its sales representatives have fewer than six months of experience.

More specifically, let’s look at some examples of possible types of information and decisions different levels of the organization based on information from an invoice processing system based on the graphic above.

Level	Types of Information	Area of Focus or Concern	Decision Example	Supporting Information from the IT System
Strategic	Overall sales figures	Amount of increase in market share. Monitor sales volume vs. projected sales.	Decide to discontinue under-performing products.	The system could produce a report of products where the sales volume is not meeting the projected volume.
Strategic	Overall Sales Figures	Determine manufacturing capacity requirements and resource utilization. Identify increasing costs of raw materials due to increased oil prices.	Decide whether to reduce production of products that use significant petroleum-based ingredients.	The system could provide a report on products that include more than 10% petroleum-based ingredients.
Managerial	Monthly Invoices	Plan monthly production schedule. Schedule employees. Plan maintenance schedules. Manage inventory.	Decide to increase production schedule to meet increased demands on certain products.	The system would provide product sales volume information to indicate high-demand products.
Managerial	Monthly Invoices	Impact on monthly payroll; overtime hours worked.	Decide to increase number of employees in certain departments to reduce excessive overtime.	The system could provide a report indicating where sales exceeded projected demand by 15%.
Operational	Invoice Data	Update inventory, schedule production. Coordinate shipping.	Decide to negotiate shipping rates with most-used shippers.	The system could produce a report of the volume of shipping done with each shipping vendor and their shipping rates.

To provide a more personal example, think about the information you can gain from your online bank account system. The system can show your current balance, total of deposits, total of withdrawals, pending payments (if you use online bill paying), etc. Then based on information the system provides, you can make more informed decisions about your budgeting and spending. If the system showed information that last month your total withdrawals at ATM machines had increased significantly, on average you were hitting the ATM machine 3 or 4 times each week, and the withdrawals averaged $50 per withdrawal, you could decide to limit yourself to once-a-week ATM withdrawals of no more than $100. Further analysis of your spending habits could show a significant amount of money being spent daily on eating lunch out. You could then decide to pack your lunch two days a week. This shows how you could make fact-based decisions supported by information from the banking information system.

Keep in mind that information technology is simply a tool. Knowing how to use the tool correctly is instrumental to overall effectiveness. The key to using IT successfully is knowing what data an information system contains and how the data can be converted into useful information to support decision making at each level in the organization. This helps organizations achieve their business strategy and maintain or increase its competitive advantage.

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