How do information systems support the activities of managers in organizations?

Management information systems can help you make valid decisions by providing accurate and up-to-date information and performing analytic functions. You have to make sure the management information system you choose can work with the information formats available in your company and has the features you need. Suitable management information systems can structure the basic data available from your company operations and records into reports to present you with guidance for your decisions.

Information from Company Operations

When you base your decisions on data available from management information systems, they reflect information that comes from the operations of your company. Management information systems take data generated by the working level and organize it into useful formats. Management information systems typically contain sales figures, expenses, investments and workforce data. If you need to know how much profit your company has made each year for the past five years to make a decision, management information systems can provide accurate reports giving you that information.

Capability to Run Scenarios

The capability to run scenarios is a key decision-making tool. Some management information systems have this feature built in, while others can provide the information required for running scenarios on other applications, such as spreadsheets. Your decision is influenced by what happens if you decide a certain way. What-if scenarios show you how different variables change when you make a decision.

You can enter reduced staff levels or increased promotion budgets and see what happens to revenue, expenses and profit for different levels of cuts or increases. Management information systems systems play a critical role in making realistic scenarios possible.

Projections to Assist in Decision Making

Any decisions you make result in changes in the projected company results and may require modifications to your business strategy and overall goals. Management information systems either have trend analysis built in or can provide information that lets you carry out such an analysis. Typical business strategies include projections for all fundamental operating results.

A trend analysis allows you to show what these results would be in the current situation and how they will change once you have implemented the decisions you have taken. The new values form the basis of your strategic approach going forward.

Implementation and Evaluation

While you make your decisions with specific goals in mind and have the documentation from management information systems and trend analysis to support your expectations, you have to track company results to make sure they develop as planned. Management information systems give you the data you need to determine whether your decisions have had the desired effect, or whether you have to take corrective action to reach your goals. If specific results are not on track, you can use management information systems to evaluate the situation and decide to take additional measures if necessary.

Perspectives on Information Systems

An information system is a set of interrelated components that collect or retrieve, process, store, and distribute information to support decision making and control in an organization. Information systems can also be used to analyze problems, visualize complex subjects, and create new products.

Information is data, or raw facts, shaped into useful form for humans.

Figure 1-3

FIGURE 1-3 DATA AND INFORMATION Raw data from a supermarket checkout counter can be processed and organized to produce meaningful information, such as the total unit sales of dish detergent or the total sales revenue from dish detergent for a specific store or sales territory.

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FIGURE 1-4 FUNCTIONS OF AN INFORMATION SYSTEM An information system contains information about an organization and its surrounding environment. Three basic activities�input, processing, and output�produce the information organizations need. Feedback is output returned to appropriate people or activities in the organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems.

Computer literacy focuses primarily on knowledge of information technology. Information systems literacy, the understanding of information systems, includes a behavioral and technical approach to understanding the broader organization, management, and information technology dimension of systems and their power to provide solutions. The field of management information systems (MIS) tries to achieve this broader information systems literacy.

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FIGURE 1-5 INFORMATION SYSTEMS ARE MORE THAN COMPUTERS Using information systems effectively requires an understanding of the organization, management, and information technology shaping the systems. An information system creates value for the firm as an organizational and management solution to challenges posed by the environment.

The key elements of an organization are its people, structure, business processes, politics, and culture. An organization coordinates work through a structured hierarchy and formal standard operating procedures. Managerial, professional, and technical employees form the upper levels of the organization's hierarchy while lower levels consist of operational personnel.

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FIGURE 1-6 LEVELS IN A FIRM Business organizations are hierarchies consisting of three principal levels: senior management, middle management, and operational management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management.

Experts are employed for the major business functions: the specialized tasks performed by organizations, which consist of sales and marketing, manufacturing and production, finance and accounting, and human resources.

An organization coordinates work through its hierarchy and business processes. These processes may be documented and formal, or informal, unwritten work processes, such as how to handle a telephone call.

Each organization has a unique culture, or fundamental set of assumptions, values, and ways of doing things, that are accepted by most of its members. Parts of an organization's culture can be found in its information systems. For example, UPS's organizational focus on customer service can be found in the package tracking system available to customers. Information systems may also reflect the organizational politics or conflicts that result from differing views and opinions in an organization.

Information systems are also a key component in the ability of management to make sense of the challenges facing a company and in management's ability to create new products and services, manage the company, and even re-create the organization from time to time.

Information technology is one of the many tools used by management to cope with change. A firm's information technology (IT) infrastructure is a technology platform or foundation on which a firm can build its information systems. IT infrastructure consists of:

• Computer hardware: The physical equipment and computing devices used for input, storage, processing, output, and telecommunications
• Computer software: The detailed, preprogrammed instructions that control and coordinate the computer hardware components
• Data management software: The software governing the organization of data on physical storage media
• Networking and telecommunications technology: Hardware and software used to link the various pieces of hardware and transfer data from one physical location to another; a computer network links two or more computers together to share data, such as files, images, sounds, video, or share resources, such as a printer.

The World Wide Web is a service provided by the Internet that uses universally accepted standards for storing, retrieving, formatting, and displaying information in a page format on the Internet. Web pages contain text, graphics, animations, sound, and video and are linked to other Web pages. The Web can serve as the foundation for new kinds of information systems such as UPS's Web-based package tracking system

From a business perspective, an information system is an important instrument for creating value for the firm. Information systems enable the firm to increase its revenue or decrease its costs by providing information that helps managers make better decisions or that improves the execution of business processes.

Every business has an information value chain in which raw data is systematically acquired and then transformed through various stages that add value to that information. The value of an information system to a business, as well as the decision to invest in any new information system, is, in large part, determined by the extent to which the system will lead to better management decisions, more efficient business processes, and higher firm profitability.

Figure 1-7

FIGURE 1-7 THE BUSINESS INFORMATION VALUE CHAIN From a business perspective, information systems are part of a series of value-adding activities for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance, and ultimately increase firm profitability.

Some firms achieve better results from their information systems than others. Studies of returns from information technology investments show that there is considerable variation in the returns firms receive. Reasons for lower return on investment include failure to adopt the right business model that suits the new technology or seeking to preserve an old business model that is doomed by new technology.

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FIGURE 1-8 VARIATION IN RETURNS ON INFORMATION TECHNOLOGY INVESTMENT Although, on average, investments in information technology produce returns far above those returned by other investments, there is considerable variation across firms. Source: Erik Brynjolfsson and Lorin M. Hitt, "Beyond Computation: Information Technology, Organizational Transformation and Business Performance." Journal of Economic Perspectives14, no. 4 (Fall 2000).

Complementary investments include:

• Organizational assets: These include a supportive business culture that values efficiency and effectiveness, an appropriate business model, efficient business processes, decentralization of authority, highly distributed decision rights, and a strong information system (IS) development team.
• Managerial assets: These include strong senior management support for change, incentive systems that monitor and reward individual innovation, an emphasis on teamwork and collaboration, training programs, and a management culture that values flexibility and knowledge.
• Social assets: These are not made by the firm but by the society at large, other firms, governments, and other key market actors, such as the Internet, educational systems, network and computing standards, regulations and laws, and the presence of technology and service firms.

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