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Review Questions 1. Why are information systems essential in business today? Describe four trends in the global business environment that have made information systems so important. An understanding of the effective and responsible use and management of information systems is important for managers and other business knowledge workers in today's global information society. Information systems and technologies have become a vital component of successful businesses and organizations. Information systems constitute an essential field of study in business administration and management, as they are considered a major functional area in business operations. 2. Describe the capabilities of a digital firm. Why are digital firms so powerful? What are the four principal systems driving the movement toward digital firms? 3. What is an information system? Distinguish between a computer, a computer program, and an information system. What is the difference between data and information? 4. What activities convert raw data to usable information in information systems? What is their relationship to feedback? 5. What are the functions of an information system from a business perspective? What role do they play in the business information value chain? 6. What is information systems literacy? How does it differ from computer literacy?
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Page 1: Chapter 2

Review Questions

1. Why are information systems essential in business today? Describe four trends in the global business environment that have made information systems so important.

An understanding of the effective and responsible use and management of information systems is important for managers and other business knowledge workers in today's global information society. Information systems and technologies have become a vital component of successful businesses and organizations. Information systems constitute an essential field of study in business administration and management, as they are considered a major functional area in business operations.

2. Describe the capabilities of a digital firm. Why are digital firms so powerful? What are the four principal systems driving the movement toward digital firms?

3. What is an information system? Distinguish between a computer, a computer program, and an information system. What is the difference between data and information?

4. What activities convert raw data to usable information in information systems? What is their relationship to feedback?

5. What are the functions of an information system from a business perspective? What role do they play in the business information value chain?

6. What is information systems literacy? How does it differ from computer literacy?

7. What are the organization, management, and technology dimensions of information systems?

8. Distinguish between a behavioral and a technical approach to information systems in terms of the questions asked and the answers provided. What major disciplines contribute to an understanding of information systems?

9. What is the relationship between an organization and its information systems? How has this relationship changed over time?

10. What are the Internet and World Wide Web? How have they changed the role played by information systems in organizations?

11. Describe some of the major changes that information systems are bringing to organizations.

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12. How are information systems changing the management process?

13. What is the relationship between network revolution, the digital firm, electronic commerce, and electronic business?

14. What are inter-organizational systems? Why are they becoming more important? How has Internet and Web technology affected these systems?

15. What do we mean by information architecture and information technology infrastructure? Why are they important concerns for managers?

16. What are the key management challenges involved in building, operating, and maintaining information systems today?

17. Identify and describe the four levels of the organizational hierarchy. What types of information systems serve each level?

om lowest to highest, the four levels of the organizational hierarchy are operational, knowledge, management, and strategic. Types of information systems include transaction processing systems, office systems, knowledge work systems, decision-support systems, management information systems, and executive support systems.Transaction processing systems, such as order tracking, payroll, machine control, and compensation, serve the operational level. Engineering workstations, word processing, graphics workstations, managerial workstations, document imaging, and electronic calendars are examples of knowledge work systems and office systems that serve the knowledge level. Sales region analysis, cost analysis, annual budgeting, and relocation analysis are examples of decision-support systems and management information systems. Many of these systems are programs that students learn in their management science or quantitative methods courses. Some are based on database management systems. Examples of executive support systems that serve the strategic level are sales trend forecasting, operating plan development, budget forecasting, profit planning, and manpower planning.

18.List and briefly describe the major types of systems in organizations.

19. What are the five types of TPS in business organizations? What functions do they perform? Give examples of each.

20. Describe the functions performed by knowledge work systems and office systems and some typical applications of each.

21. What are the characteristics of MIS? How do MIS differ from TPS? From DSS?

22. What are the characteristics of DSS? How do they differ from those of ESS?

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23. Describe the relationship between TPS, office systems, KWS, MIS, DSS, and ESS.

24. List and describe the information systems serving each of the major functional areas of a business.

25. What is a business process? Give two examples of processes for functional areas of the business and one example of a cross-functional process.

26. Why are organizations trying to integrate their business processes? What are the four key enterprise applications for organization-wide process integration?

27. What are enterprise systems? How do they change the way an organization works?

28. What are the benefits and challenges of implementing enterprise systems?

29. What is supply chain management? What activities does it comprise? Why is it so important to businesses? How do information systems facilitate supply chain management?

30. What is collaborative commerce? How can organizations benefit from it?

31. How can organizations benefit from participating in private industrial networks?

32. What is customer relationship management? Why is it so important to businesses? How do information systems facilitate customer relationship management?

33. What is the role of knowledge management systems in the enterprise? What organizational processes are supported by knowledge management applications?

34. What is an organization? Compare the technical definition of organizations with the behavioral definition.

35. What features do all organizations have in common? In what ways can organizations differ?

36. . How are information technology services delivered in organizations? Describe the role played by programmers, systems analysts, information systems managers, and the chief information officer (CIO).

37. Describe the major economic theories that help explain how information systems affect organizations.

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38. Describe the major behavioral theories that help explain how information systems affect organizations.

Why are information systems essential in business today? Describe four trends in the global environment that have made information systems so important.

The emergence of a global economy, transformation of industrial economies, transformation of the business enterprise, and the emergence of the digital firm make information systems essential in business today. These trends present the business firm and its management with several new challenges. .

As a growing percentage of the advanced industrial economies in the United States, Europe and Asia depends on imports and exports, information systems supply both communications and analytic instruments for engaging in trade and for managing businesses that are spread throughout the world.

The major industrial powers in the United States, Europe and Asia are being transformed from industrial economies to knowledge- and information-based service economies. In such economies, information systems and technology have become critical to these economies, and in this day and age, they have become essential to economies that primarily remain reliant upon manufacturing. Development of the power and capabilities of information systems has transformed the possibilities for organizing and managing business enterprises. Businesses of this style are less hierarchical (flatter) and are more decentralized, allowing them to rely more on informal commitments and temporary task forces. Many managers have become more reliant upon individuals who report to them for decision making as these reportees have more learning and current knowledge. Also, more and more under this transformation, companies are becoming more customer-oriented.

The emerging technology and the organizational redesign that has accompanied it have created the condition for the emergence of the digital firm. While firms of this type are still few and far between, they are growing in number. Perhaps more important right now, almost all larger firms and even many smaller ones have become reliant upon the digital firm technology for much of their activity, including relations with customers and suppliers.

Ref: http://www.angelfire.com/rebellion2/jsmith/case_2.html

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Chapter 1

1. Why are information systems essential in business today? Describe four trends in the global business environment that have made information systems so important.

The emergence of a global economy, transformation of industrial economies, transformation of the business enterprise, and the emergence of the digital firm make information systems essential in business today. These trends present the business firm and its management with several new challenges. Table 1-1 summarizes these challenges.

As a growing percentage of the advanced industrial economies in the United States, Europe and Asia depends on imports and exports, information systems supply both communications and analytic instruments for engaging in trade and for managing businesses that are spread throughout the world.

The major industrial powers in the United States, Europe and Asia are being transformed from industrial economies to knowledge- and information-based service economies. In such economies, information systems and technology have become critical to these economies, and in this day and age, they have become essential to economies that primarily remain reliant upon manufacturing.

Development of the power and capabilities of information systems has transformed the possibilities for organizing and managing business enterprises. Businesses of this style are less hierarchical (flatter) and are more decentralized, allowing them to rely more on informal commitments and temporary task forces. Many managers have become more reliant upon individuals who report to them for decision making as these reportees have more learning and current knowledge. Also, more and more under this transformation, companies are becoming more customer-oriented.

The emerging technology and the organizational redesign that has accompanied it have created the condition for the emergence of the digital firm. While firms of this type are still few and far between, they are growing in number. Perhaps more important right now, almost all larger firms and even many smaller ones have become reliant upon the digital firm technology for much of their activity, including relations with customers and suppliers.

2. Describe the capabilities of a digital firm. Why are digital firms so powerful? What are the four principal systems driving the movement toward digital firms?

Digital firms extensively use Internet technology for electronic commerce and electronic business to manage their internal processes and relationships with customers, suppliers, and other external entities. Core business processes, key corporate assets, and environmental responses are digitally managed. Because a digital firm relies heavily on information technology to enable,

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mediate, and streamline its internal and external operations, the firm is more flexible, profitable, competitive, and efficient than a traditional firm.

Supply chain management systems, customer relationship management systems, enterprise systems, and knowledge management systems are the four principal systems driving the movement toward digital firms. As the textbook suggests, these four systems are where corporations are digitally integrating information flows and making significant information systems investments.

3. What is an information system? Distinguish between a computer, a computer program, and an information system. What is the difference between data and information?

The textbook defines an information system as interrelated components that work together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis, and visualization in an organization. A computer system is the physical equipment used for input, processing, and output activities in an information system. Computer programs provide the computer with necessary instructions on how to process the data into information. Data are raw facts; these raw facts, in their current form, are not in a useful format. Information is data that have been processed into a useful, meaningful form.

It is important for students to recognize that a computer and an information system are not equivalent. It is important to stress that information systems have management, organization, and technology dimensions. Computers and programs are technology components of an information system. Without addressing the organization and management dimensions, the technology components are relatively useless. For instance, you can purchase a computer and software, but unless you have determined how the technology will be used to help manage and organize your work, you essentially have a decorative box for your desk.

4. What activities convert raw data to usable information in information systems? What is their relationship to feedback?

Input captures raw data, processing converts the data into a more meaningful form, and output transfers the processed information to people or activities where it will be used. Some of the output will be used to correct any problems found, and also to provide feedback that will then be used to evaluate the data.

5. What are the functions of an information system from a business perspective? What role do they play in the business information value chain?

Information systems facilitate the acquisition, transformation, and distribution of information. Information systems can improve decision making, enhance organizational performance, and help increase firm profitability, thus contributing to corporate value.

6. What is information systems literacy? How does it differ from computer literacy?

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Information systems literacy is a broad-based understanding of information systems. In contrast, computer literacy is limited to understanding computers. Information systems literacy includes the behavioral understanding of the organization and management dimensions of information systems, as well as the technological dimensions.

7. What are the organization, management, and technology dimensions of information systems?

Organization: Information systems are part of organizations, and in some cases (such as credit card companies and financial information services), they are the organization. Information systems will have the SOPs and the culture of an organization imbedded within them.

Management: Information systems supply tools and information needed by managers to allocate, coordinate and monitor their work, make decisions, create new products, and services and make long-range strategic decisions.

Technology: Management uses technology (hardware, software, storage, and telecommunications) to carry out their functions. It is one of the many tools managers use to cope with change.

8. Distinguish between a behavioral and a technical approach to information systems in terms of the questions asked and the answers provided. What major disciplines contribute to an understanding of information systems?

A behavioral approach to information systems focuses on questions such as strategic business integration, behavioral problems of systems utilization, system design and implementation, social and organizational impacts of information systems, political impacts of information systems, and individual responses to information systems. Solutions to problems created by information technology are primarily changes in attitudes, management, organizational policy, and behavior.

A technical approach to information systems emphasizes mathematically-based models to study information systems and the physical technology and formal capabilities of information systems. Students should know the differences between computer science (theories of computability, computation methods, and data storage and access methods), management science (development of models for decision making and managerial practice), and operations research (mathematical techniques for optimizing organizational parameters such as transportation, inventory control and transaction costs).

9. What is the relationship between an organization and its information systems? How has this relationship changed over time?

Notable changes occurring over time include a growing interdependence between the organization and its information systems and a movement from primarily technical changes to include both managerial and institutional changes. There is a growing interdependence between the organization and its information systems. Often, a change in the business's strategy, rules, or procedures requires changes in the information systems software, hardware, databases, and

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telecommunications. An organization’s present and future accomplishments depend in many respects on what its systems will permit it to do now and later. Also, system projects are increasing in reach and scope. Whereas early information systems addressed primarily technical or operational issues, contemporary information systems are integral to the management and strategic goals of the firm. Today information systems affect a much larger part of the organization itself, such as organizational products, objectives, and structure. More and more business activities at all levels involve the use of information systems.

10. What are the Internet and World Wide Web? How have they changed the role played by information systems in organizations?

The Internet is an international network of hundreds of thousands of public and private networks with over 500 million people connected in over 200 countries working in science, education, government, and business. Individuals and organizations use the Internet to exchange information and perform business transactions with other individuals and organizations around the globe. It should be noted that the digital firm uses the Internet as its primary technology platform.

The World Wide Web is a system with universally accepted standards for storing, retrieving, formatting, and displaying information in a networked environment. The Web is a part of the Internet that provides a graphically-based system of pages for storing information on the Internet.

The Internet and World Wide Web have had a tremendous impact on the role information systems play in organizations. The Internet and World Wide Web are responsible for the increased connectivity and collaboration within and outside the organization. The Internet, World Wide Web, and other technologies have led to the redesign and reshaping of organizations. The Internet and World Wide Web have helped transform the organization's structure, scope of operations, reporting and control mechanisms, work practices, work flows, and products and services.

11. Describe some of the major changes that information systems are bringing to organizations.

Information systems are driving both daily operations and organizational strategy. Powerful computers, software, and networks, including the Internet, have helped organizations become more flexible, eliminate layers of management, separate work from location, and restructure work flows, giving new powers to both line workers and management. The flattening of organizations is probably one change that students are likely to cite, particularly with the concern over downsizing. The parallel increase in information and in the decision power of line workers (empowerment) also increased the workers’ corresponding work satisfaction as management span of control is broadened. The empowering of the line worker means managers can spend more time thinking more strategically.

12. How are information systems changing the management process?

Contemporary information systems are providing managers with powerful new tools for more precise planning, forecasting and monitoring, allowing them to respond more quickly to changes

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in the market for a product or in production conditions. Systems also give managers new tools for communicating with their subordinates so that they can manage larger numbers of people across greater distances than in the past.

13. What is the relationship between network revolution, the digital firm, electronic commerce, and electronic business?

The Internet and other networks have made it possible for the firm to replace manual and paper-based processes with the electronic flow of information. This change can enable many companies ultimately to become digital firms. The digital firm uses the Internet and digital technology to expedite the exchange of information and facilitates communication and coordination both inside the organization and between the organization and its partners. Without this linkage of buyers and sellers through the networks and the Internet, there would be no way to transmit the many transactions of the electronic market, which would leave buyers and sellers to depend on paper transactions with their time delays, inaccuracies, and expenses.

14. What are interorganizational systems? Why are they becoming more important? How has Internet and Web technology affected these systems?

Interorganizational systems automate the flow of information across organizational boundaries, linking a company to its customers, distributors, or suppliers, and sometimes even their competitors.

Interorganizational systems allow companies to electronically conduct transactions with different companies. By electronically conducting transactions with other companies, the companies can respond more quickly to market demands and lower transaction costs. Moreover, the companies can work jointly and more quickly and fully with partners to design, produce, and sell products. This method can result in higher levels of efficiency, value to customers, and even result in a significant competitive advantage.

The Web and the Internet can lower the cost for all those involved, even making it possible for small companies to participate where they might not if costs were higher. Also, many firms find their employees need little or no training to use the Internet and the Web.

15. What do we mean by information architecture and information technology infrastructure? Why are they important concerns for managers?

The information architecture of the organization is the particular form or design that information technology assumes in a specific organization to achieve selected goals or functions. It is a design for the business application systems that serve each functional specialty and level of the organization and the specific ways that they are used by each organization. Contemporary information architectures are increasingly designed around business processes and clusters of system applications spanning multiple functions and organizational levels.

The firm’s information technology (IT) infrastructure provides the technology platform for this architecture and consists of computer hardware, software, data and storage technology, and

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networks along with the human resources required to operate the technology. Because managers and employees directly interact with these systems, it is important for the company now and in the future that the information architecture and IT infrastructure meet the business requirements of the company and that the systems can work together where needed.

16. What are the key management challenges involved in building, operating, and maintaining information systems today?

The textbook identifies five key management challenges, including the strategic business challenge, globalization challenge, information architecture and infrastructure challenge, information systems investment challenge, and the responsibility and control challenge. The strategic business challenge encourages students to realize that they must be able to use information technology to design organizations so that they are competitive, effective and digitally-enabled. The globalization challenge facing students is that they know how firms can understand the systems requirements of a global economic environment. The information architecture and infrastructure challenge is that students must be able to help their organizations develop an information architecture that is able to support the company goals when both the business conditions and the technologies are changing so rapidly. The information systems investment challenge is for students to know how their organization can determine the business value of systems. Finally, the responsibility and control challenge is for students to understand how organizations can ensure that their information systems are used in an ethically and socially responsible way.

Case Study – ShopKo and Pamida: Systems Triumph or Tragedy?

1. Evaluate the role of information systems in the way ShopKo and Pamida run their business. How important are they?

ShopKo and Pamida's information systems are very important to the successful management of the businesses. However, the traditional information systems are ineffective and are not helping the companies achieve their business objectives. The new information systems are supportive of the businesses' requirements and enabling the businesses to achieve their overall objectives.

ShopKo uses its information system to determine appropriate markdown prices for overstocked items. The traditional system determined a product's markdown price based on the clearance price used in previous years. Since the information system was unable to factor local geography and culture into the equation, a product's clearance price was the same at all stores. The traditional information system was ineffective, in that ShopKo was losing money, and the system was not helping the company realize its business objectives. In contrast, the new system (Markdown Optimizer) allowed the company to price its products based on various factors, including season, geography, local tastes, and historical demand. The Markdown Optimizer "stores the previous recommendation for each item in each individual store so that it can evaluate past results and then produce recommendations for the closeout of the current cycle." Because of the improved system, ShopKo saw a 25 percent increase in its gross margin, decreased payroll costs by 24 percent, and the percentage of unsold goods was reduced from 7 percent to 2 percent.

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As the case scenario indicates, Pamida's strategy is to maintain a high in-stock-rate. However, Pamida's traditional system did not help the company achieve its objective. Stores were out of stock on items, while the same items were sitting in Pamida's warehouses. Although Pamida changed its warehouse from a flow-through facility to a full-service distribution center, it did not update or replace its warehousing software. According to Pamida's CIO Dan Nicklen, the reason the warehouse management software was not updated was because "the software had been working fine under the old distribution system." As a result of the inadequate warehouse management information system, bottlenecks occurred, earnings declined in the first nine months of 2001, and ShopKo lost $6.7 million in overall revenue. As a result of the product supply shortage for the 2000 holiday season, estimated sales losses were $5 million, and lawsuits were filed by shareholders. It is obvious that Pamida's current technology did not support the transition from a flow-through facility to a full-service distribution center.

2. Evaluate the importance of Pamida's distribution center consolidation project for both Pamida and ShopKo. What management, organization and technology factors prevented Pamida's new distribution center from working successfully?

The distribution center consolidation project was very important for both Pamida and ShopKo. One of the goals of the distribution center was to enable Pamida's stores to maintain a high in-stock rate. Additionally, ShopKo wanted to expand its Pamida stores into small towns. The distribution center was key to achieving these management objectives.

The management challenge was to move Pamida's distribution center from a flow-through facility to a full-service facility. The organizational elements include suppliers, the warehouses, and the individual stores. The technology included using outdated Catalyst, International warehouse management software and mainframe systems. Unfortunately, the CIO assumed that the existing technology would satisfy management objectives because the technology had worked fine in the past. The case points out that the existing technology was inflexible and required the new distribution center to conform to the technology, as opposed to having the technology support the new management and organizational requirements. This is a very good example of why it is important to examine the management, organization, and technology dimensions of an information system, and that you cannot just assume that existing technology can satisfy current and future business requirements.

3. Are ShopKo and Pamida using information systems effectively? Why or why not? How much value do their systems provide to the business?

The traditional systems described in the case were very ineffective. Because of its traditional system, ShopKo was using a markdown strategy that was costly, time-consuming, and not very useful. Pamida's traditional system caused the company to have too many out-of-stock items and a decreasing gross margin. However, ShopKo's new information system enables the company to more effectively determine markdown pricing strategies for each product within a given store. This improved system has helped the company increase its gross margin, decrease payroll costs, decrease the amount of unsold goods, and reduce payroll expenses. The case scenario mentions that Pamida has implemented a new distribution center and that ShopKo is confident with the new system.

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The value of the systems is very apparent from the case scenario. When the systems were not functioning properly, the systems were a detriment to the company, as opposed to being an asset. The systems were causing the companies to lose money, items were either overstocked or under stocked, and employee time was inefficiently used. In the case of Pamida, shareholders sued the company. However, when the systems were improved and aligned with management objectives, the information systems enabled ShopKo and Pamida to achieve objectives and earn a profit.

4. If you were the CEO of ShopKo, how would you have addressed the problem? If you were the CEO of Pamida when it was purchased by ShopKo, would you have recognized the problem? Explain. How would you have solved the problem?

Students will provide different answers for this question. As CEO of ShopKo, students should recognize that the consolidation project required changes in the information systems for both companies. These changes require an examination of the management, organization, and technology dimensions of the information systems. It is apparent from the case that management wanted the distribution center to adapt to the technology, as opposed to the technology being upgraded to address the new requirements for the distribution center. As the CEO, students should recognize that the management requirements and organization requirements should be identified, and then the technology required to satisfy these requirements can be identified and then implemented.

5. What management challenges does this case study illustrate? Explain your answer.

ShopKo faces several management challenges, including strategic business, information architecture and infrastructure, information systems investment, and responsibility and control challenges.

Strategic Business Challenge. Pamida's decision to continue using its existing warehouse management software rather than update the software shows the unwillingness of the company's management to explore how technology can be used to help the company achieve a strategic advantage.

Information Architecture and IT Infrastructure Challenge. ShopKo's decision to use Spotlight Solution's Markdown Optimizer and Pamida's refusal to upgrade to new warehouse management software are good examples of the information architecture and infrastructure challenge. ShopKo's move to the Markdown Optimizer shows the company's willingness to modify its information technology infrastructure in an attempt to meet both current and future business requirements. After changing its infrastructure, ShopKo then changed its information architecture. This is apparent by its ability to now manage and tailor markdown pricing strategies for each of its stores. Pamida's unwillingness to make changes in its underlying infrastructure caused the information systems to become outdated and unable to satisfy the company's current business requirements.

Information Systems Investment Challenge. ShopKo did address the information systems investment challenge. It appears that the company did evaluate the potential benefits and costs for the new information system. The new system did provide the company with a sizable payoff

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and has definitely increased its value. In contrast, Pamida should have examined in more detail how investing in an improved information system could have provided the company with a better payoff and increased corporate value.

Responsibility and Control Challenge. Students can use Table 1-5 to help answer this part of the question. ShopKo's new information system has had several positive impacts on the company. For instance, ShopKo's new system does help it evaluate purchase patterns, and thus determine more appropriate markdown pricing strategies for its individual stores. Additionally, Pamida's latest distribution system should help it better manage its stock in its stores.

Chapter 2

Review Questions

1. Identify and describe the four levels of the organizational hierarchy. What types of information systems serve each level?

From lowest to highest, the four levels of the organizational hierarchy are operational, knowledge, management, and strategic. Types of information systems include transaction processing systems, office systems, knowledge work systems, decision-support systems, management information systems, and executive support systems.

Transaction processing systems, such as order tracking, payroll, machine control, and compensation, serve the operational level. Engineering workstations, word processing, graphics workstations, managerial workstations, document imaging, and electronic calendars are examples of knowledge work systems and office systems that serve the knowledge level. Sales region analysis, cost analysis, annual budgeting, and relocation analysis are examples of decision-support systems and management information systems. Many of these systems are programs that students learn in their management science or quantitative methods courses. Some are based on database management systems. Examples of executive support systems that serve the strategic level are sales trend forecasting, operating plan development, budget forecasting, profit planning, and manpower planning.

2. List and briefly describe the major types of systems in organizations.

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Transaction processing systems, office systems, knowledge work systems, decision-support systems, management information systems, and executive support systems are the major types of systems in organizations. Transaction processing systems function at the operational level of the organization. Examples of transaction processing systems include order tracking, order processing, machine control, plant scheduling, compensation, and securities trading.

Knowledge work systems help create and integrate new knowledge within the organization. Examples of knowledge work systems include engineering workstations, managerial workstations, and graphics workstations. Office systems help increase data worker productivity and include word processing document imaging, and electronic calendars.

Management information systems provide managers with reports based primarily on data pulled from transaction processing systems, have an internal orientation, and have limited flexibility. Examples of management information systems include sales management, inventory control, and capital investment analysis. Decision-support systems function at the management level and provide analytical models and data analysis tools to provide support for semistructured and unstructured decision-making activities. Examples of decision-support systems include sales region analysis, cost analysis, and contract cost analysis.

Executive support systems function at the strategic level, support unstructured decision making, and use advanced graphics and communications. Examples of executive support systems include sales trend forecasting, budget forecasting, and personnel planning.

The systems form a level of systems, with all types either formatting or processing the information from a lower level. For instance, the office systems provide reports or presentations on the information or data in transaction processing systems. Decision-support and executive support systems often use office systems in presenting information extracted from transaction processing systems and management information system. Management information systems depend on data from transaction processing systems. Some systems, including knowledge work systems, decision-support systems, and executive support systems may use external information, such as stock market information and design information from suppliers.

3. What are the five types of TPS in business organizations? What functions do they perform? Give examples of each.

The five types of transaction processing systems include sales/marketing systems, manufacturing/production systems, finance/accounting systems, human resources systems, and other types. Figure 2-4 identifies and provides examples for each type of transaction processing system. Sales/marketing systems provide sales management, market research, promotion, pricing, and new product functions. Examples include sales order information systems, market research systems, and sales commission systems. Manufacturing/production systems provide scheduling, purchasing, shipping/receiving, engineering, and operations functions. Examples of manufacturing systems include machine control systems, purchase order systems, and quality control systems. Finance/accounting systems provide budgeting, general ledger, billing, and cost accounting functions. Examples of finance/accounting systems include general ledger, accounts receivable/payable, and funds management systems. Human resource systems provide personnel

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records, benefits, compensation, labor relations, training, and payroll functions. Examples include employee records, benefit systems, and career path systems. Other types include admissions, grade records, course records, and alumni for a university. Examples of transaction processing systems for a university include a registration system, student transcript system, and an alumni benefactor system.

4. Describe the functions performed by knowledge work systems and office systems and some typical applications of each.

Knowledge work systems (KWS) aid knowledge work professionals to create new information and knowledge, and ensure that new knowledge and technical expertise are properly used in their corporations. Examples of knowledge workers (and some of their software) include engineers (graphics workstations), Wall Street traders, analysts, and arbitrageurs (financial and stock market workstations), research scientists, doctors, and designers (CAD systems).

Office systems provide support for data workers, including secretaries, accountants, filing clerks, and some managers. Software examples include word processing, desktop publishing, presentation programs, electronic calendars, and document imaging.

5. What are the characteristics of MIS? How do MIS differ from TPS? From DSS?

MIS supports the management level by providing routine summary reports and exception reports for various purposes, including planning, controlling, and decision making. Examples include sales and profit per customer and per region, relocation summary and analysis, inventory control, capital investment analysis, and even a report on students who were here in the autumn but did not to return in the spring. MIS differs from TPS in that MIS deals with summarized and compressed data from the TPS and sometimes analysis of that summarized data.

Decision-support systems provide material for analysis for the solution of semi-structured problems, which often are unique or rapidly changing. Typically, they provide the ability to do “what if” analysis. While MIS have an internal orientation, DSS will often use data from external sources, as well as data from TPS and MIS. DSS supports “right now” analysis rather than the long-term structured analysis of MIS. MIS are generally not flexible and provide little analytical capabilities. In contrast, DSS are designed for analytical purposes and are flexible.

6. What are the characteristics of DSS? How do they differ from those of ESS?

DSS provide sophisticated analytical models and data analysis tools to support semistructured and unstructured decision-making activities. DSS use data from TPS, MIS, and external sources, provide more analytical power than other systems, combine data, and are interactive. ESS support senior managers with unstructured strategic-level decision making. They may be less analytical than DSS with less use of models such as linear programming or forecasting. However, they often rely on external data and rely heavily on graphics.

7. Describe the relationship between TPS, office systems, KWS, MIS, DSS, and ESS.

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The various types of systems in the organization exchange data with one another. TPS are a major source of data for other systems, especially MIS and DSS. TPS are operational-level systems that collect transaction data. Examples of these are payroll or order processing that track the flow of the daily routine transactions that are necessary to conduct business. TPS provide data that are required by office systems, KWS, MIS and DSS, although these systems may also use other data. KWS and office systems not only use data from TPS but also from MIS. DSS not only use data from TPS but also from KWS, office systems, and MIS. MIS rely heavily on data from TPS but also use data from KWS and office systems. ESS obtain most of their internal data from MIS and DSS.

8. List and describe the information systems serving each of the major functional areas of a business.

Sales and marketing information systems help the firm identify customers for the organization's products and services. These systems help develop, promote, sell, and provide ongoing customer support for the firm's products and services. Specific sales and marketing information systems include order processing, market analysis, pricing analysis, and sales trend forecasting.

Manufacturing and production information systems provide information for planning, product development, production or service scheduling, and controlling the flow of products and services. Specific manufacturing and production information systems include machine control, CAD, production planning, and facilities location.

Finance and accounting information systems track the organization's financial assets and fund flows. Financial and accounting systems include accounts receivable, portfolio analysis, budgeting, and profit planning.

Human resources information systems maintain employee records; track employee skills, job performance, and training; and support planning for employee compensation, including pensions and benefits, legal and regulatory requirements, and career development. Systems include training and development, career pathing, compensation analysis, and human resources planning.

9. What is a business process? Give two examples of processes for functional areas of the business and one example of a cross-functional process.

Business processes are the ways in which organizations coordinate and organize work activities, information, and knowledge to produce their valuable products or services. Business processes for the manufacturing and production area include product assembling, quality checking, and producing bills of materials. For the sales and marketing area, business processes include identifying customers, making customers aware of the product, and selling the product. For finance and accounting, business processes includes paying creditors, creating financial statements, and managing cash accounts. For human resources, business processes include hiring employees, evaluating job performance of employees, and enrolling employees in benefits plans.

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The order fulfillment process is an example of a cross-functional process. As Figure 2-12 illustrates, the order fulfillment process involves activities performed by sales, accounting, and manufacturing functions.

10. Why are organizations trying to integrate their business processes? What are the four key enterprise applications for organization-wide process integration?

An organization operates in an ever-increasing competitive, global environment. Operating in a global environment requires an organization to focus on the efficient execution of its processes, customer service, and speed to market. To accomplish these goals, the organization must exchange valuable information across different functions, levels, and business units. By integrating its processes, the organization can more efficiently exchange information among its functional areas, business units, suppliers, and customers. The four key enterprise applications are enterprise systems, supply chain management systems, customer relationship management systems, and knowledge management systems.

11. What are enterprise systems? How do they change the way an organization works?

Enterprise systems integrate the key business processes of an organization into a single software system. Data from various functional areas are maintained centrally where they can be accessed and used by other functions and cross-functional processes. This changes the work flow of an organization. Now information can seamlessly flow throughout the organization, improving coordination, efficiency, and decision making.

12. What are the benefits and challenges of implementing enterprise systems?

Enterprise systems are firm-wide information systems that integrate key business processes so that information can flow freely between different parts of the firm. Enterprise systems help create a more uniform organization in which everyone uses similar processes and innovation and measures their work in terms of organization-wide performance standards. Enterprise systems are very difficult to successfully implement and once implemented, are very difficult to change. Enterprise systems require extensive organizational change, use complicated technologies, and require large up-front costs for long-term benefits that are difficult to quantify.

13. What is supply chain management? What activities does it comprise? Why is it so important to businesses? How do information systems facilitate supply chain management?

Supply chain management is the close linkage of activities involved in the processes of buying, making and moving a product. Supply chain management is important to a business because through its efficiency it can coordinate, schedule, and control the delivery of products and services to customers.

Supply chain management closely links and coordinates activities in buying, making, and moving a product. The system should lower costs and streamline the user’s business. Information systems make supply chain management more efficient by helping companies coordinate, schedule, and control procurement, production, inventory management, and delivery of products

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and services to customers. Information systems help organizations achieve great efficiencies by automating parts of these processes or by helping organizations rethink and streamline these processes.

14. What is collaborative commerce? How can organizations benefit from it?

For supply chain management to work, an atmosphere of trust must exist among supply chain members. Members need to work together on a common goal, and they must redesign appropriate business processes so they can more easily coordinate their activities. Collaborative commerce uses digital technologies to enable the members of the supply chain to collaboratively design, develop, build, and manage products through their lifecycles. It helps the various partners to integrate their systems with each other. Aside from gaining benefits from any successful supply chain, they also benefit by achieving new levels of efficiency in reducing product design cycles, minimizing excess inventory, forecasting demand, and keeping all partners informed.

15. How can organizations benefit from participating in private industrial networks?

Private industrial networks are Web-enabled networks that permit firms and their business partners to share such activities as product design and development, marketing, inventory, production scheduling, and communications, including graphics, CAD drawings, and e-mail. Benefits include the ability to reduce inventory, product cycle time, inventory costs, and system costs. Private industrial networks also improve the coordination and sharing of information, as well as provide the ability to track a product from raw materials to the customer, track demand, adjust production, and adjust the timing and size of deliveries, as well as monitor product availability, production capacity, and inventory levels.

16. What is customer relationship management? Why is it so important to businesses? How do information systems facilitate customer relationship management?

Customer relationship management is a business and technology discipline to coordinate all of the business processes for dealing with existing and potential customers. With the growth of the Web, potential customers can easily comparison shop for retail and wholesale goods and even raw materials, so better treatment of customers has become very important. Good CRM systems consolidate customer data from multiple sources and provide analytical tools for answering questions such as: What is the value of a particular customer to the firm over his/her lifetime? CRM tools integrate the firm’s customer-related processes and consolidate customer information from multiple communication channels, so that the firm can put one coherent face to the customer.

17. What is the role of knowledge management systems in the enterprise? What organizational processes are supported by knowledge management applications?

Knowledge management systems codify knowledge and experience, make the collected knowledge and experience available when and where it is needed, and provide links to external sources of knowledge. Organizational processes include creating knowledge, discovering and codifying knowledge, sharing knowledge, and distributing knowledge. Knowledge work systems

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support knowledge creation; artificial intelligence systems support knowledge discovery and codification; group collaboration systems support knowledge sharing, and office and communication tools support knowledge distribution.

Case Study – Can Information Systems Save U.S. Steel?

1. Summarize U.S. Steel's current competitive situation.

Despite its innovative information systems and significant investments in information technology, U.S. Steel still faces stiff competition. Several issues facing USS include economies of scale, producing higher-grade steel, significant losses due to a recession and low prices, and an industry that produces more steel than the world consumes. One of the key problems that USS has is its location. As the case mentions, USS spends $240 to produce a ton of steel, and half of that cost is spent on purchasing and shipping raw materials. In contrast, one of its major competitors, South Korea's POSCO, incurs $175-$180 per ton, is located on the Pacific coastline, has very modern facilities, and uses the Internet for the company's activities.

2. How are information systems related to the way U.S. Steel runs its business? What role is played by supply chain management systems? How do these systems provide value for USS?

Currently, USS's continuous flow manufacturing system is a crucial component of its business. As mentioned in the case, USS manages its entire supply chain via a single integrated system. The continuous flow manufacturing system facilitates order entry by customers, credit authorization, automatic order generation, order tracking, product configuration, order fulfillment, order delivery, and demand forecasting. The supply chain management system allows the customer to enter his order via the Web, specifying product limitations and capabilities. Once the order is entered and customer credit is approved, an accurate price quote is quickly delivered back to the customer. The order tracking system triggers each step in the ordering process, ASNs, and deliveries. The product configuration system uses complex business rules and procedures to determine the right mix of product specifications and prices.

3. What management, organization, and technology factors were responsible for USS's inability to compete with other steel manufacturers?

In 1996, USS faced several management challenges. USS needed to drastically improve its notification system, accurately monitor and track orders, lower production costs (cost of steel and number of hours per person), lower inventory costs, and reduce the size of its inventory. USS needed to make a profit, increase its share of the higher-grade steel market, and centralize the management of its various businesses and factories. The exchange of information between the plants, processors, customers (such as Ford), and USS management was inflexible, error-prone, and cumbersome. Technology factors include incompatible technology, manual order taking methods, a dialup system, different tracking and ordering systems for each processor, different inventory codes, the necessity to translate processing data into USS's own system, and the delay and delivery of advanced shipping notices (ASNs).

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4. Describe how USS has responded to its global and American competition.

USS has gone from having a poor performance track record to being a vanguard in the industry. After Ford threatened to drop USS as one of its suppliers, USS completely reengineered its supply chain management. Its new continuous flow manufacturing system now manages USS's supply chain through a single integrated system. USS's innovative use of information technology enabled the company to become very efficient. However, other factors, such as labor costs, production costs, being a higher-grade steel producer, its location, and economies of scale are just a few reasons why the company still has trouble competing in a global market. To help alleviate some of its problems, USS wants to combine with Bethlehem Steel, National Steel, and possibly Weirton Steel. However, these companies appear to be opposed to the merger. Additionally, to remain competitive and to generate additional revenue, USS uses its subsidiary, UEC Technologies, to sell its technology and services.

5. How helpful were information systems in addressing USS problems?

The information systems were very helpful in addressing USS problems. The information systems have sped up credit authorization, provided more accurate ASNs and orders, handled processor messages in less time, provided management with the ability to know where supplies are and how the processing is proceeding, reduced order revisions by two-thirds, aggregated orders, reduced waste, and helped reduced inventory. Although the information systems enabled USS to operate more efficiently and have made the company a vanguard in the industry, USS still faces stiff competition.

6. Evaluate the decision by USS to sell its software to other companies. Could it help or hinder USS? Explain your answer.

The sale of USS's information technology and software to other companies is an additional source of revenue for the company. With an eye to the competition, USS sells systems that are one-generation behind the technology that it uses. Because the company is facing stiff competition, it needs to generate revenue and profits for the company. Since USS sells software that is one generation behind, it can still maintain a competitive edge with the development of new software innovations. Since several smaller companies now use Straightline Source, USS has enticed these companies away from service centers. Because a company is likely to make a substantial investment in the software and related technology, that company will probably give due consideration before it switches to a new technology. Therefore, USS can "lock-in" its customers with the software.

Chapter 3

Review Questions

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1. What is an organization? Compare the technical definition of organizations with the behavioral definition.

The technical definition for an organization defines an organization as a stable, formal social structure that takes resources from the environment and processes them to produce outputs. The technical definition of an organization focuses on three elements: capital and labor, production, and products for consumption. The technical definition also implies that organizations are more stable than an informal group, are formal legal entities, and are social structures.

The behavioral definition states that an organization is a collection of rights, privileges, obligations, and responsibilities that are delicately balanced over a period of time through conflict and conflict resolution. This definition highlights the people within the organization, their ways of working, and their relationships.

The technical definition shows us how a firm combines capital, labor, and information technology. The behavioral definition examines how information technology impacts the inner workings of the organization. The behavioral definition is the more realistic of the two.

2. What features do all organizations have in common? In what ways can organizations differ?

Table 3-3 summarizes the common and unique features of organizations. Common features for organizations include formal structure, standard operating procedures, politics, and culture. Organizations can differ in their organizational type, environment, goals, power, constituencies, function, leadership, tasks, technology, and business processes.

3. How are information technology services delivered in organizations? Describe the role played by programmers, systems analysts, information systems managers, and the chief information officer (CIO).

Information services are usually designed, built, and operated through information systems departments which are assigned the responsibilities of maintaining the hardware, software, data storage, and networks that comprise the firm’s information technology infrastructure. Depending on the size of the organization, and thus its information systems department, the department includes programmers, systems analysts, telecommunications and network specialists, and operations staff.

Programmers are the people who actually write or create the computer instructions. Systems analysts are the liaison between the users of an information system and the people who create it. The information systems managers are the leaders of various specialists in the information systems department. The chief information officer (CIO) is the overall manager of the information systems department who sets policies and the direction for the information systems department. The CIO is at the same level as the chief operating officer (COO) and the chief financial officer (CFO) in the organization. Each of these officers is responsible for part of the organization's operation. The CEO, CFO, and CIO help to set policy for the firm.

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4. Describe the major economic theories that help explain how information systems affect organizations.

The two economic theories discussed in the book are transaction cost theory and agency theory. The transaction cost theory is based on the notion that a firm incurs transaction costs when it buys on the marketplace rather than making products for itself. Traditionally, firms sought to reduce transaction costs by getting bigger, hiring more employees, vertical and horizontal integration, and small-company takeovers. Information technology helps firms lower the cost of market participation (transaction costs) and helps firms shrink in size while producing the same or greater amount of output.

The agency theory views the firm as a nexus of contracts among interested individuals. The owner employs agents (employees) to perform work on his or her behalf and delegates some decision-making authority to the agents. Agents need constant supervision and management, which introduces management costs. As firms grow, management costs rise. Information technology reduces agency costs by providing information more easily so that managers can supervise a larger number of people with fewer resources.

5. Describe the major behavioral theories that help explain how information systems affect organizations.

Behavioral theories, from sociology, psychology, and political science, are useful for describing the behavior of individual firms. Behavioral researchers theorize that information technology could change the decision-making hierarchy by lowering the costs of information acquisition and distribution. IT could eliminate middle managers and their clerical support by sending information from operating units directly to senior management and by enabling information to be sent directly to lower-level operating units. It even enables some organizations to act as virtual organizations because they are no longer limited by geographic locations.

One behavioral approach views information systems as the outcome of political competition between organizational subgroups. IT becomes very involved with this competition because it controls who has access to what information, and information systems can control who does what, when, where, and how.

6. Why is there considerable organizational resistance to the introduction of information systems?

There is considerable organizational resistance to new information systems because they change many important organizational dimensions, such as culture, structure, politics, and work. Leavitt puts forth a model that says that changes in technology are absorbed, deflected, and defeated by organizational task arrangements, structures, and people. In this model the only way to bring about change is to change the technology, tasks, structure, and people simultaneously. In a second model, the authors speak of the need to "unfreeze" organizations before introducing an innovation, quickly implementing the new system, and then "refreezing" or institutionalizing the change.

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7. Compare the descriptions of managerial behavior in the classical and behavioral models.

The classical model suggests that managers perform five classical functions. These functions are planning, organizing, coordinating, deciding, and controlling. Although the classical model describes formal managerial functions, it does not provide a description of what managers actually do. The behavioral models suggest that managerial behavior is less systematic, more informal, less reflective, more reactive, less well-organized, and somewhat frivolous. The behavioral models differ from the classical model in that managers perform a great deal of work at an unrelenting pace, managerial activities are fragmented, managers prefer speculation, managers prefer oral forms of communication, and managers give the highest priority to maintaining a diverse and complex web of contacts.

8. What specific managerial roles can information systems support? Where are information systems particularly strong in supporting managers, and where are they weak?

Table 3-4 compares managerial roles with the support systems. Information systems support the liaison, nerve center, disseminator, spokesperson, and resource allocator roles. Currently information systems do not support the figurehead, leader, entrepreneur, disturbance handler, and negotiator roles. Information systems are the strongest at the informational role and the weakest at the interpersonal and decisional roles.

9. What are the four stages of decision making described by Simon?

Simon's four stages of decision making include intelligence, design, choice, and implementation. During the intelligence stage, organizational problems are identified and understood. During the design stage, possible alternative solutions to the problem are conceived. During the choice stage, a choice is made from the possible alternatives. During the implementation stage, the decision is put into effect and the solution's progress is reported.

10. Compare individual and organizational models of decision making.

Individual models of decision making assume that human beings are in some sense rational, although there are a number of individual models. The rational model assumes that individuals can identify goals, rank all possible alternatives, and then select the alternative that contributes the most. However, some research finds that this process is too complex, that individuals cannot possibly specify all alternatives, much less select the best. Research suggests that systematic decision makers structure the decision based on some formal method. On the other hand, intuitive decision makers use many different approaches and use trial and error to find a solution.

Organizational decision making considers the structural and political characteristics of an organization. Organizational models suggest that decisions are not made individually, but are made by groups or the organization. The bureaucratic model of decision making suggests that decisions are shaped by the organization's standard operating procedures. The political models of decision making suggest that decisions result from competition and bargaining among the organization's interest groups and key leaders. The "garbage can" model suggests that

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organizations are not rational and that decisions are solutions that become attached to problems for accidental reasons.

11. What is the impact of the Internet on organizations and the process of management?

The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations, nearly any information can be available anywhere at any time. The Internet increases the scope, depth, and range of information and knowledge storage. It lowers the cost and raises the quality of information and knowledge distribution, that is, it lowers transaction and information acquisition costs. By using the Internet, organizations may reduce several levels of management, enabling closer and quicker communication between upper levels of management and the lower levels. The Internet also lowers agency costs.

12. What is a strategic information system? What is the difference between a strategic information system and a strategic-level system?

A strategic information system is a computer system at any organizational level that fundamentally changes the goals, operations, products, services, or environmental relationships of organizations, in effect changing the very nature of the firm’s business. In contrast, strategic-level systems provide long-term planning information to senior executives. Strategic information systems are more far-reaching and deeply rooted, and fundamentally transform the organization itself.

13. Describe appropriate models for analyzing strategy at the business level, and the types of strategies and information systems that can be used to compete at this level.

Low-cost producer, product differentiation, and focused differentiation are three generic strategies available at the business level. If a business pursues the low-cost producer strategy, it can evaluate its value chain to identify primary and secondary activities where information technology can effectively help the business obtain a competitive advantage. Strategic information systems help a company offer its products and services at a lower cost than its competitors, or strategic information systems enable the company to provide more value at the same cost as its competitors. Strategic information systems enable the company to improve its internal value chain, as well as establish tight, efficient linkages with its suppliers, customers, and business partners. Additionally, a company can participate in a value web.

Firms pursuing a product differentiation strategy use information systems to create new products and services. These products and services are not easily duplicated by competitors, and therefore, the company does not need to compete on the basis of cost.

A company pursuing a focused differentiation strategy develops new market niches for its specialized products and services. The company competes in this target market by offering its products and services in a superior manner. A company can use strategic information systems to "mine" for information about a particular market or group of customers. The strategic information systems enable the company to analyze customer buying patterns, tastes, and preferences.

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Companies can use their strategic information systems to establish tight linkages to customers and suppliers. Companies can use their strategic information systems to create efficient customer response systems, switching costs, and in some instances, stockless inventories.

14. Describe appropriate strategies for the firm level, and how information systems can help companies compete at this level.

A firm is typically a collection of businesses which are organized financially as a collection of strategic business units. Information systems can enhance the integration of separate units into a whole (synergy). Also, information systems can allow different business units to share information in the organization’s core competencies.

15. How can the competitive forces model, information partnerships, and network economics be used to identify strategies at the industry level?

These industry-level models help a company answer the key strategic question of “How and when should we compete with as opposed to cooperate with others in the industry?”

Firms can form information partnerships and even link their information systems to achieve unique synergies. An information partnership enables companies to join forces without actually merging by sharing information. For example, these partnerships can help firms gain access to new customers as can be seen in the partnership between American Airlines and Citibank.

The competitive forces model explains the interaction of external influences (threats and opportunities) that affect an organization's strategy and ability to compete. The threats include new entrants into the market, pressure from substitute products and services, bargaining power of customers, and positioning of traditional industry competitors. Information systems are used at this level to develop industry-wide standards for exchanging information or business transactions, create value webs, and create industry-wide, IT-supported consortia, symposia, and communications networks for coordinating activities.

Traditionally, the more any given resource is applied to production, the lower the marginal gain, until additional inputs do not produce additional outputs (the law of diminishing returns). However, some situations exist where adding additional participants adds almost nothing to costs. One common example is when the telephone company adds another person to its network. The company has almost no additional continuing costs. Finding such opportunities will benefit a company. For example Microsoft Corporation supports a community of software developers around the world who support local companies in making better use of Microsoft products. Adding an additional developer, or many new developers, costs Microsoft almost nothing.

The network economics model suggests that in a network the addition of another participant entails zero marginal costs but can create much lager marginal gain. For instance, the Internet can be used to build "communities of users".

16. How have the value chain and competitive forces models changed as a result of the Internet and the emergence of digital firms?

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Internet technology has enabled a firm to extend the concept of its value chain to include all of the firm’s suppliers and business partners into a single Web. The main reason for this is that the Internet greatly reduces the cost of connecting online with partners. This enables companies to work directly with companies around the world and with companies too small to build their own international network. The same is true with digital firms because they essentially exist mainly because they can operate over the Net.

Similarly, because of the Internet and digital firms, corporations find it cheaper and easier to relate to suppliers and customers, enabling the company to meet the competitive problem identified using the competitive forces model. The competitive forces model has also changed in the Internet era because firms do not just compete with each other within the same industry, they compete as part of industry sets.

17. Why are strategic information systems difficult to build?

Strategic information systems are difficult to build because they can entail massive sociotechnical changes within the organization. Organizational boundaries between the firm and its customers and suppliers and between departments within the organization usually must be broken down. New relationships among parts of the company and with customers and suppliers must be redefined. Sometimes entirely new organizational structures may need to be built (as with the Saturn division of General Motors). Also, resistance to such changes may exist because these changes impact responsibilities and jobs.

Case Study – What Happened to Kmart?

1. Evaluate Kmart using the value chain and competitive forces models. What was Kmart's business model and business strategy?

Kmart has numerous problems with its value chain. This is evident from the suppliers sending items that the suppliers want to sell, shelves remaining unstocked, the "hand shifting" reordering process for popular items, products being allocated by central planners and not based on individual store demand, excess inventory stored in 15,000 truck-trailers behind its stores, shrinkage, and having to choose to either ship toothpaste or Christmas trees. Since its entrance as the first discount store in the 1960s, Kmart has not been able to ward off new entrants into the discount chain business. The new entrants, such as Wal-Mart and Target, have come on strong and surpassed Kmart. Kmart's suppliers seem to be calling the shots with the retailer, since they are promoting the items that they can sell and not helping Kmart address its mounting problems. Kmart's customers are voting with their pocketbooks and shopping at its competitors' stores.

Kmart uses a promotions-drive business model. The company uses advertising circulars to promote its "blue-light" specials.

2. What was the relationship of information systems to Kmart's business processes and business strategy? How well did its systems support its strategy?

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Kmart's information systems and its business processes and business strategy were not in alignment. As an example, the information systems could collect data, but the data were not available for analysis and decision-making purposes. As the case mentions, forecasting decisions were based on management's judgment, not on the data.

Kmart's systems did not support its strategy. One of the problems mentioned in the case is that its supply chain management system could not easily accommodate the sharp increases and decreases in demand. The distribution center's outdated technology led to supplies sitting on pallets for 24 hours until they were recorded in the central tracking system. When reordering popular products, the employees would hand sift through previous purchasing receipts.

3. What management, organization, and technology factors contributed to Kmart's problems?

From the case, it appears that Kmart management is inconsistent with its implementation of the company's strategy. Management is unable to use data to forecast demand; it has lost sight of its core competencies, and is unable to change Kmart's image. Although management wanted to restructure its supply chain, it continued to expand its product offerings, as opposed to focusing on the fastest selling items. Mr. Conaway's plan to restructure Kmart has obviously not worked out. Although Mr. Conaway wanted the local stores to make their own stocking decisions, the stocking decisions were still being made by the central planners. When the new system was installed, Mr. Buzek made the comment that "the information would be useless because management just didn't believe in the system."

Although the company uses a promotions-driven strategy, the company reduced its advertising circulars. As the case points out, no other alternative for achieving the strategy was provided. Although Kmart wanted to reinvent its supply chain, management was unwilling to unify the distribution system's two computers because the project was too expensive.

From an organizational perspective, the suppliers, central planners, business processes, individual stores, warehouses, and distribution center have definite communication problems and are not sharing data as efficiently as possible. One could argue that very little data sharing is going on. Central planners are making the stocking decisions for the individual stores, but what needs to be stocked at each store is not being effectively communicated.

From a technology perspective, outdated technology and incompatible systems were in place. The new i2 project did not succeed for a variety of reasons, including the need for more hardware, the inability of the project to connect the point-of-sale systems and inventory systems to the distribution systems, and not being robust enough to handle a large number of SKUs.

4. How important was supply chain management in contributing to Kmart's problems? Evaluate Conaway's decision to use i2 software to improve Kmart's supply chain management.

Supply chain management was very important to Kmart. Kmart has been unable to successfully manage its inbound logistics, operations, sales and marketing, service, and outbound logistics. Unfortunately, the company's inability to effectively manage its supply chain led to ineffective advertising, lots of items being overstocked, popular items being understocked, a large product

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offering, poor communication with suppliers and its business units, items sitting on pallets waiting to be entered into the central tracking system, and shipping problems.

The goals for the i2 project were commendable, since the project was supposed to improve Kmart's sales forecasting, inventory sourcing, logistics, and reporting. The project was supposed to facilitate micromarketing, supplier product tracking, order execution, shipment scheduling, and delivery tracking.

It is interesting that Mr. Conaway chose i2 Technologies for the new supply chain management project, since i2 Technologies had "only recent and limited experience in the retail sector." The decision to use i2 Technologies was not a good decision, since the system was not designed to work with the large number of SKUs, Kmart (according to some) wrote off and abandoned some of its i2 software, the project fell behind schedule, and the inability to connect the point-of-sale systems and inventory systems to the distribution systems.

5. Were those blaming software for the collapse of Kmart correct? Explain your answer.

Actually, there is enough blame to go around. i2 Technologies did a very poor job analyzing and designing the system for Kmart. It also appears that Kmart's management did not get behind the project and was also unwilling to transform its core business processes.

6. It has been said that "Wal-Mart uses their IT strategically, and they fully integrate it into their operating model." Does this statement apply to Kmart? Explain your response.

This statement does not apply to Kmart. Kmart is using an outdated business model and has been unwilling to change its model. Its unwillingness to change is one of the reasons why Wal-Mart and Target have been able to successfully compete against Kmart and why Kmart is in bankruptcy.

7. List the problems Conaway faced when he took over Kmart, and then describe the short- and long-range policies you would have followed had you been in his place.

When Mr. Conaway took over Kmart, he faced several problems, including stiff competition from Wal-Mart and Target. The company was using an outdated business model, spending more money than the competition to get its goods into its stores, its information systems were collecting data but not using it effectively, it had significant problems with its entire value chain, it had a frumpy reputation, its shelves were often empty, it offered a wide range of products, it provided poor customer service, and it did not care about the competition. Students will provide a variety of short- and long-range policy recommendations.