Managing the Digital Firm, Seventh Canadian Edition
CHAPTER 2
How Businesses Use Information
LEARNING OBJECTIVES
After reading this chapter, you will be able to answer the following questions:
1. What are business processes? How are they related to information systems?
2. How do information systems serve the various levels of management groups in a
business?
3. How do systems that link the enterprise improve organizational performance?
4. Why are systems for collaboration and teamwork so important, and what technologies
do they use?
5. What is the role of the information systems function in a business?
Teaching Suggestions
The opening vignette, “TELUS Embraces Social Learning,” provides an outstanding
example of how the company embraced social business tools to significantly reduce its
learning budget all the while it increased the amount of learning and education available
to its employees. These technologies are the very same ones every business needs to
succeed.
Prior to incorporating the new social business tools, 90 percent of the TELUS learning
budget was devoted to formal learning in which employees had to wait until attending a
scheduled class before they could learn new techniques. After the company began
incorporating new collaboration and social business tools into its employee education,
only 60 percent of the budget was devoted to formal learning. Further cost savings will
Managing the Digital Firm, Seventh Canadian Edition
Document sharing, tagging user-generated content, and videos, all contribute to the social
learning and collaboration among employees at TELUS. Along the way, TELUS changed
its organizational culture and business processes for knowledge dissemination and
employee learning.
Section 2.1, “Business Processes and Information Systems”
Table 2-1 may help students understand that every business, large and small, uses the
same basic business processes. Referring back to this table may help as you examine
Section 2.2, “Types of Information Systems”
This section focuses on how information systems serve various management levels in
companies. The ultimate goal is for students to realize that one system helps serve other
systems and, working together, all the systems serve the entire organization.
Type of System
Information Inputs
Information
Outputs
Users
Transaction
Processing
Systems (TPS)
Transactions; daily
events
Detailed reports;
lists; summaries
Operations
personnel; first-line
supervisors
Management
Information
Systems (MIS)
Summary
transaction data;
high-volume data;
simple models
Summary and
exception reports
Middle managers
Executive Support
Systems (ESS)
Aggregate data;
external, internal
Projections;
responses to queries
Senior managers
Managing the Digital Firm, Seventh Canadian Edition
Typically, DSS and ESS systems will be the least familiar. Students may better
understand them if you ask these types of questions: Why do national retail chains open
stores in certain locations and not others? How can a retail chain determine which type of
clothing to stock at different geographic locations?
Most important, students need to understand that each type of information system
supports the different kinds of decisions made at each managerial level.
It’s quite possible that students feel overwhelmed by all the different kinds of information
systems described in the first part of this section. “Systems for Linking the Enterprise”
helps you tie together all of the information systems into a cohesive package and show
how data and information can flow seamlessly through an organization.
Enterprise systems: Central to this section is the need to coordinate activities, decisions,
Supply chain management systems: Students should understand the importance of a
business managing its relationships with suppliers through a free-flowing exchange of
information. The concept may seem foreign to those students who think a company is a
Customer relationship management systems: Ask students how many times they’ve quit
doing business with a company because of poor customer service. Ask them how many
times they’ve had to supply a business with the same information simply because they
Knowledge management systems: Few, if any, students have probably had any experience
with these systems. Point out that businesses are beginning to realize how much expertise
and experience is locked away in employees’ heads and that it’s imperative to find a way
Intranets and Extranets: As Internet-based technologies continue to expand the basic
platforms for disseminating information, smaller businesses that cannot afford to
implement enterprise applications can turn to intranets and extranets. Your difficulty will
Managing the Digital Firm, Seventh Canadian Edition
WINDOW ON TECHNOLOGY: CAN AIRLINES SOLVE THEIR
BAGGAGE HANDLING PROBLEMS?
Case Study Questions
1. What types of transactions are handled by baggage handling systems?
The primary types of transactions handled by baggage handling systems are moving
bags from check-in areas to departure gates, moving them from gate to gate and then
finally, moving them from arrival gates to baggage claim areas. That’s a lot of input
2. What are the management, organization, and technology components of baggage
handling systems?
Management: Those who tag luggage at check-in counters must enter the data
correctly. The tags contain flight information and a bar code that all of the computers
in the system can read. Once bags reach the gate, they enter a sorting station where
Managing the Digital Firm, Seventh Canadian Edition
Technology: Baggage handling systems are among the most complex systems
because they involve a wide variety of sensors, actuators, mechanical devices, and
3. What is the problem these baggage handling systems are trying to solve? Discuss
the business impact of this problem. Are today’s baggage handling systems a
solution to this problem? Explain.
The problem baggage handling systems are trying to solve is customer dissatisfaction
and to promote customer goodwill as well as reduce costs.
Business impact: Overall the airline industry rate for lost luggage has improved by
38 percent over similar figures from two years ago when nearly 2.5 million bags were
lost or delayed. Lost and mishandled baggage is a major expense for airlines.
4. What kinds of management reports can be generated from the data from these
systems?
All data input into the baggage handling systems are recorded in transaction
Managing the Digital Firm, Seventh Canadian Edition
MIS reports may include information about the number of bags at any given time in
any given place; how long it takes to move a bag from point A to any other point in
the system; the number of bags processed through the baggage handling system that
WINDOW ON MANAGEMENT: PILOTING PROCTER & GAMBLE
FROM DECISION COCKPITS
Case Study Questions
1. What management, organization, and technology issues had to be addressed
when implementing Business Sufficiency, Business Sphere, and Decision
Cockpits?
Management: Managers and executives were receiving data and information but
Organization: A major reason for P&G’s success has been its robust information
technology and willingness to pursue new IT innovations to maintain a competitive
2. How did these decision-making tools change the way the company ran its
business? How effective are they? Why?
These solutions eliminate time spent debating different data sets, and instead use a
system that allows leaders to focus on immediate business decisions using the most
accurate data available at that precise moment.
The Business Sufficiency program, furnishes executives with predictions about
3. How are these systems related to P&G’s business strategy?
Managers and employees are able to make faster and better decisions than were
previously possible. The company enjoys a reduced complexity involved in generating
a statistical report, as well as cost reductions from maintaining one standardized set of
Section 2.3 “Systems for Collaboration and Social Business
Students have probably used most of these systems without even realizing their business
value. Your task is to relate these increasingly common technologies to business
processes and needs. Discuss how they can use cell phones, instant messaging, social
networking sites, and wikis in a business setting to communicate, collaborate, and share
Managing the Digital Firm, Seventh Canadian Edition
Businesses also make use of YouTube.com to post videos of their products. This exercise
will help demonstrate how businesses must constantly adapt their marketing strategies to
reach customers. You can also generate a discussion about students’ experience on these
kinds of sites in relation to business uses and ask them to relate how effective these new
methods of engaging customers are.
Table 2-3 emphasizes the benefits of collaboration while Figure 2-7 highlights the
necessity of having the appropriate organization structure and culture, along with the
You can have student teams evaluate one or more collaborative programs for an
organization to which they belong like a sports team, class group, workplace or even their
Section 2.4. “The Information Systems Function in Business”
If possible, arrange a session with the university’s information systems department to allow
students to see first-hand how such a centre works and who is responsible for running the
systems. Have the IS staff and students participate in a Question and Answer forum about
how typical processes are handled. Many students have a better appreciation of how these
Managing the Digital Firm, Seventh Canadian Edition
Review Summary
1. What are business processes? How are they related to information systems?
2. How do systems serve the various levels of management in a business?
3. How do systems that link the enterprise improve organizational performance?
4. Why are systems for collaboration and social business so important, and what
technologies do they use?
5. What is the role of the information systems function in a business?
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
Business intelligence 36
Chief information officer (CIO) 54
Chief knowledge officer (CKO) 55
Decision-support systems (DSS) 37
Digital dashboard 40
Electronic business (e-business) 44
Electronic commerce (e-commerce) 44
Information systems department 54
Information systems managers 54
Interorganizational system 43
Programmers 54
Social business 46
Supply chain management (SCM) systems
42
Managing the Digital Firm, Seventh Canadian Edition
Review Questions
1. What are business processes? How are they related to information systems?
Define business processes and describe the role they play in organizations.
A business process is a logically related set of activities that define how specific
business tasks are performed. Business processes are the ways in which organizations
Describe the relationship between information systems and business processes.
Information systems automate manual business processes and make an organization
2. How do systems serve the various levels of management in a business?
Describe the characteristics of transaction processing systems (TPS) and the
roles they play in a business.
Transaction processing systems (TPS) are computerized systems that perform and
record daily routine transactions necessary in conducting business; they serve the
organization’s operational level. The principal purpose of systems at this level is to
Managing the Digital Firm, Seventh Canadian Edition
Describe the characteristics of management information systems (MIS) and
explain how MIS differ from TPS and from DSS.
Middle management needs systems to help with monitoring, controlling, decision–
making, and administrative activities.
• MIS provide middle managers with reports on the organization’s current
performance. This information is used to monitor and control the business and
predict future performance.
Describe the characteristics of decision support systems (DSS) and how they
benefit businesses.
Decision-support systems (DSS) support nonroutine decision-making for middle
managers.
• DSS provide sophisticated analytical models and data analysis tools to support