Case Study, Stage 1

Case Study, Stage 1: Business Environment Analysis

Before you begin this assignment, be sure you have read the “UR UMUC Healthy Fitness Center Case Study.”

Purpose of this

Assignment

This assignment gives you the opportunity to apply the concepts of the Porter Five Forces model to a specific business, develop a strategic direction for your Fitness Center, and identify a process that could be improved with the use of technology.  This assignment specifically addresses the following course outcomes to enable you to:

• analyze business strategy to recognize how technology solutions enable strategic outcomes
• analyze internal and external business processes to identify information systems requirements.

Business Environment Analysis for UR UMUC Healthy Fitness Center

The UR UMUC Healthy Fitness Center has been in business since 1980 and has seen an increase in competition from small fitness centers, Cable TV and Internet Exercise channels and sites, Wii and other TV Game Console, various exercise equipment infomercials and increasing supply of Exercise DVD’s . One of your fitness instructors told you that she saw a sign announcing the construction of Gold’s Gym (a well-known national fitness franchise) a few blocks away.  Your staff is worried and is looking to you to provide reassurance that the competition will not affect the business.  In addition, you have decided to develop your strategic direction for bringing the UR UMUC Healthy Fitness Center into the 21st century.

You know that Michael Porter’s Five Forces Model is a useful tool for analyzing a business, understanding the importance of the five competitive forces and helping to develop its Generic Strategy.  It is also used to aid organizations facing the challenging decisions of dealing with changes made by existing competitors, entering a new industry or industry segment, or developing a strategy for dealing with new competition.  The Five Forces Model helps determine the relative importance of the forces affecting competitive position that could affect the future success of a business.  The Five Forces are:

• Buyer Power
• Supplier power
• Threat of substitute products or services
• Threat of new entrants
• Rivalry among existing competitors

The Five Forces and the Generic Strategy are fully described and discussed in the textbook, and the Business Model and Competitive Advantage are covered in Module 1.  In order to analyze the Fitness Center’s current competitive position and develop a Generic Strategic direction, you have decided to use the Five Forces Model to analyze your Fitness Center business.

Assignment 

Using the textbook and external resources, write a short paper 2-3  pages in length, not including References page and cover sheet, responding to the bulleted items below.
 Remember to use the APA formatting rules and correctly cite and reference your sources with APA format.  Use the Grading Rubric to be sure you have covered everything.  Submit your paper via your Assignment Folder as a Microsoft Word document with your last name included in the filename.

 

Create a document that includes the following:

• Brief introduction providing the background of the case, why you are writing and what is to come in your paper.  This should only be 3-5 sentences.

·        

Perform a Porter’s Five Forces analysis for your UR UMUC Healthy Fitness Center, addressing each force in one or two sentences and defining the force, its impact (Positive, Negative or Neutral) on the Fitness Center and whether it should affect your strategy (Yes/No).  (See  
Textbook, pp. 18-21 and Course Module 1.) 
Do not identify solutions or things that you are doing that would affect the factor.
(The idea is to identify how the different forces affect the UR UMUC Healthy Fitness Center and how much.) This provides you with a view of the business that will allow you to select a Generic Strategy and a Strategic Business Area on which to focus your efforts.

• Determine which of Porter’s Three Generic Strategies (see textbook page 22) that you will use to improve your UR UMUC Healthy Fitness Center for the 21st century and explain why you selected it and tie it into the significant forces that you have identified.

·         Using your analysis of the Fitness Center’s Business Model (based on what you learned in Module 1), identify an important Strategic Business Area that needs to be improved.  The Strategic Business Area is to be selected from the direct variables (explained in Module 1 and illustrated in the Walmart Example Case Study, page 3). 
The Direct Variables are:  suppliers, competition, employees, location, organizational components, owners and customers.  The Walmart Example demonstrates use of this concept, so you should review it and make sure that you are on the right track. 
Explain why you have selected that Strategic Business Area and how improving it will improve operation of the Center, including how it relates to the Generic Strategy you selected.

• Within the selected Strategic Business Area, identify and select a single daily process that is within and supports the Strategic Business Area that needs improvement.  Note:  A process is defined in your textbook as “a standardized set of activities that accomplish a specific task, such as processing a customer’s order.” (Baltzan, 2013, p. 23)   (In Stage 2 you will model the AS IS process and the TO BE Process, and propose a technology solution to improve the process you identify here, so select a process that is appropriate for a technology solution.)

• At the end of your report with your References enter the following headings and complete the information using one concise phrase for each.  You will be starting each subsequent stage by including this information as a method to keep us focused on the objectives.

GENERIC STRATEGY:

STRATEGIC BUSINESS AREA:

            PROCESS TO BE IMPROVED:

In determining which process you select for improvement, be sure to keep in mind the remaining projects within this Case Study.  You should review Stages 2-5 to get an understanding of the future projects that build on this initial stage and to aid you in selecting a process (and later proposing a technology solution) that can support the requirements of the follow-on assignments.

Do not start on Stage 2 until you receive feedback on this Stage as the Process that you select is crucial and your instructor may recommend that you change processes so that you can successfully complete the case.  You MUST incorporate the recommended changes in all subsequent Stages.

The “right” and “wrong” answers have to do with whether or not you correctly incorporated the course concepts from the textbook and addressed all parts of the assignment. You need to do some external research on at least one aspect of the assignment – your choice – and incorporate it and cite/reference it in APA format in your response. The specific strategic area you select for a technology solution is not as important as that it makes sense in light of the course content and the Case Study and is well supported with your application of the course concepts and your external research.   Use the Rubric below to be sure you have covered all aspects.

UR UMUC Healthy Fitness Center Case Study

In 1980, the UR UMUC Healthy Fitness Center was opened in a growing area of a bedroom community, by Tom Ellington, a UMUC Business Management graduate after he retired from the US Marine Corps. It has an exercise room with many different kinds of specialized equipment, rooms for various exercise and martial arts classes, and locker rooms with showers for men and women. In addition, there is a small snack area where members can buy bottled water, soda, fruit juices and snacks, with tables and chairs where people can relax. There are several part time staff members that man the counter where people check in; they also sell memberships and collect payments. There are trained exercise room attendants to assist members, and a maintenance staff to ensure cleanliness of the facility and minor maintenance of the equipment. Recently you were hired by the owner and founder as the manager, and you are very excited about this opportunity!

UR UMUC Healthy is a for-profit Fitness Center and must cover its variable costs, fund future improvements and produce a reasonable profit for the owners. Unfortunately, business has been steadily declining over the last five years. Although your predecessor did a good job at the Center, it has become out-dated. You recognize that some of the equipment really needs to be replaced, but you are not sure which equipment should be replaced first. The classes and exercise programs available have also become out-dated. There is little known about the makeup of the membership (age, sex, goals, interests, problems, complaints, etc.). You don’t know if there are long waits for particular equipment. If you had more information in these areas you feel that you could increase membership and income. For instance, if you knew which equipment was most heavily used, perhaps you would opt to replace that first, or add more similar equipment. The membership fee structure has not been reviewed in many years, and your contracts with outside firms that perform preventative and major maintenance, and those that provide cleaning supplies, vending machines, and towels have not been reviewed in a number of years. Recently, there have been weeks when the Center has run out of clean towels and the vending machines were out of the most popular items. In addition, customers have been requesting WiFi reception in the Center as well as cardio monitoring features on the cardio equipment.

The Center is open from 5 AM to 10 PM and is busy most of the day; however, the make-up of the people differs over the course of the day and each group has its own characteristics. The early group, 5 – 8 AM are the heavy workout members who speed through their exercises and head out for work or school. The next group, 8 AM -2 PM are older and take their time exercising and attending classes and spend a lot of time in social interaction; they are generally either retired or moms with their kids in school. The period from 2 – 4 PM is the least busy and is made up largely of high school students and others who like a less crowded environment. From 4 – 7 PM the group is made up of workers on their way home who want to get their workout in before dinner. The last group, 7 – 10 PM, is young single people who want show themselves off and attract the opposite sex, while exercising or taking classes.

One problem that you notice immediately is that you do not know which employees are scheduled to work each day, and there is no way to quickly get a substitute if one is needed. All employees require annual training and certifications in CPR, Safety, First Aid and the use of AED Defibrillators, while the contract trainers require various additional certifications periodically based on their specialty. All of the membership records, orders for towels and snack bar items, and financial and payroll accounts are kept on paper. The Center does not have a Web site, and uses very little marketing except word-of-mouth, and essentially still operates the same as it did in 1980.

Throughout this course you will manage the UR UMUC Healthy Fitness Center, taking advantage of business practices discussed in the class, the Course Modules and the textbook to increase revenue, keep the business running, and bring the Center into the 21st century. You will identify one area that is in need of improvement and that can be improved through the use of technology. You are not expected to solve all of the problems identified or address all improvements that could be made at the UR UMUC Healthy Fitness Center. Note: We’re looking for a technology solution. While installing a handball court may attract new customers, it is not a technology solution.

The following is an example of how you will identify a business need and a technology solution: Last year, the Fitness Center had no effective way to check its members in when they arrived. Sign-sheets were used at the front desk, and employees had to check that against their printed list of members. This caused members to have to wait at the front desk, and several had complained about this situation. To address the business need of quickly checking members in, a small system was acquired that allowed the Fitness Center to issue membership cards with a bar code; then, members swiped their card upon entry to the Center and if the card read successfully, the member would be admitted.

Note: As you approach the case study assignments, you will find it helpful to think about your own experiences with a fitness center or gym. Making a trip to a local fitness center may help you think about the processes, challenges, and opportunities.

STAGED ASSIGNMENTS

The case study and assignments address the Course Outcomes to enable you to:

· analyze business strategy to recognize how technology solutions enable strategic outcomes

· analyze internal and external business processes to identify information systems requirements

· identify and plan IT solutions that meet business objectives.

Upon completion of these assignments you will have performed an array of activities to demonstrate your ability to apply the course content to a “real world situation” to:

· Analyze the business environment and identify a strategic area for improvement  (Stage 1)

· Propose an appropriate technology solution to improve a selected business process (Stage 2)

· Evaluate various IT considerations of the proposed technology solution (Stage 3)

· Communicate your solution and the IT considerations to stakeholders using a presentation format (Stage 4)

· Identify and explain the next steps in implementing the solution (Stage 5)

The staged assignments are designed to follow the relevant course modules and chapters of the textbook in the class schedule, and are due on the dates shown in the Syllabus. 

Stage 1 Project: Business Environment Analysis (Word document with analysis)

Stage 2 Project:  Business Process Models and Technology-Supported Solution Proposal (Word document with proposed solution and process diagrams)

Stage 3 Project:  Template for IT Considerations (Word table)

Stage 4 Project:  Executive Briefing Presentation (PowerPoint Presentation on proposed solution)

Stage 5 Project:  Outline of Next Steps (Word document in outline format)

The weight of the assignments is shown in the Course Syllabus. The due dates are shown in the Course Schedule.

Assignments for stages 1, 2 and 5 require external research, outside of the textbook and course modules.  The grading rubric is included with each assignment.

These assignments are designed to help you identify how to effectively analyze and interpret information to improve the business.  This is an opportunity for you to apply critical thinking skills and think like a business professional.  When you are writing a paper or developing a presentation, prepare it as if it is going to the owner, Mr. Ellington, whom you want to impress with your knowledge and abilities.  Don’t just go through the mechanics of pulling together information — think about what you are doing, why you’re doing it, whether it make sense, whether the information seems realistic, and what the results show.  Support your recommendations with your research. It’s important that you identify relevant, timely resources that specifically support the points or information you provide in your assignment. You should read the source and assimilate the information first, and then put it into your own words and incorporate it into the flow of your writing (with an appropriate in-text APA citation and a list of references at the end of your paper). Direct quotes should be used very sparingly—only when the author’s own words uniquely present a concept that would be lost if paraphrased by you.

One of the prerequisites for this course is that you have a fundamental working knowledge of word processing and presentation software. Detailed instructions for each Staged Project, 1 through 5, are posted in the designated area of the classroom. You are to prepare each assignment in the indicated format (i.e., table, outline, report, presentation or other specified format) and submit it as an attachment through your individual Assignments Folder in WebTycho.  No credit will be given for assignments submitted in file formats other than those stated in the assignment instructions. 

Because these assignments require you to use Microsoft Word and PowerPoint (as indicated in the instructions), you may need to “brush up” on your familiarity with these or use functions that perhaps are new to you.  Therefore, do not wait until the last minute to begin an activity.  You should read through all the assignments in advance to ensure you (1) understand what is expected, and (2) allow enough time to effectively create the information being requested. 

Additional Information 

There is a significant amount of information available to you to assist in developing your skills in using the Microsoft Office Products.  MS Word and PowerPoint are required for these exercises.  The textbook comes with access to the publisher’s website (

http://www.mhhe.com/baltzan)

where there are a number of resources, including Tech Plug-Ins for Office 2003, 2007 and 2010.  Don’t hesitate to use the on-line help and wizard tools built into the MS Office applications for help as you work with the software tools.  There are also other web sites, such as

www.eHow.com

, and

www.microsoft.com

that provide tips.  Even YouTube has some useful videos demonstrating various techniques.  

03/08/2013 3

2

3

1

MODULE 1:
Business Driven MIS

MODULE 3:
Enterprise MIS

MODULE 2:
Technical Foundations

of MIS

module 1 Business Driven MIS

M OST COMPANIES TODAY rely heavily on the use of management information sys-

tems (MIS) to run various aspects of their businesses. Whether they need to order and ship

goods, interact with customers, or conduct other business functions, management information

systems are often the underlying infrastructure performing the activities. Management informa-

tion systems allow companies to remain competitive in today’s fast-paced world and especially

when conducting business on the Internet. Organizations must adapt to technological advances

and innovations to keep pace with today’s rapidly changing environment. Their competitors cer-

tainly will!

No matter how exciting technology is, successful companies do not use it simply for its own

sake. Companies should have a solid business reason for implementing technology. Using a

technological solution just because it is available is not a good business strategy.

The purpose of Module 1 is to raise your awareness of the vast opportunities made possible

by the tight correlation between business and technology. Business strategies and processes

should always drive your technology choices. Although awareness of an emerging technology

can sometimes lead us in new strategic directions, the role of information systems, for the most

part, is to support existing business strategies and processes.

Module 1: Business Driven MIS

CHAPTER 1:  Management Information Systems: Business Driven MIS

CHAPTER 2:  Decisions and Processes: Value Driven Business

CHAPTER 3:  Ebusiness: Electronic Business Value

CHAPTER 4:  Ethics and Information Security: MIS Business Concerns

baL76892_ch01_001-041.indd 1 30/11/12 1:49 PM

5

What’s in IT for me?
This chapter sets the stage for the textbook. It starts from ground zero by providing a clear description of what information

is and how it fits into business operations, strategies, and systems. It provides an overview of how companies operate in

competitive environments and why they must continually define and redefine their business strategies to create competi-

tive advantages. Doing so allows them to survive and thrive. Information systems are key business enablers for successful

operations in competitive environments.

You, as a business student, must understand the tight correlation between business and technology. You must first rec-

ognize information’s role in daily business activities, and then understand how information supports and helps implement

global business strategies and competitive advantages. After reading this chapter, you should have a solid understanding of

business driven information systems and their role in managerial decision making and problem solving.

1

■ I d e n t i f y i n g C o m p e t i t i v e
A d v a n t a g e s

■ T h e F i v e F o rc e s M o d e l —
E v a l u a t i n g I n d u s t r y
A t t r a c t i v e n e s s

■ T h e T h re e G e n e r i c S t r a t e g i e s —
C h o o s i n g a B u s i n e s s F o c u s

■ Va l u e C h a i n A n a l y s i s —
E x e c u t i n g B u s i n e s s S t r a t e g i e s

SECTION 1.2
Business Strategy

■ C o m p e t i n g i n t h e I n f o r m a t i o n
A g e

■ T h e C h a l l e n g e : D e p a r t m e n t a l
C o m p a n i e s

■ T h e S o l u t i o n : M a n a g e m e n t
I n f o r m a t i o n S y s t e m s

SECTION 1.1
Business Driven MIS

C
H

A
P

T
E

R
O

U
T

L
IN

E

C H A P T E R

Management Information
Systems: Business Driven MIS

baL76892_ch01_001-041.indd 2 26/11/12 1:44 PM

6 Information Systems in Orgs

3Business Driven MIS Module 1

opening case study

The World Is Flat: Thomas Friedman

Christopher Columbus proved in 1492 that the world is round. For centuries, sailors maneu-

vered the seas discovering new lands, new people, and new languages as nations began

trading goods around the globe. Then Thomas Friedman, a noted columnist for The New

York Times, published his book The World Is Flat.

Friedman argues that the world has become flat due to technological advances connecting

people in China, India, and the United States as if we were all next-door neighbors. Physicians

in India are reading X-rays for U.S. hospitals, and JetBlue Airways ticket agents take plane

reservations for the company from the comfort of their Utah homes. Technology has elimi-

nated some of the economic and cultural advantages developed countries enjoy, making the

world a level playing field for all participants. Friedman calls this Globalization 3.0.

Globalization 1.0 started when Christopher Columbus discovered the world is round and

the world shrank from large to medium. For the next several hundred years, countries domi-

nated by white men controlled business. Globalization 2.0 began around 1800, during the

Industrial Revolution, when the world went from medium to small. In this era international

companies dominated by white men controlled business. Globalization 3.0 began in early

2000, removing distance from the business equation, and the world has gone from small to

tiny. In this era, people of all colors from the four corners of the world will dominate busi-

ness. Farmers in remote villages in Nepal carry an iPhone to access the world’s knowledge

at, say, Wikipedia or the stock market closing prices at Bloomberg.

Outsourcing, or hiring someone from another country to complete work remotely, will

play an enormous role in this era. It has advantages and disadvantages. Outsourcing work

to countries where labor is cheap drives down production costs and allows companies to

offer lower prices to U.S. consumers. Having an accountant in China complete a U.S. tax

return is just as easy as driving to the H&R Block office on the corner, and probably far

cheaper. Calling an 800 number for service can connect consumers to an Indian, Canadian,

or Chinese worker on the other end of the line. Of course, outsourcing also eliminates some

U.S. manufacturing and labor jobs, causing pockets of unemployment. In fact, the United

States has outsourced several million service and manufacturing jobs to offshore, low-cost

producers.

Figure  1.1 shows Friedman’s list of forces that flattened the world. They converged

around the year 2000 and “created a flat world: a global, web-enabled platform for mul-

tiple forms of sharing knowledge and work, irrespective of time, distance, geography, and

increasingly, language.” Three powerful new economies began materializing at this time. In

baL76892_ch01_001-041.indd 3 26/11/12 1:44 PM

Business Driven Information Systems, Fourth Edition 7

4 Chapter 1 Management Information Systems: Business Driven MIS

India, China, and the former Soviet Union, more than 3 billion new willing and able partici-

pants walked onto the business playing field. Business students will be competing for their

first jobs not only against other local students, but also against students from around the

country and around the globe.1

Friedman’s 10 Forces That Flattened the World

1. Fall of the Berlin Wall The events of November 9, 1989, tilted the worldwide balance of
power toward democracies and free markets.

2. Netscape IPO The August 9, 1995, offering sparked massive investment in fiber-
optic cables.

3. Work flow software The rise of applications from PayPal to VPNs enabled faster, closer
coordination among far-flung employees.

4. Open sourcing Self-organizing communities, such as Linux, launched a
collaborative revolution.

5. Outsourcing Migrating business functions to India saved money and a
Third World economy.

6. Offshoring Contract manufacturing elevated China to economic
prominence.

7. Supply chaining Robust networks of suppliers, retailers, and customers
increased business efficiency.

8. In-sourcing Logistics giants took control of customer supply chains, helping
mom-and-pop shops go global.

9. Informing Power searching allowed everyone to use the Internet as a “personal
supply chain of knowledge.”

10. Wireless Wireless technologies pumped up collaboration, making it mobile and
personal.

FIGURE 1.1

Thomas Friedman’s 10 Forces
That Flattened the World

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8 Information Systems in Orgs

5Business Driven MIS Module 1

section 1.1 Business Driven MIS

L E A R N I N G O U T C O M E S

1.1 Describe the information age and the differences among data, information, business intelligence,
and knowledge.

1.2 Identify the different departments in a company and why they must work together to achieve success.

1.3 Explain systems thinking and how management information systems enable business
communications.

COMPETING IN THE INFORMATION AGE

Did you know that . . .

■ The movie Avatar took more than four years to create and cost $450 million.

■ Lady Gaga’s real name is Stefani Joanne Angelina Germanotta.

■ Customers pay $2.6 million for a 30-second advertising time slot during the Super
Bowl. 2

A fact is the confirmation or validation of an event or object. In the past, people pri-
marily learned facts from books. Today, by simply pushing a button people can find out
anything, from anywhere, at any time. We live in the information age , when infinite
quantities of facts are widely available to anyone who can use a computer. The impact of
information technology on the global business environment is equivalent to the printing
press’s impact on publishing and electricity’s impact on productivity. College student
startups were mostly unheard of before the information age. Now, it’s not at all unusual
to read about a business student starting a multimillion-dollar company from his or her
dorm room. Think of Mark Zuckerberg, who started Facebook from his dorm, or Michael
Dell (Dell Computers) and Bill Gates (Microsoft), who both founded their legendary
companies as college students.

You may think only students well versed in advanced technology can compete in the
information age. This is simply not true. Many business leaders have created exceptional
opportunities by coupling the power of the information age with traditional business
methods. Here are just a few examples:

■ Amazon is not a technology company; its original business focus was to sell books,
and it now sells nearly everything.

■ Netflix is not a technology company; its primary business focus is to rent videos.

■ Zappos is not a technology company; its primary business focus is to sell shoes, bags,
clothing, and accessories.

Amazon’s founder, Jeff Bezos, at first saw an opportunity to change the way people
purchase books. Using the power of the information age to tailor offerings to each
customer and speed the payment process, he in effect opened millions of tiny virtual
bookstores, each with a vastly larger selection and far cheaper product than traditional
bookstores. The success of his original business model led him to expand Amazon to
carry many other types of products. The founders of Netflix and Zappos have done the
same thing for videos and shoes. All these entrepreneurs were business professionals,
not technology experts. However, they understood enough about the information age
to apply it to a particular business, creating innovative companies that now lead entire
industries.

Students who understand business along with the power associated with the infor-
mation age will create their own opportunities and perhaps even new industries, as co-
founders Chris DeWolfe and Tom Anderson did with MySpace and Mark Zuckerberg did

LO. 1.1: Describe the information
age and the differences among data,
information, business intelligence,
and knowledge.

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Business Driven Information Systems, Fourth Edition 9

BUSINESS DRIVEN DISCUSSION

Bill Gates, founder of Microsoft, stated that 20 years ago most people would
rather have been a B student in New York City than a genius in China because
the opportunities available to students in developed countries were limitless.
Today, many argue that the opposite is now true due to technological advances
making it easier to succeed as a genius in China than a B student in New York.
As a group, discuss if you agree or disagree with Bill Gates statement. 3

View from a
Flat World

APPLY YOUR KNOWLEDGE

6 Chapter 1 Management Information Systems: Business Driven MIS

with Facebook. Our primary goal in this course is to arm you with the knowledge you
need to compete in the information age. The core drivers of the information age are:

■ Data

■ Information

■ Business intelligence

■ Knowledge (see Figure 1.2 )

Data

Data are raw facts that describe the characteristics of an event or object. Before the
information age, managers manually collected and analyzed data, a time-consuming
and complicated task without which they would have little insight into how to run their

FIGURE 1.2

The Differences among
Data, Information, Business
Intelligence, and

Knowledge

Data Information Business
Intelligence

Knowledge

•

•

• Data converted
into a meaningful
and useful
context

• Information collected
from multiple sources
that analyzes patterns,
trends, and relationships
for strategic decision
making

• The skills, experience,
and expertise, coupled
with information and
intelligence, that creates
a person’s intellectual
resources.

• Choosing not to fire a
sales representative
who is underperforming
knowing that person is
experiencing family
problems
• Listing products that are
about to expire first on
the menu or creating
them as a daily special
to move the product

• Raw facts that
describe the
characteristics
of an event
or object

• Order date
• Amount sold
• Customer
number
• Quantity
ordered

• Best-selling
product
• Best customer
• Worst-selling
product
• Worst
customer

• Lowest sales per week
compared with the
economic interest rates
• Best-selling product by
month compared to
sports season and city
team wins and losses

baL76892_ch01_001-041.indd 6 26/11/12 1:45 PM

10 Information Systems in Orgs

7Business Driven MIS Module 1

business. Lacking data, managers often found themselves making business decisions
about how many products to make, how much material to order, or how many employ-
ees to hire based on intuition or gut feelings. In the information age, successful manag-
ers compile, analyze, and comprehend massive amounts of data daily, which helps them
make more successful business decisions.

Figure 1.3 shows sales data for Tony’s Wholesale Company, a fictitious business that
supplies snacks to stores. The data highlight characteristics such as order date, cus-
tomer, sales representative, product, quantity, and profit. The second line in Figure 1.3 ,
for instance, shows that Roberta Cross sold 90 boxes of Ruffles to Walmart for $1,350,
resulting in a profit of $450 (note that Profit  5  Sales  2  Costs). These data are useful for
understanding individual sales; however, they do not provide us much insight into how
Tony’s business is performing as a whole. Tony needs to answer questions that will help
him manage his day-to-day operations such as:

■ Who are my best customers?

■ Who are my least-profitable customers?

■ What is my best-selling product?

■ What is my slowest-selling product?

■ Who is my strongest sales representative?

■ Who is my weakest sales representative?

What Tony needs, in other words, is not data but information.

Information

Information is data converted into a meaningful and useful context. Having the right
information at the right moment in time can be worth a fortune. Having the wrong infor-
mation at the right moment; or the right information at the wrong moment can be disas-
trous. The truth about information is that its value is only as good as the people who use
it. People using the same information can make different decisions depending on how
they interpret or analyze the information. Thus information has value only insofar as the
people using it do as well.

Tony can analyze his sales data and turn them into information to answer all the
above questions and understand how his business is operating. Figures  1.4 and 1.5 ,
for instance, show us that Walmart is Roberta Cross’s best customer, and that Ruffles is
Tony’s best product measured in terms of total sales. Armed with this information, Tony
can identify and then address such issues as weak products and underperforming sales
representatives.

A variable is a data characteristic that stands for a value that changes or varies
over time. For example, in Tony’s data, price and quantity ordered can vary. Changing

FIGURE 1.3

Tony’s Snack Company Data

Order
Date Customer

Sales
Representative Product Qty

Unit
Price

Total
Sales

Unit
Cost

Total
Cost Profit

4-Jan Walmart PJ Helgoth Doritos 41 $24 $ 984 $18 $738 $246

4-Jan Walmart Roberta Cross Ruffles 90 $15 $1,350 $10 $900 $450

5-Jan Safeway Craig Schultz Ruffles 27 $15 $ 405 $10 $270 $135

6-Jan Walmart Roberta Cross Ruffles 67 $15 $1,005 $10 $670 $335

7-Jan 7-Eleven Craig Schultz Pringles 79 $12 $ 948 $ 6 $474 $474

7-Jan Walmart Roberta Cross Ruffles 52 $15 $ 780 $10 $520 $260

8-Jan Kroger Craig Schultz Ruffles 39 $15 $ 585 $10 $390 $195

9-Jan Walmart Craig Schultz Ruffles 66 $15 $ 990 $10 $660 $330

10-Jan Target Craig Schultz Ruffles 40 $15 $ 600 $10 $400 $200

11-Jan Walmart Craig Schultz Ruffles 71 $15 $1,065 $10 $710 $355

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8 Chapter 1 Management Information Systems: Business Driven MIS

FIGURE 1.4

Tony’s Data Sorted by
Customer “Walmart” and Sales
Representative “Roberta Cross”

Order
Date Customer

Sales
Representative Product Quantity

Unit
Price

Total
Sales Unit Cost

Total
Cost Profit

26-Apr Walmart Roberta Cross Fritos 86 $ 19 $ 1,634 $ 17 $ 1,462 $ 172

29-Aug Walmart Roberta Cross Fritos 76 $ 19 $ 1,444 $ 17 $ 1,292 $ 152

7-Sep Walmart Roberta Cross Fritos 20 $ 19 $ 380 $ 17 $ 340 $ 40

22-Nov Walmart Roberta Cross Fritos 39 $ 19 $ 741 $ 17 $ 663 $ 78

30-Dec Walmart Roberta Cross Fritos 68 $ 19 $ 1,292 $ 17 $ 1,156 $ 136

7-Jul Walmart Roberta Cross Pringles 79 $ 18 $ 1,422 $ 8 $ 632 $ 790

6-Aug Walmart Roberta Cross Pringles 21 $ 12 $ 252 $ 6 $ 126 $ 126

2-Oct Walmart Roberta Cross Pringles 60 $ 18 $ 1,080 $ 8 $ 480 $ 600

15-Nov Walmart Roberta Cross Pringles 32 $ 12 $ 384 $ 6 $ 192 $ 192

21-Dec Walmart Roberta Cross Pringles 92 $ 12 $ 1,104 $ 6 $ 552 $ 552

28-Feb Walmart Roberta Cross Ruffles 67 $ 15 $ 1,005 $ 10 $ 670 $ 335

6-Mar Walmart Roberta Cross Ruffles 8 $ 15 $ 120 $ 10 $ 80 $ 40

16-Mar Walmart Roberta Cross Ruffles 68 $ 15 $ 1,020 $ 10 $ 680 $ 340

23-Apr Walmart Roberta Cross Ruffles 34 $ 15 $ 510 $ 10 $ 340 $ 170

4-Aug Walmart Roberta Cross Ruffles 40 $ 15 $ 600 $ 10 $ 400 $ 200

18-Aug Walmart Roberta Cross Ruffles 93 $ 15 $ 1,395 $ 10 $ 930 $ 465

5-Sep Walmart Roberta Cross Ruffles 41 $ 15 $ 615 $ 10 $ 410 $ 205

12-Sep Walmart Roberta Cross Ruffles 8 $ 15 $ 120 $ 10 $ 80 $ 40

28-Oct Walmart Roberta Cross Ruffles 50 $ 15 $ 750 $ 10 $ 500 $ 250

21-Nov Walmart Roberta Cross Ruffles 79 $ 15 $ 1,185 $ 10 $ 790 $ 395

29-Jan Walmart Roberta Cross Sun Chips 5 $ 22 $ 110 $ 18 $ 90 $ 20

12-Apr Walmart Roberta Cross Sun Chips 85 $ 22 $ 1,870 $ 18 $ 1,530 $ 340

16-Jun Walmart Roberta Cross Sun Chips 55 $ 22 $ 1,210 $ 18 $ 990 $ 220

1,206 $383 $20,243 $273 $14,385 $5,858

Sorting the data reveals the information that Roberta Cross’s total sales to Walmart were $20,243 resulting in a profit of $5,858.
(Profit $5,858 5 Sales $20,243 2 Costs $14,385)

variables allows managers to create hypothetical scenarios to study future possibilities.
Tony may find it valuable to anticipate how sales or cost increases affect profitability. To
estimate how a 20 percent increase in prices might improve profits, Tony simply changes
the price variable for all orders, which automatically calculates the amount of new prof-
its. To estimate how a 10 percent increase in costs hurts profits, Tony changes the cost
variable for all orders, which automatically calculates the amount of lost profits. Manip-
ulating variables is an important tool for any

business.

Business Intelligence

Business intelligence (BI) is information collected from multiple sources such as sup-
pliers, customers, competitors, partners, and industries that analyzes patterns, trends,
and relationships for strategic decision making. BI manipulates multiple variables and
in some cases even hundreds of variables including such items as interest rates, weather
conditions, and even gas prices. Tony could use BI to analyze internal data such as
company sales, along with external data about the environment such as competitors,
finances, weather, holidays, and even sporting events. Both internal and external vari-
ables affect snack sales, and analyzing these variables will help Tony determine ordering
levels and sales forecasts. For instance, BI can predict inventory requirements for Tony’s
business for the week before the Super Bowl if, say, the home team is playing, average

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12 Information Systems in Orgs

9Business Driven MIS Module 1

Tony’s Business Information Name Total Profit

Who is Tony’s best customer by total sales? Walmart $ 560,789

Who is Tony’s least-valuable customer by total sales? Walgreens $45,673

Who is Tony’s best customer by profit? 7-Eleven $ 324,550

Who is Tony’s least-valuable customer by profit? King Soopers $ 23,908

What is Tony’s best-selling product by total sales? Ruffles $ 232,500

What is Tony’s weakest-selling product by total sales? Pringles $ 54,890

What is Tony’s best-selling product by profit? Tostitos $ 13,050

What is Tony’s weakest-selling product by profit? Pringles $ 23,000

Who is Tony’s best sales representative by profit? R. Cross $1,230,980

Who is Tony’s weakest sales representative by profit? Craig Schultz $ 98,980

What is the best sales representative’s best-selling
product by total profit? Ruffles $ 98,780

Who is the best sales representative’s best customer
by total profit? Walmart $ 345,900

What is the best sales representative’s weakest-selling product
by total profit? Sun Chips $ 45,600

Who is the best sales representative’s weakest
customer by total profit? Krogers $ 56,050

FIGURE 1.5

Information Gained after
Analyzing Tony’s Data

BUSINESS DRIVEN MIS

How can global warming be real when there is so much snow and cold weather?
That’s what some people wondered after a couple of massive snowstorms bur-
ied Washington, D.C. Politicians across the capital made jokes and built igloos
as they disputed the existence of climate change. Some concluded the planet
simply could not be warming with all the snow on the ground.

These comments frustrated Joseph Romm, a physicist and climate expert
with the Center for American Progress. He spent weeks turning data into infor-
mation and graphs to educate anyone who would listen as to why this reason-
ing was incorrect. Climate change is all about analyzing data, turning it into
information to detect trends. You cannot observe climate change by looking out
the window; you have to review decades of weather data with advanced tools to
really understand the trends.

Increasingly we see politicians, economists, and newscasters taking tough
issues and boiling them down to simplistic arguments over what the data
mean, each interpreting the data and spinning the data to support their views
and agendas. You need to understand the data and turn them into useful infor-
mation or else you will not understand when someone is telling the truth and
when you are being lied to.

Brainstorm two or three types of data economists use to measure the
economy. How do they turn the data into information? What issues do they
encounter when attempting to measure the economy? As a manager, what do
you need to understand when reading or listening to economic and business
reports? 4

Manipulating
the Data to Find
Your Version of
the Truth

APPLY YOUR KNOWLEDGE

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10 Chapter 1 Management Information Systems: Business Driven MIS

temperature is above 80 degrees, and the stock market is performing well. This is BI at
its finest, incorporating all types of internal and external variables to anticipate business
performance.

Top managers use BI to define the future of the business, analyzing markets, indus-
tries, and economies to determine the strategic direction the company must follow to
remain profitable. Tony will set the strategic direction for his firm, which might include
introducing new flavors of potato chips or sport drinks as new product lines or schools
and hospitals as new market segments.

Knowledge

Knowledge includes the skills, experience, and expertise, coupled with information and
intelligence, that creates a person’s intellectual resources. Knowledge workers are indi-
viduals valued for their ability to interpret and analyze information. Today’s workers are
commonly referred to as knowledge workers and they use BI along with personal experi-
ence to make decisions based on both information and intuition, a valuable resource for
any company.

Imagine that Tony analyzes his data and finds his weakest sales representative for
this period is Craig Schultz. If Tony considered only this information, he might con-
clude that firing Craig was a good business decision. However, because Tony has
knowledge about how the company operates, he knows Craig has been out on medi-
cal leave for several weeks; hence, his sales numbers are low. Without this additional
knowledge, Tony might have executed a bad business decision, delivered a negative
message to the other employees, and sent his best sales representatives out to look for
other jobs.

The key point in this scenario is that it is simply impossible to collect all the infor-
mation about every situation, and yet without that, it can be easy to misunderstand the
problem. Using data, information, business intelligence, and knowledge to make deci-
sions and solve problems is the key to finding success in business. These core drivers of
the information age are the building blocks of business systems.

BUSINESS DRIVEN ETHICS AND SECURITY

We live in the information age where the collection, storage, and use of data are
hot topics. One example of inappropriate data handling occurred at a college
where the monitoring of restrooms occurred every 15 seconds to observe the
use of toilets, mirrors, and sinks. Students, faculty, and staff began complaining
that the data collection was an invasion of their privacy and a violation of their
rights.

Another example of inappropriate data handling occurred when a profes-
sor of accounting at a college lost a flash drive containing information for
more than 1,800 students, including Social Security numbers, grades, and
names. Social Security numbers were included because the data went back
to before 1993 when the college used Social Security numbers to identify
students.

What types of student data does your college collect? What could happen if
your professor lost a thumb drive with all of your personal information? What
types of issues could you encounter if someone stole your personal data?
What can your college do to ensure this type of data storage violation does
not occur? 5

Information
Issues in the

Information Age

APPLY YOUR KNOWLEDGE

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14 Information Systems in Orgs

11Business Driven MIS Module 1

Finance
Tracks strategic financial
issues including money,

banking, credit,
investments, and assets.

Human resources
Maintains policies, plans,

and procedures for the
effective management of

employees.

Sales
Performs the function of

selling goods or services.

Operations
management

Manages the process of
converting or transforming
or resources into goods or

services.
Marketing

Supports sales by
planning, pricing, and
promoting goods or

services.

Accounting
Records, measures, and

reports monetary
transactions.

FIGURE 1.6

Departments Working
Independently

THE CHALLENGE: DEPARTMENTAL COMPANIES

Companies are typically organized by department or functional area such as:

■ Accounting: Records, measures, and reports monetary transactions.
■ Finance: Deals with strategic financial issues including money, banking, credit,

investments, and assets.

■ Human resources: Maintains policies, plans, and procedures for the effective man-
agement of employees.

■ Marketing: Supports sales by planning, pricing, and promoting goods or services.
■ Operations management: Manages the process of converting or transforming or

resources into goods or services.

■ Sales: Performs the function of selling goods or services (see Figure 1.6 ).

Each department performs its own activities. Sales and marketing focus on mov-
ing goods or services into the hands of consumers; they maintain transactional data.
Finance and accounting focus on managing the company’s resources and maintain
monetary data. Operations management focuses on manufacturing and maintains
production data, while human resources focuses on hiring and training people and
maintains employee data. Although each department has its own focus and data, none
can work independently if the company is to operate as a whole. It is easy to see how a

LO 1.2: Identify the different depart-
ments in a company and why they
must work together to achieve
success.

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12 Chapter 1 Management Information Systems: Business Driven MIS

business decision made by one department can affect other departments. Marketing
needs to analyze production and sales data to come up with product promotions and
advertising strategies. Production needs to understand sales forecasts to determine the
company’s manufacturing needs. Sales needs to rely on information from operations to
understand inventory, place orders, and forecast consumer demand. All departments
need to understand the accounting and finance departments’ information for budget-
ing. For the firm to be successful, all departments must work together as a single unit
sharing common information and not operate independently or in a silo (see Figure 1.7 ).

THE SOLUTION: MANAGEMENT INFORMATION
SYSTEMS

You probably recall the old story of three blind men attempting to describe an elephant.
The first man, feeling the elephant’s girth, said the elephant seemed very much like a
wall. The second, feeling the elephant’s trunk, declared the elephant was like a snake.
The third man felt the elephant’s tusks and said the elephant was like a tree or a cane.
Companies that operate departmentally are seeing only one part of the elephant, a criti-
cal mistake that hinders successful operation.

Successful companies operate cross-functionally, integrating the operations of all
departments. Systems are the primary enabler of cross-functional operations. A system
is a collection of parts that link to achieve a common purpose. A car is a good example
of a system, since removing a part, such as the steering wheel or accelerator, causes the
entire system to stop working.

Before jumping into how systems work, it is important to have a solid understand-
ing of the basic production process for goods and services. Goods are material items
or products that customers will buy to satisfy a want or need. Clothing, groceries, cell
phones, and cars are all examples of goods that people buy to fulfill their needs. Services

LO 1.3: Explain systems thinking
and how management informa-
tion systems enable business
communications.

FIGURE 1.7

Departments Working Together

Accounting
Monetary data

Finance
Monetary data

Human resources
Employee data

Marketing
Transactional data

Sales
Transactional data

Operations management
Production data

Business Decisions

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16 Information Systems in Orgs

13Business Driven MIS Module 1

are tasks performed by people that customers will buy to satisfy a want or need. Waiting
tables, teaching, and cutting hair are all examples of services that people pay for to fulfill
their needs (see Figure 1.8 ).

Production is the process where a business takes raw materials and processes them
or converts them into a finished product for its goods or services. Just think about mak-
ing a hamburger (see Figure 1.9 ). First, you must gather all of the inputs or raw mate-
rials such as the bun, patty, lettuce, tomato, and ketchup. Second, you process the raw
materials, so in this example you would need to cook the patty, wash and chop the let-
tuce and tomato, and place all of the items in the bun. Finally, you would have your out-
put or finished product—your hamburger! Productivity is the rate at which goods and
services are produced based upon total output given total inputs. Given our previous
example, if a business could produce the same hamburger with less expensive inputs

Cars

Groceries

Clothing

Teaching

Waiting
tables

Cutting hair

GOODS
Material items or products
that customers will buy to

satisfy a want or need.

SERVICES
Tasks performed by people

that customers will buy
to satisfy a want or need.

FIGURE 1.8

Different Types of Goods
and Services

Input OutputProcess

Lettuce,
tomatoes, patty,

bun, ketchup

Cook the patty, put
the ingredients

together
Hamburger

FIGURE 1.9

Input, Process, Output Example

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14 Chapter 1 Management Information Systems: Business Driven MIS

or more hamburgers with the same inputs it would see a rise in productivity and possi-
bly an increase in profits. Ensuring the input, process, and output of goods and services
work across all of the departments of a company is where systems add tremendous value
to overall business productivity.

Systems thinking is a way of monitoring the entire system by viewing multiple inputs
being processed or transformed to produce outputs while continuously gathering feed-
back on each part (see Figure 1.10 ). Feedback is information that returns to its original
transmitter (input, transform, or output) and modifies the transmitter’s actions. Feed-
back helps the system maintain stability. For example, a car’s system continuously moni-
tors the fuel level and turns on a warning light if the gas level is too low. Systems thinking
provides an end-to-end view of how operations work together to create a product or
service. Business students who understand systems thinking are valuable resources
because they can implement solutions that consider the entire process, not just a single
component.

Management information systems (MIS) is a business function, like accounting
and human resources, which moves information about people, products, and processes
across the company to facilitate decision making and problem solving. MIS incorporates
systems thinking to help companies operate cross-functionally. For example, to fulfill
product orders, an MIS for sales moves a single customer order across all functional
areas including sales, order fulfillment, shipping, billing, and finally customer service.
Although different functional areas handle different parts of the sale, thanks to MIS, to
the customer the sale is one continuous process. If one part of the company is experienc-
ing problems, however, then, like the car without a steering wheel, the entire system fails.
If order fulfillment packages the wrong product, it will not matter that shipping, billing,
and customer service did their jobs right, since the customer will not be satisfied when
he or she opens the package.

MIS can be an important enabler of business success and innovation. This is not to
say that MIS equals business success and innovation, or that MIS represents business
success and innovation. MIS is a tool that is most valuable when it leverages the talents
of people who know how to use and manage it effectively. To perform the MIS func-
tion effectively, almost all companies, particularly large and medium-sized ones, have
an internal MIS department, often called information technology (IT), information sys-
tems (IS), or management information systems (MIS). For the purpose of this text, we
will refer to it as MIS.

MIS Department Roles and Responsibilities

MIS as a department is a relatively new functional area, having been around formally for
about 40 years. Job titles, roles, and responsibilities often differ from company to com-
pany, but the most common are displayed in Figure 1.11 .

While many companies may not have a different individual for each of these posi-
tions, they must have top managers who take responsibility for all these areas.

FIGURE 1.10

Overview of Systems Thinking

Input Process Output

Feedback

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18 Information Systems in Orgs

15Business Driven MIS Module 1

section 1.2 Business Strategy

L E A R N I N G O U T C O M E S

1.4 Explain why competitive advantages are temporary.

1.5 Describe Porter’s Five Forces Model and explain each of the five forces.

1.6 Compare Porter’s three generic strategies.

1.7 Demonstrate how a company can add value by using Porter’s value chain analysis.

IDENTIFYING COMPETITIVE ADVANTAGES

Running a company today is similar to leading an army; the top manager or leader
ensures all participants are heading in the right direction and completing their goals and
objectives. Companies lacking leadership quickly implode as employees head in differ-
ent directions attempting to achieve conflicting goals. To combat these challenges, lead-
ers communicate and execute business strategies (from the Greek word stratus for army
and ago for leading). A business strategy is a leadership plan that achieves a specific set
of goals or objectives as displayed in Figure 1.12 .

Good leaders also anticipate unexpected misfortunes, from strikes and economic
recessions to natural disasters. Their business strategies build in buffers or slack,

LO 1.4: Explain why competitive
advantages are temporary.

FIGURE 1.11

The Roles and Responsibilities
of MIS

MIS Department Roles
and Responsibilities

Chief information officer (CIO)

Chief knowledge officer (CKO)
Responsible for collecting,
maintaining, and distributing
company knowledge.

Chief privacy officer (CPO)

Responsible for ensuring the ethical and
legal use of information within a
company.

Chief security officer (CSO)

Responsible for ensuring the security
of business systems and developing
strategies and safeguards against
attacks by hackers and viruses.

Chief technology officer (CTO)

Responsible for ensuring the
speed, accuracy, availability,
and reliability of the MIS.

Responsible for (1) overseeing all uses of
MIS and (2) ensuring that MIS strategically
aligns with business goals and objectives.

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16 Chapter 1 Management Information Systems: Business Driven MIS

allowing the company the ability to ride out any storm and defend against competitive
or environmental threats. Of course, updating business strategies is a continuous under-
taking as internal and external environments rapidly change. Business strategies that
match core company competencies to opportunities result in competitive advantages,
a key to success!

A competitive advantage is a feature of a product or service on which customers
place a greater value than they do on similar offerings from competitors. Competitive
advantages provide the same product or service either at a lower price or with additional
value that can fetch premium prices. Unfortunately, competitive advantages are typi-
cally temporary, because competitors often quickly seek ways to duplicate them. In turn,
organizations must develop a strategy based on a new competitive advantage. Ways that
companies duplicate competitive advantages include acquiring the new technology,
copying the business operations, and hiring away key employees. The introduction of
Apple’s iPod and iTunes, a brilliant merger of technology, business, and entertainment,
offers an excellent example.

In early 2000, Steve Jobs was fixated on developing video editing software when he sud-
denly realized that millions of people were using computers to listen to music, a new trend
in the industry catapulted by illegal online services such as Napster. Jobs was worried that
he was looking in the wrong direction and had missed the opportunity to jump on the
online music bandwagon. He moved fast, however, and within four months he had devel-
oped the first version of iTunes for the Mac. Jobs’ next challenge was to make a portable
iTunes player that could hold thousands of songs and be completely transportable. Within
nine months the iPod was born. With the combination of iTunes and iPod, Apple created a
significant competitive advantage in the marketplace. Many firms began following Apple’s
lead by creating portable music players to compete with the iPod. In addition, Apple con-
tinues to create new and exciting products to gain competitive advantages, such as its
iPad, a larger version of the iPod that functions more as a computer than a music player. 6

Decreasing
costs

Attracting
new

customers

Increasing
sales

Increasing
customer

loyalty

Business strategies
Leadership plans
that achieve a
specific set of goals
or objectives

Entering
new

markets

Developing
new

products
or services

FIGURE 1.12

Examples of Business
Strategies

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20 Information Systems in Orgs

BUSINESS DRIVEN GLOBALIZATION

According to the Economic Policy Institute, over the past decade the United
States has lost an estimated 2.4 million factory jobs to China. Factories in South
Korea, Taiwan, and China are producing toys, toothpaste, running shoes, com-
puters, appliances, and cars. For a long time U.S. firms did not recognize these
products as competition; they regarded Asia’s high-tech products as second-
rate knockoffs and believed Asian countries maintained a “factory culture”—
they could imitate but not innovate.

In hindsight, it is obvious that once these countries did begin designing and
creating high-end products, they would have obvious competitive advantages,
with high-value research and development coupled with low-cost manufac-
turing of unbeatable goods and services. Asia is now on the rise in all indus-
tries from wind turbines to high-speed bullet trains. According to Bloomberg
Businessweek ’s ranking of the most innovative companies, 15 of the top 50 are
Asian, up from just 5 in 2006. In fact, for the first time, the majority of the top 25
are based outside the United States.

How do you, as a business student, view these statistics? What type of
global business climate will you be competing in when you graduate? If you
wanted to gather competitive intelligence about the job market, where would
you look and what types of data would you want to analyze? What can you
do to create personal competitive advantages to differentiate yourself when
searching for a job? 7

The Competitive
Landscape for
Students

APPLY YOUR KNOWLEDGE

17Business Driven MIS Module 1

When a company is the first to market with a competitive advantage, it gains a par-
ticular benefit, such as Apple did with its iPod. This first-mover advantage occurs when
a company can significantly increase its market share by being first with a new competi-
tive advantage. FedEx created a first-mover advantage by developing its customer self-
service software, which allows people to request parcel pickups, print mailing slips, and
track parcels online. Other parcel delivery companies quickly began creating their own
online services. Today, customer self-service on the Internet is a standard feature of the
parcel delivery business.

Competitive intelligence is the process of gathering information about the competi-
tive environment, including competitors’ plans, activities, and products, to improve a
company’s ability to succeed. It means understanding and learning as much as possible
as soon as possible about what is occurring outside the company to remain competitive.
Frito-Lay, a premier provider of snack foods such as Cracker Jacks and Cheetos, does not
send its sales representatives into grocery stores just to stock shelves; they carry hand-
held computers and record the product offerings, inventory, and even product locations
of competitors. Frito-Lay uses this information to gain competitive intelligence on every-
thing from how well competing products are selling to the strategic placement of its own
products. 8

Managers use three common tools to analyze competitive intelligence and develop
competitive advantages including:

1. The Five Forces Model (for evaluating industry attractiveness).
2. The three generic strategies (for choosing a business focus).
3. Value chain analysis (for executing business strategies).

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Business Driven Information Systems, Fourth Edition 21

Threat of Substitute
Products or Services

The power of customers
to purchase alternatives

Rivalry among
Existing Competitors

The power of
competitors

Buyer Power
The power of customers

to drive down prices

Threat of New Entrants
The power of competitors to

enter a market

Supplier Power
The power of suppliers

to drive up prices of materials

FIGURE 1.13

Porter’s Five Forces Model 

18 Chapter 1 Management Information Systems: Business Driven MIS

THE FIVE FORCES MODEL—EVALUATING
INDUSTRY ATTRACTIVENESS

Michael Porter, a university professor at Harvard Business School, identified the follow-
ing pressures that can hurt potential sales:

■ Knowledgeable customers can force down prices by pitting rivals against each other.

■ Influential suppliers can drive down profits by charging higher prices for supplies.

■ Competition can steal customers.

■ New market entrants can steal potential investment capital.

■ Substitute products can steal customers.

Formally defined, Porter’s Five Forces Model analyzes the competitive forces within
the environment in which a company operates to assess the potential for profitability
in an industry. Its purpose is to combat these competitive forces by identifying oppor-
tunities, competitive advantages, and competitive intelligence. If the forces are strong,
they increase competition; if the forces are weak, they decrease competition. This sec-
tion details each of the forces and its associated MIS business strategy (see Figure 1.13 ). 9

Buyer Power

Buyer power is the ability of buyers to affect the price they must pay for an item. Fac-
tors used to assess buyer power include number of customers, their sensitivity to price,
size of orders, differences between competitors, and availability of substitute products. If
buyer power is high, customers can force a company and its competitors to compete on
price, which typically drives prices down.

One way to reduce buyer power is by manipulating switching costs , costs that make
customers reluctant to switch to another product or service. Switching costs include
financial as well as intangible values. The cost of switching doctors, for instance, includes
the powerful intangible components of having to build relationships with the new doctor
and nurses, as well as transferring all your medical history. With MIS, however, patients
can store their medical records on DVDs or thumb drives, allowing easy transferability.
The Internet also lets patients review websites for physician referrals, which takes some
of the fear out of trying someone new. 10

LO 1.5: Describe Porter’s Five Forces
Model and explain each of the five
forces.

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22 Information Systems in Orgs

19Business Driven MIS Module 1

Companies can also reduce buyer power with loyalty programs , which reward custom-
ers based on their spending. The airline industry is famous for its frequent-flyer programs,
for instance. Because of the rewards travelers receive (free airline tickets, upgrades, or hotel
stays), they are more likely to be loyal to or give most of their business to a single company.
Keeping track of the activities and accounts of many thousands or millions of customers
covered by loyalty programs is not practical without large-scale business systems, however.
Loyalty programs are thus a good example of using MIS to reduce buyer power. 11

Supplier Power

A supply chain consists of all parties involved, directly or indirectly, in obtaining raw
materials or a product. In a typical supply chain, a company will be both a supplier (to
customers) and a customer (of other suppliers), as illustrated in Figure 1.14 . Supplier
power is the suppliers’ ability to influence the prices they charge for supplies (including
materials, labor, and services). Factors used to appraise supplier power include number
of suppliers, size of suppliers, uniqueness of services, and availability of substitute prod-
ucts. If supplier power is high, the supplier can influence the industry by:

■ Charging higher prices.

■ Limiting quality or services.

■ Shifting costs to industry participants. 12

Typically, when a supplier raises prices, the buyers will pass on the increase to their
customers by raising prices on the end product. When supplier power is high, buyers lose
revenue because they cannot pass on the raw material price increase to their customers.
Some powerful suppliers, such as pharmaceutical companies, can exert a threat over
an entire industry when substitutes are limited and the product is critical to the buyers.
Patient who need to purchase cancer-fighting drugs have no power over price and must
pay whatever the drug company asks because there are few available alternatives.

Using MIS to find alternative products is one way of decreasing supplier power. Can-
cer patients can now use the Internet to research alternative medications and practices,
something that was next to impossible just a few decades ago. Buyers can also use MIS
to form groups or collaborate with other buyers, increasing the size of the buyer group
and reducing supplier power. For a hypothetical example, the collective group of 30,000
students from a university has far more power over price when purchasing laptops than
a single student. 13

Threat of Substitute Products or Services

The threat of substitute products or services is high when there are many alternatives
to a product or service and low when there are few alternatives from which to choose.
For example, travelers have numerous substitutes for airline transportation including
automobiles, trains, and boats. Technology even makes videoconferencing and virtual
meetings possible, eliminating the need for some business travel. Ideally, a company
would like to be in a market in which there are few substitutes for the products or ser-
vices it offers.

Polaroid had this unique competitive advantage for many years until it forgot to
observe competitive intelligence. Then the firm went bankrupt when people began tak-
ing digital pictures with everything from video cameras to cell phones.

A company can reduce the threat of substitutes by offering additional value through
wider product distribution. Soft-drink manufacturers distribute their products through

FIGURE 1.14

Traditional Supply Chain

Suppliers Company Customers

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Business Driven Information Systems, Fourth Edition 23

20 Chapter 1 Management Information Systems: Business Driven MIS

vending machines, gas stations, and convenience stores, increasing the availability of
soft drinks relative to other beverages. Companies can also offer various add-on services,
making the substitute product less of a threat. For example, iPhones include capabilities
for games, videos, and music, making a traditional cell phone less of a substitute. 14

Threat of New Entrants

The threat of new entrants is high when it is easy for new competitors to enter a market
and low when there are significant entry barriers to joining a market. An entry barrier is a
feature of a product or service that customers have come to expect and entering competi-
tors must offer the same for survival. For example, a new bank must offer its customers
an array of MIS-enabled services, including ATMs, online bill paying, and online account
monitoring. These are significant barriers to new firms entering the banking market. At
one time, the first bank to offer such services gained a valuable first-mover advantage,
but only temporarily, as other banking competitors developed their own MIS services. 15

Rivalry among Existing Competitors

Rivalry among existing competitors is high when competition is fierce in a market
and low when competitors are more complacent. Although competition is always more
intense in some industries than in others, the overall trend is toward increased com-
petition in almost every industry. The retail grocery industry is intensively competitive.
Kroger, Safeway, and Albertsons in the United States compete in many different ways,
essentially trying to beat or match each other on price. Most supermarket chains have
implemented loyalty programs to provide customers special discounts while gathering
valuable information about their purchasing habits. In the future, expect to see grocery
stores using wireless technologies that track customer movements throughout the store
to determine purchasing sequences.

Product differentiation occurs when a company develops unique differences in its
products or services with the intent to influence demand. Companies can use differenti-
ation to reduce rivalry. For example, while many companies sell books and videos on the
Internet, Amazon differentiates itself by using customer profiling. When a customer vis-
its Amazon.com repeatedly, Amazon begins to offer products tailored to that particular
customer based on his or her profile. In this way, Amazon has reduced its rivals’ power
by offering its customers a differentiated service.

To review, the Five Forces Model helps managers set business strategy by identify-
ing the competitive structure and economic environment of an industry. If the forces
are strong, they increase competition; if the forces are weak, they decrease it (see
Figure 1.15 ). 16

Analyzing the Airline Industry

Let us bring Porter’s five forces together to look at the competitive forces shaping an
industry and highlight business strategies to help it remain competitive. Assume
a shipping company is deciding whether to enter the commercial airline industry. If

FIGURE 1.15

Strong and Weak Examples of
Porter’s Five Forces

Weak Force: Decreases
Competition or Few Competitors

Strong Force: Increases
Competition or Lots of Competitors

Buyer Power An international hotel chain
purchasing milk

A single consumer purchasing milk

Supplier Power A company that makes airline
engines

A company that makes pencils

Threat of Substitute
Products or Services

Cancer drugs from a
pharmaceutical company

Coffee from McDonald’s

Threat of New Entrants A professional hockey team A dog walking business

Rivalry among Existing
Competitors

Department of Motor Vehicles A coffee shop

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24 Information Systems in Orgs

BUSINESS DRIVEN INNOVATION

Is there anything more frustrating than waiting in line at the post office? Not
only are those lines frustrating, but they are also unprofitable. The U.S. Postal
Service has faced multibillion-dollar losses every year for the past few years,
making for one of the greatest challenges in its history.

What is killing the post office? Perhaps it is Stamps.com , a website that allows
you to customize and print your own stamps 24 hours a day. Getting married?
Place a photo of the happy couple right on the stamp for the invitations. Starting
a business? Place your business logo on your stamps. Stamps.com even keeps
track of a customer’s postal spending and can recommend optimal delivery
methods. Plus, Stamps.com gives you postage discounts you can’t get at the
post office or with a postage meter.

Evaluate the U.S. Postal Service using Porter’s Five Forces Model. How could
the Postal Service create new products and services to help grow its business?
What types of competitive advantages can you identify for the Postal Service? 18

Fixing the
Post Office

APPLY YOUR KNOWLEDGE

21Business Driven MIS Module 1

performed correctly, an analysis of the five forces should determine that this is a highly
risky business strategy because all five forces are strong. It will thus be difficult to gener-
ate a profit.

■ Buyer power: Buyer power is high because customers have many airlines to choose
from and typically make purchases based on price, not carrier.

■ Supplier power: Supplier power is high since there are limited plane and engine
manufacturers to choose from, and unionized workforces (suppliers of labor) restrict
airline profits.

■ Threat of substitute products or services: The threat of substitute products is high
from many transportation alternatives including automobiles, trains, and boats, and
from transportation substitutes such as videoconferencing and virtual meetings.

■ Threat of new entrants: The threat of new entrants is high because new airlines are
continuously entering the market, including sky taxies offering low-cost on-demand
air taxi service.

■ Rivalry among existing competitors: Rivalry in the airline industry is high, and
websites such as Travelocity.com force them to compete on price (see Figure 1.16 ). 17

FIGURE 1.16

Five Forces Model in the Airline
Industry

Strong (High) Force: Increases
Competition or Lots of Competitors

Buyer Power Many airlines for buyers to choose from forcing competition
based on price

Supplier Power Limited number of plane and engine manufacturers to choose
from along with unionized workers

Threat of Substitute Products
or Services

Many substitutes including cars, trains, and busses.
Even substitutes to travel such as video conferencing and virtual
meetings.

Threat of New Entrants Many new airlines entering the market all the time including the
latest sky taxis.

Rivalry among Existing Competitors Intense competition–many rivals.

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Business Driven Information Systems, Fourth Edition 25

22 Chapter 1 Management Information Systems: Business Driven MIS

THE THREE GENERIC STRATEGIES—CHOOSING
A BUSINESS FOCUS

Once top management has determined the relative attractiveness of an industry and
decided to enter it, the firm must formulate a strategy for doing so. If our sample com-
pany decided to join the airline industry, it could compete as a low-cost, no-frills airline
or as a luxury airline providing outstanding service and first-class comfort. Both options
offer different ways of achieving competitive advantages in a crowded marketplace. The
low-cost operator saves on expenses and passes the savings along to customers in the
form of low prices. The luxury airline spends on high-end service and first-class com-
forts and passes the costs on to the customer in the form of high prices.

Porter has identified three generic business strategies for entering a new market: (1)
broad cost leadership, (2) broad differentiation, and (3) focused strategy. Broad strat-
egies reach a large market segment, while focused strategies target a niche or unique
market with either cost leadership or differentiation. Trying to be all things to all people
is a recipe for disaster, since doing so makes it difficult to project a consistent image to
the entire marketplace. For this reason, Porter suggests adopting only one of the three
generic strategies illustrated in Figure 1.17 . 19

Figure 1.18 applies the three strategies to real companies, demonstrating the relation-
ships among strategies (cost leadership versus differentiation) and market segmentation
(broad versus focused).

■ Broad market and low cost: Walmart competes by offering a broad range of prod-
ucts at low prices. Its business strategy is to be the low-cost provider of goods for the
cost-conscious consumer.

■ Broad market and high cost: Neiman Marcus competes by offering a broad range of
differentiated products at high prices. Its business strategy offers a variety of specialty
and upscale products to affluent consumers.

LO 1.6: Compare Porter’s three
generic strategies.

FIGURE 1.18

Examples of Porter’s Three
Generic Strategies

Walmart Neiman Marcus

Payless Shoes Tiffany & Co.

Low Cost High Cost

Cost Strategy

Broad
Market

Narrow
Market

Competitive
Scope

FIGURE 1.17

Porter’s Three Generic
Strategies

Cost Leadership Differentiation

Focused Strategy

Low Cost High Cost
Cost Strategy
Broad
Market
Narrow
Market
Competitive
Scope

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26 Information Systems in Orgs

BUSINESS DRIVEN DEBATE

Apple sold 300,000 units of its highly anticipated iPad in the first 15 hours it was
available for sale. Hundreds of thousands of Apple devotees flocked to stores
during Passover and Easter to be the first to obtain the new device, even though
it is neither a phone nor a laptop computer and many people are still wonder-
ing what it’s for.

The controversy over the usefulness of Apple’s portable tablet began as soon
as Apple announced the device was heading to market. At first glance, the iPad
is little more than a touch screen the size of a slim book, with a few control but-
tons along the edges and a home button at the bottom. Shrink it, and it would
look like an iPod Touch. What is the value of this device? That’s the question
everyone wants to answer.

The iPad’s modest features might represent an entirely new way of con-
suming media—video, web pages, music, pictures, and even books. Break into
groups and review the current value of the iPad for business. Find three exam-
ples of the ways businesses are using, or could use, the iPad. Do you consider it
the next revolutionary device or just an overpriced music player? 20

The iPad—
Greatest Product
in History or Just
Another Gadget?

APPLY YOUR KNOWLEDGE

23Business Driven MIS Module 1

■ Narrow market and low cost: Payless competes by offering a specific product,
shoes, at low prices. Its business strategy is to be the low-cost provider of shoes.
Payless competes with Walmart, which also sells low-cost shoes, by offering a far big-
ger selection of sizes and styles.

■ Narrow market and high cost: Tiffany & Co. competes by offering a differentiated
product, jewelry, at high prices. Its business strategy allows it to be a high-cost pro-
vider of premier designer jewelry to affluent consumers.

VALUE CHAIN ANALYSIS—EXECUTING
BUSINESS STRATEGIES

Firms make profits by taking raw inputs and applying a business process to turn them
into a product or service that customers find valuable. A business process is a standard-
ized set of activities that accomplish a specific task, such as processing a customer’s
order. Once a firm identifies the industry it wants to enter and the generic strategy it
will focus on, it must then choose the business processes required to create its products
or services. Of course, the firm will want to ensure the processes add value and create
competitive advantages. To identify these competitive advantages, Michael Porter cre-
ated value chain analysis , which views a firm as a series of business processes that each
add value to the product or service.

Value chain analysis is a useful tool for determining how to create the greatest pos-
sible value for customers (see Figure 1.19 ). The goal of value chain analysis is to identify
processes in which the firm can add value for the customer and create a competitive
advantage for itself, with a cost advantage or product differentiation.

The value chain groups a firm’s activities into two categories, primary value activities,
and support value activities. Primary value activities , shown at the bottom of the value
chain in Figure 1.19 , acquire raw materials and manufacture, deliver, market, sell, and
provide after-sales services.

1. Inbound logistics: acquires raw materials and resources and distributes to manufac-
turing as required.

2. Operations: transforms raw materials or inputs into goods and services.
3. Outbound logistics: distributes goods and services to customers.

LO 1.7 Demonstrate how a company
can add value by using Porter’s value
chain analysis.

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Business Driven Information Systems, Fourth Edition 27

FIGURE 1.19

The Value Chain

Support
Value

Activities

Primary
Value

Activities

Firm infrastructure (3.1%)

Human resource management (7.1%)

Technology development (and R&D) (4.2%)

Procurement (27%)

Receive
and

store raw
materials

(5.2%)

Make the
product or

service
(40.3%)

Deliver the
product or

service
(6.6%)

Market and
sell the

product or
service
(4.3%)

Service
after

the sale
(2.2%)

Value Added

24 Chapter 1 Management Information Systems: Business Driven MIS

4. Marketing and sales: promotes, prices, and sells products to customers.
5. Service: Provides customer support after the sale of goods and services. 21

Support value activities , along the top of the value chain in Figure 1.19 , include firm
infrastructure, human resource management, technology development, and procure-
ment. Not surprisingly, these support the primary value activities.

■ Firm infrastructure: includes the company format or departmental structures, envi-
ronment, and systems.

■ Human resource management: provides employee training, hiring, and
compensation.

■ Technology development: applies MIS to processes to add value.
■ Procurement: purchases inputs such as raw materials, resources, equipment, and

supplies.

It is easy to understand how a typical manufacturing firm takes raw materials such
as wood pulp and transforms it into paper. Adding value in this example might include
using high-quality raw materials or offering next-day free shipping on any order. How,
though, might a typical service firm take raw inputs such as time, knowledge, and MIS
and transform them into valuable customer service knowledge? A hotel might use MIS
to track customer reservations and then inform front-desk employees when a loyal cus-
tomer is checking in so the employee can call the guest by name and offer additional
services, gift baskets, or upgraded rooms. Examining the firm as a value chain allows
managers to identify the important business processes that add value for customers and
then find MIS solutions that support them.

When performing a value chain analysis, a firm could survey customers about the
extent to which they believe each activity adds value to the product or service. This
step generates responses the firm can measure, shown as percentages in Figure  1.20 ,
to describe how each activity adds (or reduces) value. Then the competitive advan-
tage decision for the firm is whether to (1) target high value-adding activities to further
enhance their value, (2) target low value-adding activities to increase their value, or (3)
perform some combination of the two.

MIS adds value to both primary and support value activities. One example of a
primary value activity facilitated by MIS is the development of a marketing campaign
management system that could target marketing campaigns more efficiently, thereby
reducing marketing costs. The system would also help the firm better pinpoint tar-
get market needs, thereby increasing sales. One example of a support value activity
facilitated by MIS is the development of a human resources system that could more
efficiently reward employees based on performance. The system could also identify

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28 Information Systems in Orgs

Firm infrastructure (3.1%)
Human resource management (7.1%)
Technology development (and R&D) (4.2%)
Procurement (27%)
Receive
and
store raw
materials
(5.2%)
Make the
product or
service
(40.3%)
Deliver the
product or
service
(6.6%)
Market and
sell the
product or
service
(4.3%)
Service
after
the sale
(2.2%)
Value Added

Threat of New
Entrants

The power of competitors
to enter a market

Buyer Power
The power of

customers to drive
down prices

Supplier Power
The power of

suppliers to drive up
prices of materials

Threat of Substitute
Products or Services
The power of customers
to purchase alternatives

FIGURE 1.20

The Value Chain and Porter’s
Five Forces Model

BUSINESS DRIVEN START-UP

Derek Johnson, a student at the University of Houston, was having lunch with
his friend who happened to be the communications director for her sorority.
During lunch Derek’s friend was telling him how hard it was to communicate
with all of her sisters in the sorority. She had to send out important announce-
ments about meetings, charitable events, and even dues. She had tried every-
thing including Facebook, email, and message boards, but so far nothing was
working. As Derek pondered his friend’s dilemma, he came up with a solution:
mass text messaging.

Johnson began researching mass text messaging products and was surprised
to find that none existed for the average consumer. Spotting an entrepreneurial
opportunity, Derek quickly began working on a product. Within a few months
he launched his website, Tatango, and began offering group text messaging at a
reasonable price. Now, a few years later, Tatango offers customers subscription
plans starting under $20 a month that allows groups to send text messages to all
members at once—whether 10 or 10,000—from any device.

In a group, brainstorm a list of problems you are currently experiencing.
Decide whether any present potential new business opportunities, and if so,
analyze the potential using the tools introduced in this chapter. Be prepared to
present your new business to the class. 22

Want to Start
Your Own
Business? Just
Find a Problem
to Solve

APPLY YOUR KNOWLEDGE

25Business Driven MIS Module 1

employees who are at risk of quitting, allowing manager’s time to find additional
challenges or opportunities that would help retain these employees and thus reduce
turnover costs.

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Business Driven Information Systems, Fourth Edition 29

26 Chapter 1 Management Information Systems: Business Driven MIS

FIGURE 1.21

Overview of Business Driven
Information Systems

Data
Information

Business Intelligence
Knowledge

Systems Thinking
Porter’s Business Strategies

Business Strategy MIS Topics

MODULE 1:
BUSINESS DRIVEN MIS

Transaction Processing Systems
Decision Support Systems

Executive Information Systems
Artificial Intelligence

Business Process Reengineering

eBusiness
eBusiness Models
Social Networking

Knowledge Management
Collaboration

Chapter 1: Management
Information Systems

Chapter 2: Decisions and
Processes

Chapter 3: Ebusiness

Chapter 4: Ethics and
Information Security

Understanding Business
Driven MIS

Creating Value Driven
Businesses

Finding Electronic Business
Value

Identifying MIS Business
Concerns

Information Security Policies
Authentication and Authorization

Prevention and Resistance
Detection and Response

Chapter 5: Infrastructures Deploying Organizational MIS
Grid Computing

Cloud Computing
Virtualization

Sustainable MIS Infrastructures

Business Strategy MIS Topics

MODULE 2:
TECHNICAL FOUNDATIONS OF MIS

Chapter 6: Data Uncovering BusinessIntelligence

Database
Data Management Systems

Data Warehousing
Data Mining

Chapter 7: Networks Supporting Mobile Business

Business Networks
Web 1.0, Web 2.0, Web 3.0

Mobile MIS
Wireless MIS

GPS, GIS, and LBS

Chapter 8: Enterprise
Applications

Enhancing Business
Communications

Customer Relationship Management
Supply Chain Management

Enterprise Resource Planning

Business Strategy MIS Topics

MODULE 3:
ENTERPRISE MIS

Chapter 9: Systems
Development and Project

Management
Leading MIS Projects

MIS Development Methodologies
Project Management

Outsourcing

baL76892_ch01_001-041.indd 26 26/11/12 1:45 PM

30 Information Systems in Orgs

27Business Driven MIS Module 1

Value chain analysis is a highly useful tool that provides hard and fast numbers for
evaluating the activities that add value to products and services. Managers can find
additional value by analyzing and constructing the value chain in terms of Porter’s Five
Forces Model (see Figure  1.20 ). For example, if the goal is to decrease buyer power, a
company can construct its value chain activity of “service after the sale” by offering high
levels of customer service. This will increase customers’ switching costs and reduce their
power. Analyzing and constructing support value activities can help decrease the threat
of new entrants. Analyzing and constructing primary value activities can help decrease
the threat of substitute products or services. 23

Revising Porter’s three business strategies is critical. Firms must continually adapt
to their competitive environments, which can cause business strategy to shift. In
the remainder of this text we discuss how managers can formulate business strate-
gies using MIS to create competitive advantages. Figure 1.21 gives an overview of the
remaining chapters, along with the relevant business strategy and associated MIS
topics.

Learning Outcome 1.1: Describe the information age and the differences among data,
information, business intelligence, and knowledge.

We live in the information age, when infinite quantities of facts are widely available to anyone who
can use a computer. The core drivers of the information age include data, information, business
intelligence, and knowledge. Data are raw facts that describe the characteristics of an event or
object. Information is data converted into a meaningful and useful context. Business intelligence
(BI) is information collected from multiple sources such as suppliers, customers, competitors, part-
ners, and industries that analyzes patterns, trends, and relationships for strategic decision making.
Knowledge includes the skills, experience, and expertise, coupled with information and intelligence,
that creates a person’s intellectual resources. As you move from data to knowledge you include
more and more variables for analysis resulting in better, more precise support for decision making
and problem solving.

Learning Outcome 1.2: Identify the different departments in a company and why they
must work together to achieve success.

Companies are typically organized by department or functional area such as accounting, finance,
human resources, marketing, operations management, and sales. Although each department has its
own focus and its own data, none can work independently if the company is to operate as a whole.
It is easy to see how a business decision made by one department can affect other departments.
Functional areas are anything but independent in a business. In fact, functional areas are interdepen-
dent. Sales must rely on information from operations to understand inventory, place orders, calculate
transportation costs, and gain insight into product availability based on production schedules. For an
organization to succeed, every department or functional area must work together sharing common
information and not be a “silo.” Information technology can enable departments to more efficiently
and effectively perform their business operations.

Learning Outcome 1.3: Explain systems thinking and how management information
systems enable business communications.

A system is a collection of parts that link to achieve a common purpose. Systems thinking is a
way of monitoring the entire system by viewing multiple inputs being processed or transformed
to produce outputs while continuously gathering feedback on each part. Feedback is information

L E A R N I N G O U T C O M E R E V I E W

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Business Driven Information Systems, Fourth Edition 31

28 Chapter 1 Management Information Systems: Business Driven MIS

that returns to its original transmitter (input, transform, or output) and modifies the transmitter’s
actions. Feedback helps the system maintain stability. Management information systems (MIS) is a
business function, like accounting and human resources, which moves information about people,
products, and processes across the company to facilitate decision making and problem solving.
MIS incorporates systems thinking to help companies operate cross-functionally. For example, to
fulfill product orders, an MIS for sales moves a single customer order across all functional areas
including sales, order fulfillment, shipping, billing, and finally customer service. Although different
functional areas handle different parts of the sale, thanks to MIS, to the customer the sale is one
continuous process.

Learning Outcome 1.4: Explain why competitive advantages are temporary.

A competitive advantage is a feature of a product or service on which customers place a greater value
than they do on similar offerings from competitors. Competitive advantages provide the same product
or service either at a lower price or with additional value that can fetch premium prices. Unfortunately,
competitive advantages are typically temporary, because competitors often quickly seek ways to
duplicate them. In turn, organizations must develop a strategy based on a new competitive advan-
tage. Ways that companies duplicate competitive advantages include acquiring the new technology,
copying business processes, and hiring away employees.

Learning Outcome 1.5: Describe Porter’s Five Forces Model and explain each of the five
forces.

Porter’s Five Forces Model analyzes the competitive forces within the environment in which a com-
pany operates, to assess the potential for profitability in an industry.

■ Buyer power is the ability of buyers to affect the price they must pay for an item.

■ Supplier power is the suppliers’ ability to influence the prices they charge for supplies (including
materials, labor, and services).

■ Threat of substitute products or services is high when there are many alternatives to a product or
service and low when there are few alternatives from which to choose.

■ Threat of new entrants is high when it is easy for new competitors to enter a market and low
when there are significant entry barriers to entering a market.

■ Rivalry among existing competitors is high when competition is fierce in a market and low when
competition is more complacent.

Learning Outcome 1.6: Compare Porter’s three generic strategies.

Organizations typically follow one of Porter’s three generic strategies when entering a new market:
(1) broad cost leadership, (2) broad differentiation, (3) focused strategy. Broad strategies reach a large
market segment. Focused strategies target a niche market. Focused strategies concentrate on either
cost leadership or differentiation.

Learning Outcome 1.7: Demonstrate how a company can add value by using Porter’s
value chain analysis.

To identify competitive advantages, Michael Porter created value chain analysis, which views a firm
as a series of business processes that each add value to the product or service. The goal of value
chain analysis is to identify processes in which the firm can add value for the customer and create
a competitive advantage for itself, with a cost advantage or product differentiation. The value chain
groups a firm’s activities into two categories—primary value activities and support value activities.
Primary value activities acquire raw materials and manufacture, deliver, market, sell, and provide
after-sales services. Support value activities, along the top of the value chain in the figure, include
firm infrastructure, human resource management, technology development, and procurement. Not
surprisingly, these support the primary value activities.

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32 Information Systems in Orgs

29Business Driven MIS Module 1

1. Knowledge: Define Globalization 1.0, 2.0, and 3.0 and provide a sample of the type of business
data managers collected during each era.

2. Comprehension: Explain Friedman’s flat world and the reasons it is important for all businesses,
small or large, to understand.

3. Application: Demonstrate how students competing for jobs in a “flat world” can create competi-
tive advantages to differentiate themselves in the marketplace.

4. Analysis: Analyze the current business environment and identify a new flattener not mentioned
on Friedman’s list.

5. Synthesis: Propose a plan for how a start-up company can use any of Porter’s strategies to com-
bat competition in a global world.

6. Evaluate: Argue for or against the following statement: “The world is not flat (in Friedman’s sense
of the term) because many undeveloped countries are not connected electronically.”

O P E N I N G C A S E Q U E S T I O N S

Business intelligence (BI), 8
Business process, 23
Business strategy, 15
Buyer power, 18
Chief information officer

(CIO), 15
Chief knowledge officer

(CKO), 15
Chief privacy officer (CPO), 15
Chief security officer (CSO), 15
Chief technology officer (CTO), 15
Competitive advantage, 16
Competitive intelligence, 17
Data, 6
Entry barrier, 20

Fact, 5
Feedback, 14
First-mover advantage, 17
Goods, 12
Information, 7
Information age, 5
Knowledge, 10
Knowledge worker, 10
Loyalty program, 19
Management information systems

(MIS), 14
Porter’s Five Forces Model, 18
Primary value activities, 23
Production, 13
Productivity, 13

Product differentiation, 20
Rivalry among existing

competitors, 20
Services, 12
Supplier power, 19
Supply chain, 19
Support value activities, 24
Switching costs, 18
System, 12
Systems thinking, 14
Threat of new entrants, 20
Threat of substitute products or

services, 19
Value chain analysis, 23
Variable, 7

K E Y T E R M S

1. What is data and why is it important to a business?

2. How can a manager turn data into information?

3. What is the relationship between data, information, business intelligence, and knowledge?

4. Why is it important for a company to operate cross-functionally?

5. Why would a company want to have a CIO, CPO, and CSO?

6. Explain MIS and the role it plays in a company and global business.

7. Do you agree that MIS is essential for businesses operating in the information age? Why or why not?

8. Why is it important for a business major to understand MIS?

9. What type of career are you planning to pursue? How will your specific career use data, informa-
tion, business intelligence, and knowledge?

R E V I E W Q U E S T I O N S

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30 Chapter 1 Management Information Systems: Business Driven MIS

10. Explain systems thinking and how it supports business operations.

11. What business strategies would you use if you were developing a competitive advantage for a
company?

12. Explain Porter’s Five Forces Model and the role it plays in decision making.

13. How could a company use loyalty programs to influence buyer power? How could a company
use switching costs to lock in customers and suppliers?

14. What are Porter’s three generic strategies and why would a company want to follow only one?

15. How can a company use Porter’s value chain analysis to measure customer satisfaction?

C L O S I N G C A S E O N E

Apple—Merging Technology, Business,
and Entertainment

This might sound hard to believe, but a bit more than a decade ago, Apple was on the brink of
bankruptcy. Apple Computer Inc., now back from near oblivion, is blazing a trail through the digital
world with innovation and creativity that has been missing from the company for the past 20 years.
The unique feature of Apple’s competitive advantages is that they come from customers and users,
not Apple employees. That’s right; the company welcomes products created by consumers to sell to
consumers, a trend new to business.

Capitalizing on the iPod

With millions of iPods in the hands of consumers, many people are finding ways to capitalize on
the product. John Lin created a prototype of a remote control for the iPod and took his prototype to
Macworld, where he found success. A few months later, Lin’s company had Apple’s blessing and a
commitment for shelf space in its retail stores. “This is how Apple supports the iPod economy,” Lin
said.

In the iPod-dominated market, hundreds of companies have been inspired to develop more than
500 accessories—everything from rechargers for the car to $1,500 Fendi bags. Eric Tong, vice presi-
dent at Belkin, a cable and peripheral manufacturer, believes that 75 percent of all iPod owners pur-
chase at least one accessory—selling over 30 million accessories to date. With most of the products
priced between $10 and $200, that puts the iPod economy well over $300 million and perhaps as
high as $6 billion. Popular iPod accessories include:

■ Altec Lansing Technologies—iPod speakers and recharger dock ($150).

■ Belkin—TuneCast mobile FM transmitter ($40).

■ Etymotic Research—high-end earphones ($150).

■ Griffin Technology—iTrip FM transmitter ($35).

■ Kate Spade—Geneva faux-croc mini iPod holder ($55).

■ Apple—socks set in six colors: green, purple, blue, orange, pink, and gray ($29).

■ Apple—digital camera connector ($29).

Capitalizing on the iPhone

Looking at someone using an iPhone is an interesting experience because there is a good chance they
are not making a phone call. They could be doing a number of things from playing a game to trading
stocks, watching a TV show, or even conducting business with a mobile version of salesforce.com ’s
customer-management software. In a brilliant strategic move, Apple let outsiders offer software for

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31Business Driven MIS Module 1

the iPhone and in less than six months, more than 10,000 applications had been created. In fact, more
than 15,000 applications are available at its app store section of iTunes, and they have been down-
loaded a total of 500 million times. Now, many of the iPhone apps are available for the iPad.

The iPhone and iPad app store market is getting so huge relative to other smartphone markets
that some developers argue there is little point adapting applications for Google’s Android or any other
iPhone competitor. According to Jeff Holden, CEO of Pelago Inc., when he created his social networking
company he fully intended to follow the conventional wisdom for how to build a sizable, fast-growing
software company: Get your programs on as many platforms and devices as possible. But when he
crunched the numbers he came to an interesting business conclusion: The 13 million iPhone owners had
already downloaded more applications than the 1.1 billion other cell phone owners! To entrepreneurs,
developing a program for the iPhone automatically provides a significantly larger market—almost 94
times larger than its competitors. “Why would I ever build for anything but the iPhone?” Holden asked.

Capitalizing on the iPad

Apple’s latest release, the iPad, is a lightweight, portable, tablet computer, similar to the iPhone, that
allows customers to download applications, check email, and play music all at the touch of a button.
Both the iPhone and the iPad can multitask, allowing customers to read a web page while download-
ing email in the background over wireless networks. The arrival of the iPad brought a simultaneous
expansion of the network of accessories. Because the iPad was designed with an exposed screen and
without a camera, separate keyboard, memory card slots, or expansion ports, one might say it was
specifically built for accessories. Many owners will modify it in some way, whether for mere decora-
tion or hard-core protection. A few of the new accessories include:

■ iPad Clear Armor screen protector—$35.

■ iPad Antique book case cover—$40.

■ iPad wireless keyboard—$99.

■ iPad overcoat sleeve—$35.

■ iPad Joule luxury stand—$130.

Apple has consistently outperformed its key rivals through the development of its MP3 player, the
iPod, and continues to make its products smaller and less expensive, while providing complementary
features such as games and applications. For the iPhone, Apple developed a unique application called
Siri, a voice-activation system that is capable of recognizing voice commands. Siri can perform all
kinds of functions from dialing a contact and creating an email to location services such as “Find my
Phone,” ensuring lost phones are found quickly.

Apple’s latest offering is a new service called the iCloud. The iCloud has the ability to collect all
of the content, including videos, photos, songs, books, etc., from customer devices such as iPods,
iPads, and iPhones in one secure location in “the cloud.” Apple customers no longer have to worry
about backing up their applications or data because everything is automatically uploaded and stored
in the iCloud when using an Apple device. In a fast-paced, technology-driven sector, with com-
petitors quickly following suit, Apple is constantly pressured to develop new products and product
extensions. Luckily Apple stays ahead of the pack by focusing on the following key competitive
advantages:

■ Customer focus: Apple is driven by customer satisfaction and ensures customers are deeply
involved in product development and application development.

■ Resources and capabilities: Apple continues to invest heavily in research and development to
take advantage of new technologies, improved facilities, and cloud infrastructures.

■ Strategic vision: Apple has a clear alignment of its vision, mission, and business leadership and
goals.

■ Branding: Apple is the leader in brand loyalty as it has achieved cult status with its authentic
product image.

■ Quality focus: Apple has an outstanding commitment to quality.24

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32 Chapter 1 Management Information Systems: Business Driven MIS

Customer
Focus

Strategic
Vision

Resources
and

Capabilities

Branding Quality
Focus

Questions

1. Do you agree or disagree that Apple’s iTunes, iPhone apps, and iPad apps give the company a
competitive advantage? Be sure to justify your answer.

2. Why are data, information, business intelligence, and knowledge important to Apple? Give an
example of each type in relation to the iPad.

3. Analyze Apple using Porter’s Five Forces Model.
4. Which of the three generic strategies is Apple following?
5. Which of Porter’s five forces did Apple address through its introduction of the iPhone?
6. Which of Porter’s five forces did Apple address through its customer-developed applications?

Best of the Best of the Best—Under 25

Bloomberg Businessweek runs a yearly article featuring the top five American entrepreneurs under
25 years old. With between 200 and 300 applications each year, choosing 5 is difficult. To help ensure
fair competition, the magazine narrows it down to 25 and then asks its readers to decide which 5
have the greatest potential. Below are the top five winners from 2011.

1: SCOREASCORE

Founder: Jordan Passman, 24
Revenue: $250,000
Growing up in Los Angeles, Jordan Passman knew the ins and outs of the music business where his
father worked as a high-profile music attorney. Passman, wanting to follow in his father’s footsteps, was
working for the American Society of Composers when he noticed an unmet need in the marketplace–
music buyers in the film, commercial, and television market looking for music composers. An idea
was born and Passman began working on a website that connected music buyers with music
composers. “People were still scrounging Craigslist for composers, and I knew there were so many
composers out there that didn’t have representation,” says Passman. ScoreAscore links music buyers
who are looking for scores for film, commercials, video games, or other productions with 100 select

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professional music composers represented by Passman, who charges 20 to 40 percent as a fee for
each transaction. Passman aspires to be the go-to for YouTube filmmakers!

2: THINKLITE

Founders: Dinesh Wadhwani, 21; Enrico Palmerino, 22
Revenue: $3,500,000
In 2009, Babson College students Dinesh Wadhwani and Enrico Palmerino were reading an article about
energy-efficient lightbulbs when their own lightbulbs went off! The roommates began collaborating on
how they could build a business with the primary competitive advantage of saving money with energy-
efficient lights, instead of focusing solely on saving the environment as most of the current manufac-
turers in the market were focusing on as their product niche. ThinkLite’s mission is to help companies
reduce electric bills through energy-efficient lighting. The pair began ThinkLite by licensing technolo-
gies from private companies in Germany, coupled with parts from Korea, and designs from Boston,
with final production occurring in China. Clients, such as AT&T and Kodak, boast lighting bill reductions
ranging from 50 percent to 80 percent, a significant savings for big business! ThinkLite now has over
100 clients and is looking to expand into smaller markets such as restaurants and stores.

3: DELTA PRODUCE

Founders: Kosta Dionisopoulos, 24; Christos Marafatsos, 24
Revenue: $2,600,000
The supply chain of food distribution is a tough business, and getting the right perishable goods
to the correct location at the perfect time is more an art form than analytics and logistics. Kosta
Dionisopoulos was driving a van delivering produce while attending the University of Maryland when
Christos Marafatsos saw an opportunity to start a unique produce delivery business. Delta Produce
not only delivers food, but also provides online marketing, allowing customers to reduce costs by buy-
ing in bulk or in groups. Delta Produce now has 18 employees and its customers include restaurants,
grocery stores, and wholesalers. “Both my partner and I are young, so interacting online is something
we’re accustomed to doing,” says Marafatsos.

4: APPLETON LEARNING

Founder: Glenn Clayton, 25
Revenue: $4,200,000
Glenn Clayton found himself looking for ways to earn extra money while attending the University of
Alabama, so he began tutoring local high school students. Clayton soon recognized a need in the mar-
ket and launched Appleton Learning, which matches college tutors with high school students. Clayton
began hiring friends to help meet the tutoring needs, and by the end of his sophomore year he was
spending over 60 hours each week managing Appleton Learning. “I realized if people were leaving
big name tutoring companies to come to some college kid working out of a broom closet, there was a
need in the market not being met,” Clayton says. Appleton Learning has found sales doubling yearly,
and Clayton has built a unique website that matches students with tutors based on their individual
learning needs and styles. Appleton Learning has over 1,000 tutors, including college students, profes-
sionals, and retirees, serving over 6,000 high school students. Appleton Learning is looking to expand
opening 20 new branches across the Southeast over the next few years.

5: DESMOS

Founder: Eli Luberoff, 24
Revenue: $200,000
While taking a year off from Yale, Eli Luberoff noticed a problem in the education arena—software
compatibility issues. Luberoff decided to create software that would overcome these issues and allow
teachers and students to collaborate regardless of the systems they were using or their location.
Luberoff launched his company, Desmos, by testing software from several large publishers, including
McGraw-Hill, Houghton Mifflin Harcourt, and Pearson just to name a few. Luberoff’s strategy for mak-
ing money is to provide the software for free while charging licensing fees to publishers. 25

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34 Chapter 1 Management Information Systems: Business Driven MIS

Questions

1. If you had $1 million to invest in one of the five above-mentioned start-ups, which one would
you choose and why? Be sure to justify your answer using Porter’s Five Forces Model and three
generic strategies analysis.

2. Choose one of the above businesses and explain why data, information, business intelligence, and
knowledge are important to successfully running the business over the next few years. Be sure to
list examples of the different types of data, information, business intelligence, and knowledge you
might find in this company.

3. Review Bloomberg Businessweek ’s most current top five under 25. Choose one of the companies
and perform a detailed analysis of the company using the strategies discussed in this chapter.
Determine a few ways the company can improve its business by creating competitive advantages
using the ideas and methods discussed throughout this chapter.

1. Focusing on Friedman
Thomas Friedman’s newest book is titled Hot, Flat, and Crowded: Why We Need a Green Revolution—
And How It Can Renew America. Research the Internet to find out as much information as you can
about this text. Why would a business manager be interested in reading this text? How will this text
impact global business? Do you think Hot, Flat, and Crowded will have as great an impact on society
as The World Is Flat had on business? Why or why not? 26

2. Pursuing Porter
There is no doubt that Michael Porter is one of the more influential business strategists of the 21st
century. Research Michael Porter on the Internet for interviews, additional articles, and new or
updated business strategies. Create a summary of your findings to share with your class. How can
learning about people such as Thomas Friedman and Michael Porter help prepare you for a career
in business? Name three additional business professionals you should follow to help prepare for
your career in business.

3. Renting Movies
The video rental industry is fiercely competitive. Customers have their choice of renting a movie by
driving to a store (Blockbuster), ordering through the mail (Netflix), or watching directly from their
television (pay-per-view or Netflix). Using Porter’s Five Forces Model (buyer power, supplier power,
threat of new entrants, threat of substitute products, and competition), evaluate the attractiveness
of entering the movie rental business. Be sure to include product differentiation, switching costs,
and loyalty programs in your analysis.

4. Working for the Best
Each year, Fortune magazine creates a list of the top 100 companies to work for. Find the most
recent list. What types of data do you think Fortune analyzed to determine the company ranking?
What issues could occur if the analysis of the data was inaccurate? What types of information
can you gain by analyzing the list? Create five questions a student performing a job search could
answer by analyzing this list.

5. Salary Surveys
Salary surveys offer great tools for highlighting the opportunities associated with an MIS major.
The starting annual salaries in the MIS field range from $50,000 to $85,000 and many are rising.
Figure 1.22 displays a Computerworld salary survey. Research the Internet for a current MIS salary
survey. Which types of jobs are on the rise? If there are any jobs you are unfamiliar with, research

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35Business Driven MIS Module 1

the Internet to determine the job characteristics. List the top three jobs you would want if you were
to pursue a career in MIS. What do you find interesting about these jobs? What skills can you build
to help you prepare for these jobs? 27

6. Starting your own Business
Josh James recently sold his web analytics company, Omniture, to Adobe for $1.8 billion. Yes,
James started Omniture from his dorm room! Have you begun to recognize the unbelievable
opportunities available to those students who understand the power of MIS, regardless of their
major? Answer the following questions. 28

a. Why is it so easy today for students to create start-ups while still in college?
b. What would it take for you to start a business from your dorm room?
c. How will this course help you prepare to start your own business?
d. Research the Internet and find three examples of college student start-ups.
e. What’s stopping you from starting your own business today? You are living in the information

age and with the power of MIS, it is easier than ever to jump into the business game with
very little capital investment. Why not start your own business today?

7. The Five Forces Model at Work
Your team is working for a small investment company that specializes in technology invest-
ments. A new company, Geyser, has just released an operating system that plans to compete
with Microsoft’s operating systems. Your company has a significant amount of capital invested in
Microsoft. Your boss, Kellee Lazarus, has asked you to compile a Porter’s Five Forces analysis for
Microsoft to ensure that your company’s Microsoft investment is not at risk.

8. Competitive Analysis
Cheryl O’Connell is the owner of a small, high-end retailer of women’s clothing called Excelus.
Excelus’s business has been successful for many years, largely because of O’Connell’s ability to antic-
ipate the needs and wants of her loyal customer base and provide them with personalized service.
O’Connell does not see any value in IT and does not want to invest any capital in something that will
not directly affect her bottom line. Develop a proposal describing the potential IT-enabled competitive
opportunities or threats O’Connell might be missing by not embracing IT. Be sure to include a Porter’s
Five Forces analysis and discuss which one of the three generic strategies O’Connell should pursue.

Job Description Compensation

Business intelligence analyst $ 81,866

Communications specialist $ 85,938

Database architect $ 98,995

Ebusiness specialist $ 71,717

Information security specialist $ 83,693

IT / IS technology / business systems analyst $ 78,305

Network architect $ 96,302

Programmer / analyst $ 75,995

Project leader $ 87,922

Senior systems analyst $ 89,987

Software developer $ 85,684

Software engineer $ 93,726

Storage architect / engineer $111,077

Systems programmer $ 89,472

Web developer $ 66,347

FIGURE 1.22

Computerworld Salary Survey

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36 Chapter 1 Management Information Systems: Business Driven MIS

9. Applying the Three Generic Strategies
This chapter discussed several examples of companies that pursue differentiated strategies so

that they are not forced into positions where they must compete solely based on price. In a team,
choose an industry and find and compare two companies, one that is competing based on price
and another that is pursuing a differentiated strategy enabled by the creative use of IT. Some
industries you may want to consider are clothing retailers, grocery stores, airlines, and personal
computers. Prepare a presentation for the class on the ways that the company is using IT to help
it differentiate and compete against the low-cost provider. Before you begin, spend some class
time to make sure each team selects a different industry.

10. 10 Best Things You Will Say to Your Grandchildren
Wired magazine recently posted the top 10 things you will say to your grandchildren. For each
expression below try to identify what it is referring to and why it will be considered outdated. 29

1. Back in my day, we only needed 140 characters.

2. There used to be so much snow up here, you could strap a board to your feet and slide all
the way down.

3. Televised contests gave cash prizes to whoever could store the most data in their head.

4. Well, the screens were bigger, but they only showed the movies at certain times of day.

5. We all had one, but nobody actually used it. Come to think of it, I bet my LinkedIn profile is
still out there on the web somewhere.

6. Translation: “English used to be the dominant language. Crazy, huh?”

7. Our bodies were made of meat and supported by little sticks of calcium.

8. You used to keep files right on your computer, and you had to go back to that same computer
to access them!

9. Is that the new iPhone 27G? Got multitasking yet?

10. I just can’t get used to this darn vat-grown steak. Texture ain’t right.

E N T R E P R E N E U R I A L C H A L L E N G E

BUILD YOUR OWN BUSINESS
You have recently inherited your grandfather’s business, which is conveniently located in your city’s
downtown. The business offers many different kinds of specialized products and services and was
first opened in 1952 and was a local hot spot for many years. Unfortunately, business has been
steadily declining over the past few years. The business runs without any computers and all order-
ing takes place manually. Your grandfather had a terrific memory and knew all of his customers and
suppliers by name, but unfortunately, none of this information is located anywhere in the store. The
operational information required to run the business, such as sales trends, vendor information, pro-
motional information, and so on, is all located in your grandfather’s memory. Inventory is tracked in a
notepad, along with employee payroll, and marketing coupons. The business does not have a website,
uses very little marketing except word of mouth, and essentially still operates the same as it did in
1952.

Throughout this course you will own and operate your grandfather’s business, and by taking
advantage of business practices discussed in this text, you will attempt to increase profits, decrease
expenses, and bring the business into the 21st century. For the purpose of this case, please choose
the business you wish to operate and create a name for the business. For example, the business could
be a coffee shop called The Broadway Café, an extreme sports store called Cutting Edge Sports, or

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37Business Driven MIS Module 1

even a movie store called The Silver Screen. Try to pick a business you are genuinely interested in
running and that aligns with your overall career goals.

Pro ject Focus: Compet i t ive Advantage
1. Identify the business you are going to build throughout this course and choose a name for your

business.

2. Write an analysis of buyer power and supplier power for your business using Porter’s Five Forces
Model. Be sure to discuss how you could combat the competition with strategies such as switch-
ing costs and loyalty programs.

3. Write an analysis of rivalry, entry barriers, and the threat of substitute products for your business
using Porter’s Five Forces Model. Be sure to discuss how you could combat the competition with
strategies such as product differentiation.

4. Describe which of Porter’s three generic strategies you would use for your business. Be sure to
describe the details of how you will implement this strategy and how it will help you create a
competitive advantage in your industry.

PROJECT I Capitalizing on Your Career
Business leaders need to be comfortable with management information systems (MIS) for the follow-
ing (primary) reasons:

■ The sheer magnitude of the dollars spent on MIS must be managed to ensure business value.

■ Research has consistently shown that when top managers are active in supporting MIS, they
realize a number of benefits, such as gaining a competitive advantage, streamlining business
processes, and even transforming entire industries.

■ When business leaders are not involved in MIS, systems fail, revenue is lost, and entire compa-
nies can even fail because of poorly managed systems.

How do companies get managers involved in MIS? One of the biggest positive factors is managers’
personal experience with MIS and MIS education, including university classes and executive semi-
nars. Once managers understand MIS through experience and education, they are more likely to lead
their companies in achieving business success through MIS.

1. Search the Internet for examples of the types of technologies currently used in the field or indus-
try that you plan to pursue. For example, if you are planning a career in accounting or finance,
you should become familiar with financial systems such as Oracle Financials. For a career in
logistics or distribution, research supply chain management systems. If marketing appeals
to you, research customer relationship management systems, blogs, emarketing, and social
networking.

2. As a competitive tool, MIS can differentiate products, services, and prices from competitors’
offerings by improving product quality, shortening product development or delivery time, creating
new MIS-based products and services, and improving customer service before, during, and after
a transaction. Search the Internet for examples of companies in the industry where you plan to
work that have achieved a competitive advantage through MIS.

3. Create a brief report of your findings; include an overview of the type of technologies you found
and how companies are using them to achieve a competitive advantage.

A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S

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PROJECT I I Achieving Alignment
Most companies would like to be in the market-leading position of JetBlue, Dell, or Walmart, all of
which have used management information systems to secure their respective spots in the market-
place. These companies are relentless about keeping the cost of technology down by combining the
best of MIS and business leadership.

The future belongs to those organizations perceptive enough to grasp the significance of MIS and
resourceful enough to coordinate their business and management information systems.

1. Use any resource to answer the question, “Why is it challenging for businesses to align MIS and
their other operations?” Use the following questions to begin your analysis:

a. How do companies monitor competitive intelligence and create competitive advantages?
b. What are some of the greatest MIS challenges for most firms?
c. What drives MIS decisions?
d. Who or what is the moving force behind MIS decisions for most companies?

PROJECT I I I Market Dissection
To illustrate the use of the three generic strategies, consider Figure 1.23 . The matrix shown demon-
strates the relationships among strategies (cost leadership versus differentiation) and market seg-
mentation (broad versus focused).

■ Hyundai is following a broad cost leadership strategy. It offers low-cost vehicles, in each particu-
lar model stratification, that appeal to a large audience.

■ Audi is pursuing a broad differentiation strategy with its Quattro models available at several price
points. Audi’s differentiation is safety, and it prices its models higher than Hyundai’s to reach a
large, stratified audience.

■ Kia has a more focused cost leadership strategy. Kia mainly offers low-cost vehicles in the lower
levels of model stratification.

■ Hummer offers the most focused differentiation strategy of any in the industry (including
Mercedes-Benz).

FIGURE 1.23

Porter’s Three Generic
Strategies

Broad market

Cost leadership strategy Differentiation strategy

Hyundai Audi

Focused market

Kia Hummer

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39Business Driven MIS Module 1

Create a similar graph displaying each strategy for a product of your choice. The strategy must
include an example of the product in each of the following markets: (1) cost leadership, broad market;
(2) differentiation, broad market; (3) cost leadership, focused market; and (4) differentiation, focused
market. Potential products include cereal, dog food, soft drinks, computers, shampoo, snack foods,
jeans, sneakers, sandals, mountain bikes, TV shows, movies.

PROJECT IV Porter’s Five Forces
Setting strategic direction for a business is a challenge for even seasoned professionals. The good
news is there are many tools available you can use to help you find competitive advantages, including
Porter’s Five Forces. Porter’s Five Forces Model analyzes the competitive forces within the environment
in which a company operates to assess the potential for profitability in an industry. Its purpose is to
combat these competitive forces by identifying opportunities, competitive advantages, and competitive
intelligence. If the forces are strong, they increase competition; if the forces are weak, they decrease
competition.

Porter’s Five Forces Model is a good framework for understanding market forces. Break into groups
and choose a comparison from the list below to perform a Porter’s Five Forces analysis.

■ Notebook computer and laptop computer.

■ PDA and laptop computer.

■ iPhone and cell phone.

■ iPod and CD player.

■ GPS device and a road atlas.

■ Digital books and printed books.

PROJECT V Adding Value
To identify these competitive advantages, Michael Porter created value chain analysis, which views
a firm as a series of business processes that each add value to the product or service. Value chain
analysis is a useful tool for determining how to create the greatest possible value for customers. The
goal of value chain analysis is to identify processes in which the firm can add value for the customer
and create a competitive advantage for itself, with a cost advantage or product differentiation.

Starbucks has hired you after your graduation for a temporary position that could turn into a full-
time opportunity. With new cafés and juice shops popping up on every corner, coupled with the global
recession, Starbucks is worried about losing market share to competitors. Your boss, Heather Sweitzer,
is out of ideas for ways to improve the company’s profitability. You decide that one of the most useful
tools for identifying competitive advantages is Porter’s value chain analysis. Of course, you do not yet
have the detailed knowledge to complete all of the elements required, but you know enough to get
started and plan to take your draft to Sweitzer next week. Using your knowledge of Starbucks, create a
value chain analysis. Feel free to make assumptions about operations; just be sure to list any that you
make. Also, be sure to write an overview of the tool and its potential value so Sweitzer can understand
how it works.

PROJECT VI Flat Competition
“When I was growing up in Minneapolis, my parents always said, ‘Tom, finish your dinner. There are
people starving in China and India.’ Today I tell my girls, ‘Finish your homework, because people in
China and India are starving for your jobs.’ And in a flat world, they can have them, because there’s no
such thing as an American job anymore.” Thomas Friedman.

In his book, The World Is Flat, Thomas Friedman describes the unplanned cascade of techno-
logical and social shifts that effectively leveled the economic world, and “accidentally made Beijing,
Bangalore, and Bethesda next-door neighbors.” The video of Thomas Friedman’s lecture at MIT

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40 Chapter 1 Management Information Systems: Business Driven MIS

discussing the flat world is available at http://mitworld.mit.edu/video/266 . If you want to be prepared
to compete in a flat world you must watch this video and answer the following questions:

■ Do you agree or disagree with Friedman’s assessment that the world is flat?

■ What are the potential impacts of a flat world for a student performing a job search?

■ What can students do to prepare themselves for competing in a flat world? 30

PROJECT VI I Wikiblunders
According to PC World these false facts all appeared on Wikipedia:

1. Robbie Williams eats domestic pets in pubs for money.
2. David Beckham was a Chinese goalkeeper in the 18th century.
3. Paul Reiser’s dead. (Reiser is an actor).
4. Sinbad’s dead. (Sinbad is an actor) .
5. Sergey Brin’s sexy, dating Jimmy Wales, and dead. (Brin founded Google and Wales founded

Wikipedia).
6. Tony Blair worships Hitler. (Blair was the former prime minister of the United Kingdom).
7. The Duchess of Cornwall’s Christian name is Cow-miller.
8. Robert Byrd’s dead. (Byrd is a U.S. senator from West Virginia).
9. John Seigenthaler helped assassinate John and Robert Kennedy. (Seigenthaler is a journalist).
10. Conan O’Brien assaults sea turtles while canoeing. 31

We know that people use information technology to work with information. Knowing this, how
could these types of errors occur? What could happen if you decided to use Wikipedia to collect busi-
ness intelligence for a research paper? What could Wikipedia do to help prevent these types of errors?

PROJECT VI I I What’s Wrong with This Bathroom?
If you were the CEO of a global financial company that was experiencing a financial crisis, would you
invest $1 million to renovate your office? Probably not and you are possibly wondering if this is a
fabricated story from The Onion. Guess what, this is a true story! John Thain, the former CEO of Merrill
Lynch, decided to spend $1.2 million refurbishing his office—well after Merrill Lynch posted huge
financial losses. Thain personally signed off on all of the following:

■ Area rug: $87,784

■ Mahogany pedestal table: $25,713

■ 19th century credenza: $68,179

■ Pendant light furniture: $19,751

■ 4 pairs of curtains: $28,091

■ Pair of guest chairs: $87,784

■ George IV chair: $18,468

■ 6 wall sconces: $2,741

■ Parchment waste can: $1,405 (yes, for a trash can!!)

■ Roman shade fabric: $10,967

■ Roman shades: $7,315

■ Coffee table: $5,852

■ Commode on legs: $35,115 32

It takes years of education and work experience for people to build the skills necessary to take
on the role of CEO. Obviously, a company like Merril Lynch would only hire a highly qualified person
for the job. What do you think happened to John Thain? Why would he spend an obscene amount

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44 Information Systems in Orgs

41Business Driven MIS Module 1

of money redecorating his office when his company was having financial trouble? What happens
to a company whose executives are not aligned with company goals? How can you ensure that
your company’s executives are not making monumental mistakes, such as million dollar bathroom
renovations?

PROJECT IX I Love TED!
A small nonprofit started in 1984, TED (Technology, Entertainment, Design) hosts conferences for
Ideas Worth Spreading. TED brings people from all over the globe to share award-winning talks cover-
ing the most innovative, informative, and exciting speeches ever given in 20 minutes. You can find
TED talks by Al Gore, Bill Gates, Steve Jobs, Douglas Adams, Steven Levitt, Seth Godin, Malcolm
Gladwell, and so on. 33

Visit www.ted.com and peruse the thousands of videos that are available then answer the
following:

■ Review the TED website and find three talks you would want to watch. Why did you pick these
three and will you make time outside of class to watch them?

■ How can you gain a competitive advantage by watching TED?

■ How can you find innovative ideas for a start-up by watching TED?

■ How can you find competitive intelligence by watching TED?

Project
Number Project Name

Project
Type

Plug-In
Focus Area Project Level Skill Set

Page
Number

1 Financial
Destiny

Excel T2 Personal
Budget

Introductory
Formulas

AYK.4

2 Cash Flow Excel T2 Cash Flow Introductory
Formulas

AYK.4

3 Technology
Budget

Excel T1, T2 Hardware
and Software

Introductory
Formulas
AYK.4

4 Tracking
Donations

Excel T2 Employee
Relationships

Introductory
Formulas
AYK.4

5 Convert
Currency

Excel T2 Global
Commerce

Introductory
Formulas

AYK.5

6 Cost
Comparison

Excel T2 Total Cost of
Ownership

Introductory
Formulas
AYK.5

7 Time
Management

Excel or
Project

T12 Project
Management

Introductory Gantt Charts AYK.6

AY K A P P L I C AT I O N P R O J E C T S

If you are looking for Excel projects to incorporate into your class, try any of the following after reading
this chapter.

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Business Driven Information Systems, Fourth Edition 45