CC 101

LESSON ROPER
DEFINING INFORMATION SYSTEMS
Almost all programs in business require students to take a course in something called information systems. But
what exactly does that term mean? Let’s take a look at some of the more popular definitions, first from
Wikipedia and then from a couple of textbooks:
• “Information system (IS) is the study of complementary networks of hardware and software that people
and organizations use to collect, filter, process, create, and distribute data.”
• “Information systems are combinations of hardware, software, and telecommunications networks that
people build and use to collect, create, and distribute useful data, typically in organizational settings.”
• “Information systems are interrelated components working together to collect, process, store, and
disseminate information to support decision making, coordination, control, analysis, and visualization in an
organization.”

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

THE COMPONENTS OF INFORMATION SYSTEMS

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

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

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

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

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

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

NETWORKING COMMUNICATION: A FOURTH TECHNOLOGY PIECE?

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

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

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

The Role of Information Systems

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

IBM 704 Mainframe (Copyright: Lawrence Livermore National Laboratory)

The Mainframe Era
From the late 1950s through the 1960s, computers were seen as a way to more efficiently do calculations.
These first business computers were room-sized monsters, with several refrigerator-sized machines linked
together. The primary work of these devices was to organize and store large volumes of information that were
tedious to manage by hand. Only large businesses, universities, and government agencies could afford them,
and they took a crew of specialized personnel and specialized facilities to maintain. These devices served
dozens to hundreds of users at a time through a process called time-sharing. Typical functions included
scientific calculations and accounting, under the broader umbrella of “data processing.”
Registered trademark of International Business Machines
In the late 1960s, the Manufacturing Resources Planning (MRP) systems were introduced. This software,
running on a mainframe computer, gave companies the ability to manage the manufacturing process, making it
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more efficient. From tracking inventory to creating bills of materials to scheduling production, the MRP systems
(and later the MRP II systems) gave more businesses a reason to want to integrate computing into their
processes. IBM became the dominant mainframe company. Nicknamed “Big Blue,” the company became
synonymous with business computing. Continued improvement in software and the availability of cheaper
hardware eventually brought mainframe computers (and their little sibling, the minicomputer) into most large
businesses.

The PC Revolution
In 1975, the first microcomputer was announced on the cover of Popular Mechanics: the Altair 8800. Its
immediate popularity sparked the imagination of entrepreneurs everywhere, and there were quickly dozens of
companies making these “personal computers.” Though at first just a niche product for computer hobbyists,
improvements in usability and the availability of practical software led to growing sales. The most prominent of
these early personal computer makers was a little company known as Apple Computer, headed by Steve Jobs
and Steve Wozniak, with the hugely successful “Apple II.” Not wanting to be left out of the revolution, in 1981
IBM (teaming with a little company called Microsoft for their operating-system software) hurriedly released their
own version of the personal computer, simply called the “PC.” Businesses, who had used IBM mainframes for
years to run their businesses, finally had the permission they needed to bring personal computers into their
companies, and the IBM PC took off. The IBM PC was named Time magazine’s “Man of the Year” for 1982.
Because of the IBM PC’s open architecture, it was easy for other companies to copy, or “clone” it. During the
1980s, many new computer companies sprang up, offering less expensive versions of the PC. This drove
prices down and spurred innovation. Microsoft developed its Windows operating system and made the PC
even easier to use. Common uses for the PC during this period included word processing, spreadsheets, and
databases. These early PCs were not connected to any sort of network; for the most part they stood alone as
islands of innovation within the larger organization.

Client-Server
In the mid-1980s, businesses began to see the need to connect their computers together as a way to
collaborate and share resources. This networking architecture was referred to as “client-server” because users
would log in to the local area network (LAN) from their PC (the “client”) by connecting to a powerful computer
called a “server,” which would then grant them rights to different resources on the network (such as shared file
areas and a printer). Software companies began developing applications that allowed multiple users to access
the same data at the same time. This evolved into software applications for communicating, with the first real
popular use of electronic mail appearing at this time.
Registered trademark of SAP
This networking and data sharing all stayed within the confines of each business, for the most part. While there
was sharing of electronic data between companies, this was a very specialized function. Computers were now
seen as tools to collaborate internally, within an organization. In fact, these networks of computers were
becoming so powerful that they were replacing many of the functions previously performed by the larger
mainframe computers at a fraction of the cost. It was during this era that the first Enterprise Resource Planning
(ERP) systems were developed and run on the client-server architecture. An ERP system is a software
application with a centralized database that can be used to run a company’s entire business. With separate
modules for accounting, finance, inventory, human resources, and many, many more, ERP systems, with
Germany’s SAP leading the way, represented the state of the art in information systems integration.

The World Wide Web and E-Commerce

First invented in 1969, the Internet was confined to use by universities, government agencies, and researchers
for many years. Its rather arcane commands and user applications made it unsuitable for mainstream use in
business. One exception to this was the ability to expand electronic mail outside the confines of a single
organization. While the first e-mail messages on the Internet were sent in the early 1970s, companies who
wanted to expand their LAN-based e-mail started hooking up to the Internet in the 1980s. Companies began
connecting their internal networks to the Internet in order to allow communication between their employees and
employees at other companies. It was with these early Internet connections that the computer truly began to
evolve from a computational device to a communications device.
In 1989, Tim Berners-Lee developed a simpler way for researchers to share information over the network at
CERN laboratories, a concept he called the World Wide Web.[4] This invention became the launching point of
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the growth of the Internet as a way for businesses to share information about themselves. As web browsers
and Internet connections became the norm, companies rushed to grab domain names and create websites.
Registered trademark of Amazon Technologies, Inc.
In 1991, the National Science Foundation, which governed how the Internet was used, lifted restrictions on its
commercial use. The year 1994 saw the establishment of both eBay and [Link], two true pioneers in the
use of the new digital marketplace. A mad rush of investment in Internet-based businesses led to the dot-com
boom through the late 1990s, and then the dot-com bust in 2000. While much can be learned from the
speculation and crazy economic theories espoused during that bubble, one important outcome for businesses
was that thousands of miles of Internet connections were laid around the world during that time. The world
became truly “wired” heading into the new millenium, ushering in the era of globalization, which we will discuss
in chapter 11.
As it became more expected for companies to be connected to the Internet, the digital world also became a
more dangerous place. Computer viruses and worms, once slowly propagated through the sharing of computer
disks, could now grow with tremendous speed via the Internet. Software written for a disconnected world found
it very difficult to defend against these sorts of threats. A whole new industry of computer and Internet security
arose.

Web 2.0
As the world recovered from the dot-com bust, the use of technology in business continued to evolve at a
frantic pace. Websites became interactive; instead of just visiting a site to find out about a business and
purchase its products, customers wanted to be able to customize their experience and interact with the
business. This new type of interactive website, where you did not have to know how to create a web page or
do any programming in order to put information online, became known as web 2.0. Web 2.0 is exemplified by
blogging, social networking, and interactive comments being available on many websites. This new web-2.0
world, in which online interaction became expected, had a big impact on many businesses and even whole
industries. Some industries, such as bookstores, found themselves relegated to a niche status. Others, such
as video rental chains and travel agencies, simply began going out of business as they were replaced by
online technologies. This process of technology replacing a middleman in a transaction is called
disintermediation.
As the world became more connected, new questions arose. Should access to the Internet be considered a
right? Can I copy a song that I downloaded from the Internet? How can I keep information that I have put on a
website private? What information is acceptable to collect from children? Technology moved so fast that
policymakers did not have enough time to enact appropriate laws, making for a Wild West–type atmosphere.

The Post-PC World

After thirty years as the primary computing device used in most businesses, sales of the PC are now beginning
to decline as sales of tablets and smartphones are taking off. Just as the mainframe before it, the PC will
continue to play a key role in business, but will no longer be the primary way that people interact and do
business. The limited storage and processing power of these devices is being offset by a move to “cloud”
computing, which allows for storage, sharing, and backup of information on a massive scale. This will require
new rounds of thinking and innovation on the part of businesses as technology continues to advance.
The
Eras of Business Computing
Era Hardware Operating System Applications
Mainframe
(1970s) Terminals connected to mainframe computer. Time-sharing
(TSO) on MVS Custom-written
MRP software
PC
(mid-1980s) IBM PC or compatible. Sometimes connected to mainframe computer via
expansion card. MS-DOS WordPerfect,
Lotus 1-2-3
Client-Server
(late 80s to early 90s) IBM PC “clone” on a Novell Network. Windows for Workgroups Microsoft
Word, Microsoft Excel
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World
Wide Web (mid-90s to early 2000s) IBM PC “clone” connected to company intranet. Windows XP
Microsoft
Office, Internet Explorer
Web 2.0 (mid-2000s to present) Laptop connected to company Wi-Fi. Windows 7 Microsoft
Office, Firefox
Post-PC
(today and beyond) Apple iPad iOS Mobile-friendly
websites, mobile apps

Can Information Systems Bring Competitive Advantage?

It has always been the assumption that the implementation of information systems will, in and of itself, bring a
business competitive advantage. After all, if installing one computer to manage inventory can make a company
more efficient, won’t installing several computers to handle even more of the business continue to improve it?
In 2003, Nicholas Carr wrote an article in the Harvard Business Review that questioned this assumption. The
article, entitled “IT Doesn’t Matter,” raised the idea that information technology has become just a commodity.
Instead of viewing technology as an investment that will make a company stand out, it should be seen as
something like electricity: It should be managed to reduce costs, ensure that it is always running, and be as
risk-free as possible.
As you might imagine, this article was both hailed and scorned. Can IT bring a competitive advantage? It sure
did for Walmart (see sidebar). We will discuss this topic further in chapter 7.

Sidebar: Walmart Uses Information Systems to Become the World’s Leading Retailer
Registered trademark of Wal-Mart Stores, Inc.
Walmart is the world’s largest retailer, earning $15.2 billion on sales of $443.9 billion in the fiscal year that
ended on January 31, 2012. Walmart currently serves over 200 million customers every week, worldwide.[5]
Walmart’s rise to prominence is due in no small part to their use of information systems.
One of the keys to this success was the implementation of Retail Link, a supply-chain management system.
This system, unique when initially implemented in the mid-1980s, allowed Walmart’s suppliers to directly
access the inventory levels and sales information of their products at any of Walmart’s more than ten thousand
stores. Using Retail Link, suppliers can analyze how well their products are selling at one or more Walmart
stores, with a range of reporting options. Further, Walmart requires the suppliers to use Retail Link to manage
their own inventory levels. If a supplier feels that their products are selling out too quickly, they can use Retail
Link to petition Walmart to raise the levels of inventory for their products. This has essentially allowed Walmart
to “hire” thousands of product managers, all of whom have a vested interest in the products they are
managing. This revolutionary approach to managing inventory has allowed Walmart to continue to drive prices
down and respond to market forces quickly.
Today, Walmart continues to innovate with information technology. Using its tremendous market presence, any
technology that Walmart requires its suppliers to implement immediately becomes a business standard.