Introduction to MIS

What Is an Information System?

} Information technology: the hardware and software a business uses to achieve objectives
} Information system: interrelated components that manage information to:
 Support decision making and control
 Help with analysis, visualization, and product creation
} Data: streams of raw facts
} Information: data shaped into meaningful, useful form
Functions of an Information System
} Activities in an information system that
produce information:
 Input, Processing, Output,
Feedback
} Sharp distinction between computer or
computer program versus
information system

Information Systems Are More Than Computers

Dimensions of Information Systems

} Organizations
 Coordinate work through structured hierarchy and business processes
 Business processes: related tasks and behaviours for accomplishing work
o Examples: fulfilling an order, hiring an employee
 May be informal or include formal rules
 Culture embedded in information systems
} People
 Information systems require skilled people to build, maintain, and use them.
  Employee attitudes affect their ability to use systems productively.
 Role of managers:
o Perceive business challenges
o Set organizational strategy
o Allocate human and financial resources
o Creative work: new products, services
} Technology
 IT Infrastructure: Foundation or platform that information systems are built on.
o Computer hardware
o Computer software
o Data management technology
o Networking and telecommunications technology
Business Drivers of Information Systems
} Businesses invest in I T to achieve six important business objectives.
1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival
Operational Excellence
} Improved efficiency results in higher profits.
} Information systems and technologies help improve efficiency and productivity.
} Example: Walmart
 Power of combining information systems and best business practices to achieve
operational efficiency—and over $514 billion in sales in 2019
 Most efficient retail store in world as result of digital links between suppliers and
stores
New Products, Services, and Business Models
 } Information systems and technologies enable firms to create new products, services, and
business models.
} Business model: how a company produces, delivers, and sells its products and services
} Example: Apple
 Transformed old model of music distribution with iTunes
 Constant innovations—iPod, iPhone, iPad, etc.
Customer and Supplier Intimacy
} Customers who are served well become repeat customers who purchase more.
 Mandarin Oriental Hotel
o Uses IT to foster an intimate relationship with its customers, keeping track
of preferences, and so on
} Close relationships with suppliers result in lower costs.
 JC Penney
o IT to enhance relationship with supplier in Hong Kong
Improved Decision Making
} If managers rely on forecasts, best guesses, and luck, they will misallocate employees,
services, and inventory.
} Real-time data improves ability of managers to make decisions.
} Verizon: web-based digital dashboard to update managers with real-time data on
customer complaints, network performance, and line outages
Competitive Advantage
} Often results from achieving previous business objectives
} Advantages over competitors:
 Charging less for superior products, better performance, and better response to
suppliers and customers
 Examples: Apple, Walmart, and U P S are industry leaders because they know
how to use information systems for this purpose
Survival
} Businesses may need to invest in information systems out of necessity; it is simply the
cost of doing business.
} Keeping up with competitors
  Citibank’s introduction of ATM s
} Federal and state regulations and reporting requirements
 Toxic Substances Control Act and the Sarbanes-Oxley Act
Role of Information Systems in a Business
} Firms invest in information systems in order to:
 Achieve operational excellence
 Develop new products and services
 Attain customer intimacy and service
 Improve decision making
 Promote competitive advantage
 Ensure survival
Digital Transformation
} Adoption of digital technology by a company to
improve business processes, value for customers
and innovation (Wikipedia)
} How companies are using digital
Key Trends & Objectives
} New markets
 Platform-mediated networks
 FinTech
 New customers, news products & services, and new pricing models
} d-Operations (e-Operations)
 Analytics / Big Data
 Cloud computing
 AI and Blockchain Technologies
} d-Marketing (e-Marketing)
 Social media
 Mobile
 AI and Machine learning
(Digital) Platforms
 } A platform is often a two-sided network.
 A platform is a delivery system that enables third-party complementary services
to reach a consumer.
 A platform, without complementary services, provides no value to a consumer.
 The value of a platform is extended by complementary services provided by third-
party providers.

Platform Ecosystem
} Platform-mediated-networks

Digital Business I
Network Effects
} Network effects
 A user’s value of using Product A is affected by other users’ decisions of using
Product A
} Network effects can be either positive or negative.
} Positive network effects
 A user’s value increases if a new user joins to the network.
} Negative network effects
 A user’s value decreases if a new user joins to the network.

Platform Ecosystem
} Network effects

Network & Network Effects

} Two-sided network
  A network that includes two distinct types of users
} There are direct and indirect network effects in a two-sided network.
 Direct network effects
o A user’s value is affected by the decisions of same type users.
 Indirect network effects
o A user’s value is affected by the decisions of different type users.
} Tippy market
 Subject to strong network effects
 Tips in favor of the firm that first reaches critical mass.
o Tipping point – moment in market evolution when one organization or
technology reaches the necessary critical mass to become dominant.
 Winner-take-all
} The Penguin Problem
 No one moves unless everyone moves, so no one moves.
 Hence, one side is often subsidized.
Platform Governance
} Open vs. Closed platforms
 When no restrictions are placed on participation, we refer to a role as being open.
 Android is mostly open, and iOS is closed.
Platforms – Compatibility
} Compatibility
 Compaq PC user can switch to Dell PC and still use the same applications
(compatibility)
 Similarly, iPhone X users can switch to iPhone 11 and still use the same Apps
(backward compatibility)
 By contrast, PlayStation and Xbox are non-compatible; hence, there are multi-
homing costs.
} A platform evolves, very often, with backward
compatibility.
} Interoperability, Emulator, and Converter
  Microsoft and Yahoo agreed to interconnect their previously proprietary instant
messaging networks.
 Sometimes third-party providers offer emulators or converters.
Video Case: GE Becomes a Digital Firm
} General Electric (GE), one of the largest industrial manufacturing firms in the world, is
attempting to transform itself into a software company, part of the Industrial Internet.
} GE’s eight industrial business segments
 power generation, energy management, transportation, renewable energy,
transportation, aviation, appliances and lighting, oil & gas, and healthcare
} The industrial world was becoming “digitized.” GE CEO’s (Immelt’s) goal in 2016 was
to become of the top ten software companies in the world, focusing industrial software.
He wants GE to become an apps and a platform company.
 Jeff Immelt: Digitizing the industrial space - https://www.youtube.com/watch?
v=ZQzYm7QKrRY
} To become high growth digital firm, GE would need to hire/train new workforce, develop
new services, and create new collaborative culture.
} GE would need to define new digital products and services as part of a yet to be defined
“digital industrial platform.”
 GE’s Jeff Immelt on digitizing in the industrial space McKinsey Company -
https://youtu.be/hMa5YHOInIc?t=180
} What does Immelt mean by the “digitized of the industrial world” and “the industrial
Internet”? What are the central elements of the industrial Internet?
Sensor’s product data; cloud computing collects the data; analytics software processes the
data; the results are sold to business customers as a service.

} What were the three alternatives GE had for developing the hardware and software
capabilities to become a digital firm?
GE considered:
- Acquiring companies with the expertise
- Outsourcing the project to other firms
- Building the capabilities in-house with its own employees
 } Which option for developing tis digital capabilities did GE choose and why?
GE chose the option of developing the new capabilities in-house.
- To capture the full value in a digital firm for future revenues

} Why does the new GE want to treat analytics as a company expertise just as it has always
treated material science?
Because the real value in a digital firm increasingly lies in understanding (Big) data and selling
that to industrial customers

} What does Immelt mean when he says GE will become a “platform” and “app”
company?
The Predix platform – a GE cloud computing platform that is open to its customers to collect and
analyze data on their industrial machines.
Customers can develop their own apps to analyze their data, and some apps will be developed
internally and sold to customers.

Digital Business II
E-Commerce vs. E-Business (d-Business)
} E-Commerce
 Process of distributing, buying, selling, marketing, and servicing products and
services over the Internet
} E-Business (d-Business)
 Use of the Internet and other information technologies to enable and support business
processes and operations.
Market vs. Marketplace
} The market is the demand of the product or service.
} A marketplace is a location where product and services are exchanged.
} E-marketplace
 Intermediaries between sellers and buyers
  Benefit of e-marketplace
o Transaction costs - a cost in making any trade when participating in a market.
Reduce search costs and bargaining costs.
Disintermediation 去中間化

Reintermediation 再中間化

發生於傳統的參與者在市場中能夠採

用創新的方式執行交易，這種創新的

方式通常是藉由資科技來增加價值。

可被定義為透過電子化的中商提供新

的加值服務的流程。

Intermediaries 中間化
} Crowdsourcing
 Wisdom of crowd (e.g., Wikipedia)
 Crowdfunding (e.g., crowdfunding.com)
} P2P lending (e.g., prosper.com)
} Social Networking (e.g., Facebook)
} Aggregator (Google shopping)

E-Commerce
By Transaction Type:
} Business-to-Consumer (B2C) e.g., Amazon.com
} Business-to-Business (B2B) e.g., Premier pages of Dell.com
} Consumer-to-Consumer (C2C) e.g., eBay.com
} E-commerce can also be categorized by platform.
 Mobile commerce (m-commerce)
By Company Structures:
} Bricks and mortar. e.g., Zara (before 2011)
} Bricks and clicks. e.g., Walmart
} Pure play e.g., Amazon
E-Commerce Business Models
} Virtual storefront
 Sells products to consumers or businesses. (e.g., Amazon.com)
} Online marketplace
 Digital environment where buyers and sellers can meet revenue from transaction fees.
(e.g., eBay)
} Content provider
 Digital news, music, photos, videos, etc. (e.g., iTunes store, NYT)
} Social network
 Online meeting place where people with similar interests can communicate and find
useful information. (e.g., Facebook)
} Portal
 Provides initial point of entry to the web along with specialized content and other
services. (e.g., Yahoo, Naver)
} Service provider
 Provides applications such as photo sharing, file sharing. (e.g., Dropbox)
Revenue Models
} Sales revenue
 Companies draw profit directly from the sales of goods, information, or services to
consumers (e.g., Walmart)
} Subscription
  Customers pay for the right to access the contents (e.g., Netflix)
} Advertising support
 A firm provides contents or services free for a large audience and then sells access to
its audience to interested advertisers (e.g., YouTube and Facebook)
} Referral/Affiliate
 A firm collects revenue from a third-party based on traffic it sends to the partner
website (e.g., Google shopping)
} Transaction fee
 derive profit from enabling or executing transactions (e.g., eBay)
E-Commerce Business Models Paid digital subscribers to NYT.
} NYT’s paywall strategy
The New York Times introduced a paywall on Mar. 28,
2011
 $3.75/week for NYTimes.com + smart phone
 $5.00/week for NYTimes.com + Tablet
 $8.75/week for all digital access

} NYT’s Revenue model

 Website traffic ≈ Online advertising revenue

Revenue Models
} NYT’s freemium model
 Free access until users reaches monthly article limit.
 Free to physical paper subscribers
 Open to search and 3rd party referrers
Digital Business III
The Long Tail
} Why do consumers prefer shopping

online?

} Product variety comparison (Unit: # of

available items)

} The long tail, coined by Anderson

(2006), describes a shift of demand
distribution as niche products grow to
become a large share of total sales.
Pareto principle
} 帕雷托法則（80/20 法則、關鍵少數法則、八二法則、巴萊多定律）約僅有 20%的
因素影響 80%的結果。也就是說：所有變因中，最重要的僅有 20%，雖然剩餘的
80%占了多數，影響的幅度卻遠低於「關鍵的少數」。
 Also known as the 80-20 rule
 For many events, roughly 80% of the effects come from 20% of the cases.
 A common rule of thumb in business: e.g., “80% of your sales come from 20% of
your clients.”
 } Implication for managers
 A few are vital, many are trivial.
 Identify and focus on the 20% that matters.
The Long Tail
長尾理論（The long tail）：只要通路夠大，非主流的、需求量小的商品「總銷量」也能
夠和主流的、需求量大的商品銷量抗衡。長尾就是 80%的過去不值得一賣的東西，是許
許多多小市場的總和，長尾是熱賣品向小市場的轉變。
The Long Tail 的適用對象，是瞄準
「大型通路」，例如：Internet、量販
店、大型書店、超商連鎖店，有點像
是用亂槍打鳥的方式，平衡收益。通
路大、提供的商品就多，因此可以在
熱賣商品以外，創造出次暢銷品的銷
售數字。

Internet’s “Long Tail” Phenomenon

} Amazon.com Sales
} You can identify this type of phenomenon with descriptive analytics.
} The book sales dataset contains the information about book sales by a book publisher
through two channels, physical stores, and online book retailers, over a one-year period.
 Book Code: a unique identifier of every book
the publisher handles.
  Sales Store: the number of books sold through a physical store during the period.
 Sales Web: the number of books sold through online book retailers during the period.

Plotting the “Long Tail” Distribution

} Compare the difference in means between the two channels.
 Create a Pareto chart using Excel.
o Sort “Sales Store” in descending order
o Draw a “clustered column chart.”
o Repeat the same procedure for “Sales Web.”
o

Internet’s “Long Tail” Phenomenon

} What is the insight you can get from the charts? Try to give some possible explanations
on why such a difference may exist between the two channels.
} In statistics, a long tail of some distributions of numbers is the portion of the distribution
having a large number of occurrences far from the "head" or central part of the
distribution.
} The Internet channel exhibits a significantly less concentrated sales distribution when
compared with traditional channels.
} By greatly lowering search costs, information technology in general and Internet markets
could substantially increase the collective share of hard-to-find products, thereby creating
a longer tail in the distribution of sales.
 } An 80/20 rule fits the distribution of product sales in a traditional channel quite well, but
in the Internet channel, this rule needs to be modified to fit the distribution of product
sales in that channel.
} The term long tail has gained popularity in recent times as describing the retailing
strategy of selling many unique items with relatively small quantities sold of each –
usually in addition to selling fewer popular items in large quantities.
Explanations of Internet’s “Long Tail” Phenomenon
} Supply side drivers
 The decrease in cost of inventory storage and distribution
o Marginal cost of having one more item is reduced.
 The increase in size of the target market
o Marginal benefit of having one more item is increased.
} Demand side drivers
 The decrease in search cost
 The introduction of sampling tools and social media
o Consumers have more information about niche products.
Business Implications of Internet’s Long Tail Phenomenon
} For online retailers,
 Facilitate easier searching, recommendation systems, online reviews.
 Coordination with suppliers (publishers) (e.g., drop shipping for low demand
products.)
} For suppliers, Design and implement business process to support drop shipping.
} Drop shipping.
 A supply chain management technique in which the retailer does not keep goods in
stock, but instead transfers customer orders and shipment details to either the
manufacturer or a wholesaler, who then ships the goods directly to the customer.
Digital Business III: Cloud Computing
Netflix – Building a Business in the Cloud
} What event convinced Netflix to switch to a cloud-based services?
A database corruption outage in 2008. Switched to a cloud solution with a lower
incidence of downtime and greater scalability.

} What is Chaos Monkey and why is it important for Netflix and its use of AWS?
A custom application built by Netflix for use with their AWS computing resources. A
tool that intentionally caused problems in production to ensure that Netflix can handle spikes
in usage or other problems such as individual regions experiencing downtime.

} Why is it important for Netflix that AWS has multiple availability regions?
Because AWS is a global service with multiple availability regions, an outage in one spot
means that another availability zone will be available to pick up the slack.
As Netflix continues its global growth, it is important that users in all areas of the world
can get content from multiple places in the event of outages or high traffic. AWS meets this
demand.
PeroxyChem’s Cloud Computing Formula for Success
} Problem
 Loss of IT infrastructure from divestiture
 Limited time frame and resources
 Inadequate in-house IT staff
} Solutions
 Plan new IT Infrastructure
 Make IT infrastructure investments.
 Shift from operational to strategic technology orientation
 IBM -managed cloud computing services
  SAP applications
Cloud Computing
} On-demand (utility) computing services obtained over network
 Organizations “renting” resources such as processing and data storage from an
external provider on an as needed basis and pay for what is actually used
 Transform IT infrastructure cost from a capital expenditure to an operational
expenditure.
} Essential characteristics of cloud computing
 On-demand self-service
 Broad network access
 Resource pooling
 Rapid elasticity
o Computing capabilities are elastically provisioned and released.
o To consumers, computing resources appear to be unlimited.
} Measured service.
 Pay-as-you-use, a practice like the utility bills.
 Resource usage is metered, monitored, and controlled.
Cloud Computing Service Models
Cloud Computing - IaaS
} Service models
 Infrastructure as a Service
o Only basic capabilities of processing, storage and networking are provided.
o Consumers have the most control over the resources.
o Provide consumers great flexibility.
Cloud computing - PaaS
} Service models
 Platform as a Service
o Consumers have control over applications but have limited or no control over
underlying infrastructure.

Cloud computing - SaaS

} Service models
 Software as a Service
o Consumers uses only web-based applications provided via a cloud infrastructure.
Cloud computing – Pros and Cons
} Benefits
 Scalability
 Location Independence
 Financial benefits
} Drawbacks
 Security
 Data
 Performance
 Cloud interoperability
 Pricing
Benefits of Cloud Computing
} Benefits
 Eliminates need for large up-front capital investments in systems.
 Eliminates lengthy implementations on corporate computers.
 Low-cost subscriptions; no expensive licensing and maintenance fees.
 No hardware for subscribers to purchase, scale, and maintain.
 No operating systems, database servers or applications servers to install.
 No consultants and staff.
 Accessible via standard web browser with behind-the-scenes software updates.
 Better scalability, eliminate cost and complexity of managing multiple layers of
hardware and software.
Drawbacks of Cloud computing
} Drawbacks
} Responsibility for data storage and control is transferred away from the organization to a
third party.
 Security risks and chances of data compromises are increased.
} Increase dependency on a third-party service provider.
 Huge investments in proprietary systems supporting unique business processes may
be at risk.
  The platform may not be attractive to larger companies for their application needs.
Types of Cloud Computing
Deployment models
} Public cloud
 Provisioned for open use for general public (e.g., AWS, Google Cloud, IBM Cloud,
Microsoft Azure)
} Private cloud
 Solely dedicated to a single end user or group, where the environment usually runs
behind that user or group's firewall.
 It may exist on- or off-premises.
Cloud Computing Trends in 2023
} Hybrid clouds
 A seemingly single IT environment created from multiple environments, e.g.,
combining the public cloud with a private cloud, and/or on-premises.
} Benefits:
 Maintaining private infrastructure, including easy accessibility, security, and
compliance
 Scaling in the most cost- and resource-effective way
 Ensuring highly sensitive data and information remains on-premises.
} Multi-clouds
} A cloud approach made up of more than 1 cloud service, from more than 1 cloud vendor
— either public or private
} Benefits:
 Achieving best-of-breed results for different requirements in organizations
 Increasing flexibility
 A good option to cut costs.
 Avoiding vendor lock-in – Minimizing dependence on any provider
} All hybrid clouds are multi-clouds, but not all multi-clouds are hybrid clouds.
Which Cloud Should I Use?
} That depends on computing demands:
  Workloads with high volume or fluctuating demands might be better suited for a
public cloud.
 Workloads with predictable use patterns might be better off in a private cloud.
 Hybrid clouds are the catch-all because any workload can be hosted anywhere.

Digital Business III: Cloud Computing

RFID in E-Commerce
} RFID (Radio Frequency Identification)
 Used of wireless signals to transfer data
between a microchip and a reading device.
o Tracking technologies
Features of EC Website
} Personalization
 Data Analytics (e.g., Machine learning algorithms)
} Product/content recommendation (e.g., Amazon, Netflix)
} User Interface Optimization
 Promotion
 Layout
 Imagery
Association Rule Mining
Some stores place beer and diapers close to each other; however, some other stores place beer
and diapers far away from each other.
} Market basket analysis
 A data mining technique for determining sales patterns.
 It shows products that customers tend to buy together. (e.g., People who buy diapers
on Thursday night may also buy beer.)
} Real-world applications
  Product placement
- Whole Foods: next to flowers are birthday cards
- Wal-Mart customers who purchase Barbie dolls have a 60% likelihood of also
purchasing one of three types of candy bars (Forbes, Sept 8, 1997)
 Recommendations
- Amazon.com: as you are looking at HDTVs, you might also want HDMI cables
 Bundling
- e.g., travel “packages” – flight, hotel, car
} Association rule mining
 Used to uncover associations and/or correlation relationships in large data sets.
 Identifies attributes that occur together frequently in each data set.
} Association rules provide information in the form of if-then (antecedent-consequent)
statements.
} Association rule: {Antecedent} → {Consequent} (e.g., {Diaper} → {Beer})
Support: P ( Ant ∧Con )
P ( Ant ∧Con ) δ ( Ant ∧Con )
Confidence: P ( Con∨ Ant )= =
P ( Ant ) δ ( Ant )
Confidence P ( Con∨ Ant )
Lift: =
P ( Con ) P ( Con )
Support
} Support quantifies the
significance of the co-occurrence of the items involved in a rule
} In practice, we only care about item sets with strong enough support
Popular Performance Metric: Confidence
} Two popular measures: confidence
and lift
Popular Performance Metric: Lift
} The lift of a rule measures how much
more likely the consequent is, given the
antecedent.
Example
Binary representation of market-basket
} Rule: {Milk, Diaper} → {Beer}
δ ( M , D∧B ) 2
Support: P ( M , D∧B ) = =
¿ of transactions 5
δ ( M , D∧B ) 2
Confidence: P ( B| M , D )= =
δ (M , D) 3
2 2
P ( B|M , D ) 3 3 10
Lift: = = =
P (B) δ ( B) 3 9
¿ of transactions 5
} Is {Milk, Diaper} → {Beer} a good association rule?
 Minimum support requirement 0.1
 Minimum confidence requirement 0.6
 Lift ratio greater than 1
} Rule: {Milk, Diaper} → {P.Bag}
δ ( M , D∧PB ) 3
Support: P ( M , D∧PB ) = =
¿ of transactions 5
δ ( M , D∧PB ) 3
Confidence: P ( PB| M , D )= =
δ (M , D) 3
3 3
P ( PB∨M , D ) 3 3
Lift: = = =1
P ( PB ) δ ( PB ) 5
¿ of transactions 5
Custom Computer Configuration using Association Rule Mining
} PC Purchase Data
 Suppose you are a marketing manager on ecommerce site. We might want to know
which components are often ordered together.
Association Rule Mining
 } Based on the association rule mining results below, what is your production
recommendation in terms of the strength of association?

Rule 1 - if a customer purchased a 15-inch screen with an Intel Core i7 processor, then a 750 GB
hard drive was also purchased.
Lift Ratio indicates how much more likely we are to encounter a 750 GB transaction if we
consider just those transactions where a 15-inch screen and Intel Core i7 are purchased, as
compared to the entire population of transactions.