ISMT 101

Information Systems
in Organizations
Q&A – marginal costs
Q: Who make copies

 “easy to make copies” means production by companies

—publisher, music industry, software vendor…
 NOT piracy
Q&A – marginal costs
Q: Do “lower MC” always significantly reduce AC? Is this universally
true?

 We focus on information goods whose major functions build on

information.
 Consider: cars versus maps
 Today, NOT all products/services in our economy can be digitized.
 We will observe significantly reduced AC when quantity is large.
 Mathematically, when quantity approaches infinity, average costs
approach marginal costs.
Q&A – marginal costs
Q: Then, why did I pay almost the same for buying CD and for
downloading music online?

 Pricing is a complex topic.

 Price=f (costs, demand, competition, supply, product lifecycle…)
 Cost, although not the only one, is the most important factor in
pricing.
Q&A – marginal costs
 Digitization provides OPPORTUNITIES.
 Reduce costs, lower price, increase market share
 Reduce costs, same price, enjoy high profit margin

 How to analyze “seemingly exceptional cases”

 quantity
 demand
Q&A – marginal costs
 Evidence on price difference (hard copy vs. e-version newspaper)
 Circulation is huge, you may expect significant price difference
 Circulation is limited, you may expect insignificant price difference
Q&A – dynamic pricing
Q: Are “fixed costs” and “fixed pricing” related concepts?

 NO
 FYI…fixed pricing is also called “list price”
 “E-commerce: good-bye to fixed pricing?”
Q&A – dynamic pricing
Q: How long is the time window for considering “anytime”

 This should be considered in a relative sense, that is, within a

certain period of time

 Examples—beer

 Online grocery, price may change even more frequently

 PARKnSHOP, price may change on a weekly basis Pricing
 In the ground-floor restaurant, beer price does not more
change for a long while dynamic
Q&A – dynamic pricing
Q: Is “dynamic pricing” caused by change in cost?

 NO
 Dynamic pricing –
same product, same cost, different price
 Computer Price Index
(Index normalized to 100 in 1996)
400

350

300

250

200

150

100

50

0
1987 1989 1991 1993 1995 1997 1999 2001
Examples from your classmate
Can we say that fixed pricing means that two people can buy
the same product using the same price at the same place?
For example, no matter professor or me…going to the tailin
shop to buy the same mp3, we need to pay the same price in
the normal situation.
……
But if we go to ebay to bid for the same mp3…Although we buy
the same product by using the same channel (ebay), we
need to pay differently as that is dynamic pricing.
Dynamic pricing
Amazon mystery: pricing of books
By David Streitfeld, Times Staff Writer
January 2, 2007
……

On Nov. 6, seeking to boost my dubious culinary skills, I decided to

buy "The Cast Iron Skillet Cookbook." I went to Amazon and placed
the book in my electronic shopping cart but got distracted and never
finished the transaction.
The next day, I signed on to Amazon again. A pop-up message
informed me that the price had increased from $11.02 to $11.53.
……
In physical stores, prices of books are usually fixed, immune to
fluctuation by season or whim.
Logistics
 Schedule change
 We switched lab contents in weeks 8 & 9

 Reminder – Feb 22, deadline for forming groups

 Next Business implications
Mgmt
• Info. processing:
data  information

Organizational use
Major IS (1) (1) Digital
• Two-dimension Economy
framework to analyze IS
• Working in the digital
world
• Ethical issues

Technology components People

Data & information
 Data – raw facts
 Lowest temperature today – 13°
 Tom’s final grade – 85

 Information – facts within a given context

 Average temperature in history is 19° – this winter is abnormal.
 Average grade of the whole class is 68 – Tom did very well.
Data & information
Data Information

Valuable
Raw facts
knowledge
A number of
Many data points
Key Insights

Less meaningful More meaningful

Stored Presented in
in database appropriate styles
Value of information
 Accuracy
 Should be accurate, no errors
 Timeliness
 Need new, instead of old, information
 Accessibility
 Can I access?
 Engagement
 Affecting my decisions?
 Application
 Relevant to my context?
 Rarity
 Unknown? Confidential?
 0%
1%
2%
3%
4%
5%
6%
7%
8%
9%

Feb-90

Feb-91

Feb-92

Feb-93

Feb-94

Feb-95

Feb-96

Feb-97

Feb-98

Feb-99

Feb-00

Feb-01

Feb-02

Feb-03

Feb-04
Analyzing a case — T-bill vs. S&P

Feb-05
U.S. Treasury Bills Monthly Return, 1990-2006

Feb-06
Analyzing a case — T-bill vs. S&P
S&P Monthly Return, 1924-2006
Analyzing a case — T-bill vs. S&P
 In January 1936, you (or your grand grand pa?) invest
$100 in U.S. Treasury Bills.
 Continue to reinvest the returns month by month until
December 2006
 The original investment will grow to ____

 If, however, the $100 is invested in the S&P 500 – a

much riskier investment, over the 71 year period
 This investment will grow to _______
T-Bill return / S&P return
Analyzing a case — T-bill vs. S&P
 Now suppose that each month, you are able to learn, in
advance, which of these two (Treasury Bill vs. S&P 500)
would yield a higher return, and invest accordingly

 What is your expected return at the end of 2006?

Data  information

Input Processing Output

Data  information

Pruning

Analyzing
Data Information
Styling
Information System—
Distributing A set of interrelated
Information technologies
that work together for…
One example
 Design compensation plan
 Need to know performance
 Within a project team, peer-evaluation
 Peer-evaluation data  performance measures 
compensation plan
Raw data
Pruning
Data
Analyzing
 0%
5%
10%
15%
20%
25%
Styling
Jo
a nn
a
To
m

Be
n
Ja
n e
M
ic
ha
el

Jo
h n
Distributing
 Peer evaluation: check averages in my office
 Slides: Put on WebCT
Real business –
customer relationship management (CRM)

Marketing
Information
plans
Analyzing
purchasing
behavior
Customer
data
(historical
transactions,
features)
IS at the backend

Source: Siebel Systems

Example of analyzing – Logistic regression
1
Prob(y) = ,
1 + exp[−( β 0 + ∑i =1 β i xi )]
k

where :
y = transaction
x = ( x1 , x2 , , xk ) − customer' s features
β = ( β 0 , β1 , , β k ) − relavtive importance of the features

Features (e.g.,
Transactions gender, income,
age, schooling…)
A video: data  information
 What kind of data and information are
discussed in the video?
 Information system
Information systems
Design
People
(Human Resource)
Use

Decision
Support
 Information system
 Information
systems
include
people and
technologies

Source: OZ (2006)
 Information system
 MIT study on value of
information systems Market value of a firm
(Brynjolfsson et al. 2002):

Together human
resource and
technologies create
more value.
Hu
m
an
Re
so
u

Technologies
rc
e
IS in organizations
Organization is an administrative and functional structure
applied to people who are working toward a specific goal.
IS in organizations
Organization is an administrative and functional structure
applied to people who are working toward a specific goal.
Store
Employees

Store
Managers

HK Regional
Managers

Headquarter

Finance/ Human
Operations Marketing
Accounting Resources
IS in organizations
Organization is an administrative and functional structure
applied to people who are working toward a specific goal.
Store
Employees IS IS IS IS
Store
Managers IS IS IS IS
HK
Managers IS IS IS IS

Headquarter IS IS IS IS
Finance/ Human
Operations Marketing
Accounting Resources
Information systems in org.
IS in marketing and sales
EIS TPS (transaction processing systems)
 Users: operational-level employees

DSS  Input: daily operations

 Output: operational data

MIS  Task example: check-out (barcodesales

data)
KWS

OAS

TPS
IS in marketing and sales
EIS OAS (Office automation systems)
 Users: office workers (clerks, secretaries…)

DSS  Input: daily operations

 Output: digitized documents

MIS (no new information)

 Task example: processing member-card application
(paper-based forms  e-forms)
KWS

OAS

TPS
IS in marketing and sales
EIS KWS (knowledge worker system)
 Users: professionals with special knowledge

DSS (internal consultants)

 Input: operational data, own knowledge
 Output: knowledge useful for companies
MIS
 Task example: market analysis
 Segmentation, types of customers
KWS
 Who are likely to apply for the membership?
 Have competitors launched such programs?
OAS
 ……

TPS
IS in marketing and sales
EIS MIS (management information system)
 Users: middle managers

DSS  Input: data from TPS

 Output: summary reports, answers to routine

MIS questions
 Task example: report changes in sales

KWS

OAS

TPS
IS in marketing and sales
EIS DSS (decision support system)
 Users: middle managers

DSS  Input: data from TPS, knowledge from KWS,

external information
 Output: answers to non-routine questions
MIS
 Task example: decide membership discounts

KWS
Margin
Profit
OAS Discount Sales

TPS Supply
Competitors

DSS
IS in marketing and sales
EIS EIS (executive information systems)
 Users: top managers

DSS  Input: aggregated data, internal & external

 Output: strategic planning

MIS

KWS

OAS

TPS
Video: technologies in industry
 What systems are discussed in the video?
Working in the digital economy
Ethical issues
 Ethics – The rules or standards governing the conduct of
a person or the members of a profession
Cases
 Lena Chen & Jennifer Ngan, two students at California State
University (Northridge), altering grades (D to A), also for 300 friends,
in prison 3 months
(source: LATimes)

 CityU, female doctoral student, bribing the professor for exam

questions, in prison 6 months
(source: South China Morning Post)
Cases
Summary
 Data, Information and IS
 Value of information – 6 factors
 IS components – H, S, D, N, P

 Together HR and technologies create more value.

 A two-dimension framework for analyzing IS in

organizations