Innovation and Its Application

Learning objectives

• Define what broadly constitutes a "system" and an "innovation"
• Describe examples of innovation
• Describe how one might strive to be a systems innovator
• Describe the benefits of innovation to society at-large 

Introduction 

Let us welcome you the modern age, so full of promise both in terms of human and technological progress! In this chapter, we address the role of innovation and being a systems innovator. Without systems innovators, it is quite possible that our modern age would not be so full of promise and potential. In fact, without systems innovators, humanity might never have reached modernity at all. 

Several historians say we humans are "modern" when we do not automatically reject new or foreign elements in society. For human society, modernity begins when communities began to explore, tolerate, and accept the new and diverse. Thus, modernity includes a receptiveness of human societies to new ideas. Living in the modern age allows us to expect that modern enterprises and markets will tolerate and potentially reward to new ideas and new practice. In a modern age, those individuals who design insightful innovations (i.e., innovators) can be highly praised if their innovations are well timed, well designed, and well implemented. 

As systems innovators, we welcome the modern age and strive to be open to new and beneficial ideas of change. Human societies value and evaluate new ideas by expected impact and effect. Modern markets and firms represent particular types of human organizations. Markets and firms can incorporate innovations by changing either their design or practices.

Being a systems innovator 

Let us briefly consider the meaning of the essential words in the title: "systems" and "innovator" (defining "being" is something we will leave to the philosophers).

Systems are the object of particular designs. Broadly speaking, systems involve the organization of things, logical and physical. Systems include data, processes, policies, protocols, skill sets, hardware, software, responsibilities, and other components that define the capabilities of an organization. Systems include human and non-human aspects. The components, or parts, of a specific system can be either real or abstract. Components comprise an aggregate "whole" where each component of a system interacts with at least one other component of the system. Cumulatively, all the components of a system serve a common system objective. Systems may contain subsystems, which are systems unto themselves that include a smaller set of interactions among components for a more narrowly defined objective. Systems may also connect with other systems. The following diagram (Exhibit 1) illustrates an example system.

Exhibit 1: A sample system

Innovation is the process of "making improvements by introducing something new" to a system. To be noteworthy, an innovation must be substantially different, not an insignificant change or adjustment. It is worth noting that innovation is more a verb than a noun in our context. Innovation is similar to the word evolution, which derives from the Latin root for staying "in motion". Systems innovations often include an expectation of forward motion and improvement. To be worthwhile, innovations must be worth the cost of replacement, substitution, or upgrades of the existing order.

The term innovation may refer to both radical and incremental changes to products, processes, or services. The often unspoken goal of innovation is to solve a problem. Innovation is an important topic in the study of economics, business, technology, sociology, and engineering. Since innovations are a major driver of the economy, the factors that lead to innovation are also critical to government policy-makers. In an organizational context, innovations link to performance and growth through improvements in efficiency, productivity, quality, competitive positioning, market share, etc. All organizations can innovate, including for example hospitals, universities, and local governments.

Rather than construct a narrow definition of innovation, it is useful to think of innovation as including, but not limited by, a few key dimensions. Successful innovations include these dimensions.

The first dimension is that of innovation form. Innovations manifest in many ways, but generally are either tangible or intangible. Tangible innovations result in new goods, services, or systems that you can physically touch. Examples include the introduction of new products or a style of architecture. Intangible innovations include the creation of new services, processes, modes of operating, or thinking. Intangible innovations might introduce greater efficiency into an existing process or create an entirely new way of doing something. For example, an innovation could reduce the time required to manufacture a car. This intangible innovation might translate into greater profits for a car manufacturer.

The second dimension is that of innovation degree. Innovation degree compares a particular innovation to that of the status quo. In 1980, a researcher named John Hage introduced the concept of "radical" versus "incremental" innovation. An incremental innovation introduces an idea, process, or technological device that provides a slight improvement or causes minor change in a normal routine. Sometimes the impact of incremental innovation may require only minor adjustments in the behavior, processes, or equipment associated with a system. A manufacturing facility upgrading to a new version of software that provides additional features to enhance existing operations is an example of an incremental innovation.

Conversely, radical innovations introduce an idea, process, or technological device that dramatically alters a current system. For example, if a manufacturing firm acquired a new technology that allowed the firm to completely redefine and streamline its production processes, then this new technology represents a radical innovation. Often radical innovations involve not only new technologies and processes, but also necessitate the creation of entirely new patterns of behaviors.

Systems innovators are individuals who design and implement innovations. To design refers to the process of developing a structural plan for an object. Systems innovators are individuals who transform the practice of organizations, markets, or society by making significant forward moving improvements. Systems innovators seek to designs that improve on the old to take advantage of new technologies, new techniques and new practice and processes. We would suggest that systems innovators not only recognize that social and economic structures are all human-made, but also recognize that human structures are always open to changes, enhancements, and redesign.

It is important to recognize that systems operate within systems. Identifying the connections and layers of these systems will make you a successful systems innovator. Often identifying new connections or new layers that no one else has identified yet can provide new opportunities for innovation.

This book seeks to discuss with you the capabilities, approaches, and skills required of the systems innovator in the 21st century. How does one prepare for the assessment, evaluation, design, and implementation of the improvements to systems, particularly those that incorporate information technologies, particularly those systems that incorporate information technologies?

Source: Richard T. Watson
This work is licensed under a Creative Commons Attribution-ShareAlike 3.0 License.

Sociologists note that humans are unique in their invention and adoption of tools. Among these human-made tools are the systems and procedures that govern, direct, and enable modern societies to function. These tools also include the systems that enable the actions of commerce and exchange. Systems enable patterns of work and reward and the conduct of participants in enterprise. For our modern age, systems have never been more relevant as the speed of society and the enhancement of information access and opportunity for social interaction increase. Almost all aspects of modern commerce, modern society, and modern life are connected the designs of humanity. Much of what defines the pace and practices of our modern age are systems and technology-enabled.

Designers matter. To be a designer implies the task of creating something, or of being creative in a particular area of expertise. Part of being a systems innovator includes being a designer. It is worth considering that the fields of "systems design" and "organization design" are similar as both incorporate creatable, changeable, and linkable elements.

Designers seek the requirements and expectations, identify the objectives and measurements of success, give structure to the elements, and form to the components of systems. Success or failure hinge on the ability of a designer to attain the proper requirements and expectations of a system. For example, a systems innovator plans to design a new cell phone network for 500,000 subscribers. Unfortunately, the innovator fails to include the requirement of future growth of the cell phone network to 2,000,000 individuals in five years. When the network is built, per the design of the innovator, new cell phone subscribers must be turned-away from accessing the network because of the omitted designer requirement. Since the designer failed to include the proper requirements, this omission diminishes the success of the system.

In addition to developing a structural plan for a system, designers must manage the process of systems development, to include overseeing systems implementation, adoption, and continuing operation. Design also sometimes involves the augmentation and extension of an existing system. Part of being a systems innovator includes the enhancement of an existing or legacy system with a new idea, method, or technological device.

Extending the life of a useful system, or upgrading capabilities to better align with the enterprise objective, may be the best service of the systems innovator. Often, it is easier to enhance an existing system, than it is to decode, decipher, or replace such a system.

Social systems are tools designed by humanity. These systems reflect the bias and the values of the designers, or those that task the designers with requirements and expectations. Thus, designers, who create rules, influence systems greatly. Essential elements of the process and product of system development include the unique style and preferences of a designer.

Designers leave their mark, their trail, and their values reflected in the tools they produce. Style and preferences also guide systems implementation. It is also important to note that systems are networks of interacting elements. Thus, the aggregate "whole" of a large system may be more capable, stronger, or beneficial than the sum of its individual components – or it might be less so. Systems amplify the strengths and the weakness of their design. Ideally, well-designed systems amplify the benefits of their individual components.

The concept of innovation has been widely studied, yet it remains a difficult topic to define. Merriam-Webster's online dictionary describes innovation as "the introduction of something new" or "a new idea, method, or device". While this definition provides a good starting point for our discussion of innovation, there are still a number of dimensions to consider for a more thorough understanding of the concept. Careful observation of our surroundings reveals a multitude of innovations. Everything from electricity to running water, or from personal computers to cell phones, represents some form on innovation from past systems.

Many things can trigger innovation. An individual or team of individuals may seek to address an existing problem, respond to a new situation, or explore new ability.

While innovations typically add value, innovations may also have a negative or destructive effect as new developments clear away or change old organizational forms and practices. Organizations that do not innovate effectively may die or be destroyed by those organizations that do. Systems innovators are critical to our modern age. Innovators must insure that their envisioned innovations are appropriate to the environment of today and tomorrow.

While innovation can occur as individuals and groups wrestle with new problems, innovation can also be reactionary and occur as a response to unplanned changes. The ancient philosopher Heraclatus once said: "there is nothing permanent except change".

The statement is certainly true today in our high tech world. Advances in computing power, communication technologies, and networking of computers around the world has quickened the pace at which dramatic change can occur across large and diverse groups of electronically connected people. Innovation often arises as a way of coping with, attempting to control, or benefit from changes.

Changes in the use of information technology often provide the impetus for innovation. There might be instances where local conditions encourage a particular innovation. For example, if past historical conditions prevented installation of wired telephone networks because they were too expensive, but now cell phone networks are both more affordable and available; the innovation of cell phone networks might open up new capabilities for areas that previously did not have such technology. As cell phone networks networks become more prevalent, the ways individuals communicate, compute, and exchange information will change and local companies may seek to introduce cell phones with new features that adapt to these changing communications patterns.

We live in exciting times for systems innovators. Advances in electronic communications, airline transportation, and international shipping, increasingly connect the lives of multiple individuals throughout the world. Such connective advances are part of a greater trend known as globalization. For the modern age, globalization includes the opening of commercial markets, increased free trade among nations, and increased education for a larger number of people. With globalization, what you do may influence events on the other side of the world. 

With globalization, environments for organizations, both businesses and world governments, are becoming more complex. The reasons for this increased environmental complexity include "the four V's," specifically:

• increased Volume (from local to global context in terms of transactions)
• increased Velocity (faster transactions between people)
• increased Volatility (organizations change and reorganize faster)
• increased concerns regarding Veracity (the truth is harder to distinguish)

For systems innovators, it is important to recognize this perspective of increased complexity. This perspective is important both because it presents opportunities to innovate – by addressing the complexities and challenges mentioned above – as well as the risks associated with not innovating. Failure to innovate in an increasing complex and interconnected world may mean that your organization, be it a business or government, might become irrelevant and outdated quickly.

Increased complexity also makes the job of a systems innovator a bit trickier: an innovative solution needs to account for increasing complex environment. What may seem to be a straightforward solution may have unintended effects on a system or other systems connected to a system.

This leads to a second important perspective: systems operate within systems. Specifically, our world is a system of multilayered, interconnected systems. Homes connect to gas, water, and electrical systems that link to other homes. Traveling exposes us to systems of highways, public transportation, trains, planes, and ocean-going ships.

A business is an organization comprised of multiple workers, interdependent in the tasks they perform. Within the organization, there may be a system of monitoring the funds received into and paid out by the business – and accounting system. This accounting system would include humans (managers and accountants), accounting data, processes for managing accounting data, rules for recording accounting data, as well as technology components. Within this accounting system may be another system: an information system running a computer program dedicated to tracking electronically the accounts of the organization. A systems innovator looking to improve the organization may focus on the system of the overarching organization itself, the accounting system, or the information system dedicated to tracking electronically the accounts of the organization.

For systems innovators, it is important to note that all human systems are artificial. By "artificial," we mean that human systems would not exist naturally in the world without humans. No natural rules govern the systems humans create – whether the systems are governments, businesses, educational institutions, or information systems. This is not to say that the systems humans create do not have rules; rather, they often do! For systems innovators, you can influence and change the rules. Part of innovating is identifying when the rules of a system, be it an organization or information system, could be modified to provide a better benefit.

So what are rules? Rules are defined ways of interacting with elements in a system, often proscribing an action. One rule might be "do not steal". This rule means that individuals should not take an element that does not belong to them. Another rule might be "if an electronic message is received from Company ABC, route it to our Accounts Payable". With rules, it is important to note that they link elements with actions. Rules can form the policy of a system. By system policy, we mean rules that link actions to elements in a system. 

Information systems include data and processes. Data can be logical values (true vs. false), numbers, words, or strung-together sentences. Actions, known as processes, are required to actively exchange, transform, and move data. For a computer to "compute," processes actively manipulate data. Components of an information system detail the rules for what processes can do to data, under what circumstances. A systems innovator seeking to improve an information system might look to modify the data an information system contain or collect. Equally, a systems innovator might improve an information system by modifying what processes manipulate data – or an innovator might modify the policies of a system to reuse existing processes in new ways on data.

Recognizing that all human systems are artificial leads to another equally important perspective for our modern age: organizations are becoming like markets. By markets, we mean places where no one person is commanding everyone else. With marketplaces, you are free to wander to different vendors, try their wares, and are under no obligation to purchase their goods or services. No one is commanding you to buy from Company ABC vs. XYZ – you get to decide. 

For organizations, this means that traditional "management" of individuals by command and control is increasingly becoming difficult in our complex, global world. Reasons for this reduced ability to command are partially dependent on globalization. Businesses may be partnered with other businesses where they do not have the ability to directly tell these other companies what to do. The same may be true for world governments. There also may be instances where organizations are competing with one another, perhaps to sell similar goods or services to you as a consumer – or perhaps to discover a new idea or innovation. 

Cumulatively, these factors mean that organizations will be less able to command individuals or other organizations what they would like them to do, and instead have to rely on other mechanisms. These other mechanisms include using diplomacy to influence individuals or organizations, being smarter or stronger than other competing organizations, or giving rewards to elicit desired behaviors from individuals.

So what does this mean for you as a future systems innovator? It means you should be mindful of the increasingly complex environment of our global world. You should seek out the connections and layers among systems. If you spot new connections or uncover a new layer, you may also identify radical innovations. Sometimes the most important part of being an innovator is having the wisdom to know when to form partnerships and with whom to make friends. 

It also means you should seek to identify what are the rules of a human system. You should be open to asking "why" a certain rule is in place and allow yourself to consider what would happen if that rule was changed. What would improve the current rules? Are there rules that no longer help as they previously did? You should also recognize that the ability for organizations to command others is decreasing. As an innovator, this trend is helpful, since it increases the chances for you to "market" and spread innovative ideas. This also means you need to consider how to influence and encourage others to adopt your innovations.

Specifically, as a systems innovator, you will need to "market" your innovation. Simply because you have thought of an innovation does not mean it will succeed. If you are not skillful at influencing others to consider and adopt your innovation, your innovation may not succeed. Further, you may need to be smarter or stronger than other innovators – and you may need to consider what rewards would encourage individuals to adopt your innovation. Sometimes an innovation itself can encourage individuals to adopt it, but this often is not immediate. By their nature, humans are not prone to change if they are relatively happy. Even if your innovation provides new benefits, you may need to consider wants to encourage individuals to shift from their old "ways" to your innovation.

Finally, it means you should recognize that innovation is necessary to deal with change. Change is constant in our world, so innovation also needs to be constant. Yes, innovation can be risky as sometimes an idea might not be incomplete, not right for the current environment, or not aligned with the needs of an organization. However, there is a greater, more certain risk that any system will become outdated without innovations. As a systems innovator, you should search, dream, and reach for the future.

It would be great if it were possible to describe systems innovation as a simple formula. However, this is not the case. Just as modern societies are open to differing views and ideas, there are many ways routes to innovation. 

Sometimes, an existing issue or obstacle with a system prevents the achievement of a certain goal. Individuals may brainstorm solutions to this problem and a novel idea will emerge that provides a good fit for removing or minimizing the obstacle. In other cases, an individual who is unfamiliar with the obstacle may bring an entirely new perspective that leads to an innovative solution. For systems innovators, continuous exposure to new ideas on different topics can bring fresh perspectives to familiar issues, thereby triggering new ideas and insights. 

Innovation also necessitates a careful balancing-act between risks versus rewards. Many new ideas promise a tremendous payoff and recognition. However, with increasing rewards often comes increasing risk. For example, introducing an entirely new information system to a company's operations department may hold the promise of making inventory management more efficient, producing faster product availability, and increased sales. At the same time, the initial implementation of a new information system probably will cause disruption within an organization, perhaps in the form of requiring new processes or employee training. When undertaking an ambitious effort, it is essential that a systems innovator be aware of the potential downsides and risk factors that will undermine success if not adequately addressed. Complex systems often have unexpected consequences, some of which are likely to be undesirable. Failed innovations are not only time consuming but can be costly and a source of embarrassment for a would-be innovator.

While it may seem wise to take the safe route and focus on smaller, seemingly less risky projects, this may mean addressing small problems or introducing ideas that have a minimal impact on a system's performance. For example, rather than addressing inventory management problems directly, simply upgrading the computers that run the inventory management without actually changing the software that manages the processes, might have a minimal impact on the core problems. In addition, systems projects can often grow in scope as the project progresses. What started as a small effort might uncover additional requirements or system dependencies, prompting a project that started out as a low risk to grow into a longer, larger, more risky endeavor. Systems innovators must balance the reward a potential innovation might provide with the risk that implementation or adoption of such an innovation may go awry. 

In addition, systems innovators should appreciate the importance of appropriate timing. Sometimes innovations can be "ahead of it's time" or "too late". When designing innovations, it is important to consider environmental factors. An innovation must fit the needs of an organization, market, or society. An innovation introduced out of phase can undermine a system and other innovation efforts. Remember our earlier example of a systems innovator planning to design a new cell phone network for 500,000 subscribers. The systems innovator failed to take into account the requirement of future growth of the cell phone network to 2,000,000 individuals in five years. A skilled systems innovator would have planned for both the present and future of their designed system.

For our modern age, systems innovators can design and create innovation in ways previously unavailable. Innovators must insure that their envisioned innovations are appropriate to the environment of today and tomorrow. Through technology, there are new ways for individuals to combine ideas for entirely new outcomes. This "re-mix" age allows recombination of systems elements to produce results greater than the sum of the parts.

Ultimately, any systems innovator is important in what their innovations achieve for organizations and individuals. Thus, it is appropriate to conclude discussion of "Being a Systems Innovator" with reflections on what ultimately are the fruits of innovation, and what makes being a systems innovator such an important and essential role for the fast-moving world of the 21st century. For a successful systems innovator, keeping a long-term view on the outcomes achieved from any future innovation is vital. 

First, innovations marry insights and existing knowledge to produce new knowledge. Without new knowledge, your organization, be it a business or government, might become irrelevant and outdated quickly. By creating new knowledge, innovations are the only sustainable advantage. The present "ways" of systems, with time inevitably become old "ways" and outdated. For our modern age, that some individual or organization will eventually identify an innovative "way" better than the old "ways" is almost certain. Changes happen, and without innovation, organizations might become irrelevant quickly. New knowledge also allows your organization to gain positive benefits from previously unforeseen approaches or opportunities. These new approaches can help your organization grow or profit. Our world's future is made by innovations and new knowledge gained from these achievements.

Imagine individuals at the dawn of the 1900's. If you could go back in time and tell them about the modern world, what would be the "new" knowledge you would share with them? What innovations would be the most important to you? Would you discuss modern jets that travel the global daily? Or would you explain how we have sent rockets into outer space and astronauts to the moon? Or would you tell them about the Internet and personal computers? Or would you talk about our use of antibiotics and modern medicines to treat diseases? What other innovations do you think are most noteworthy? 

Now think about those individuals in the year 1900. Would they even believe some of the innovations you told them? How would they react if you tried to tell them about the ability to share electronic messages with people around the world in less than a second? How would you even begin to describe the ability to search for information, music, or videos on the Internet – recognizing that they did not even have television yet in the year 1900?

All of these innovations (and many, many more) occurred in less than 100 years, and our world is moving forward ever faster, and with ever more complexity, in our innovations and discoveries. With these innovations comes new knowledge, knowledge we now take for granted in our daily lives. This new knowledge improves our ability to work more productively, live longer and fuller lives, communicate across large distances, and perform tasks in hours that previously took weeks or months to complete. 

Innovation also achieves shared knowledge. For innovations to succeed, they often must share (either within your organization or with the world) insights that one or two people previously may have observed or discovered. If you are a systems innovator and you realize a better way for your company to interact with its customers, you will need to share your idea with others to encourage its adoption. Equally, if you discover an improved way for individuals to manage their email messages, you may incorporate this innovation into a software product that you then make available to others (to buy or for free). The knowledge produced by innovators needs to be "shared" for their innovations to be truly realized and recognized.

Second, innovations translate new knowledge into new products and profits, particularly for business (but also for organizations where performing efficiently is important). Even for governments, innovations can allow government to save money or do more with the same amount of funds. The radio, the television, the personal computer, the cell phone – all inventions we take for granted today, were innovations that had to be dreamed of, experimented with, tested, and refined before they could be products and produce profits for businesses. Innovations take time and courage to see an idea through to reality. For example, websites like Amazon.com or eBay.com were once innovative start-up companies with untested ideas. Their different innovative visions were believed by some, uncertain by several, and publicly dismissed as not possible by several (at the time). 

Systems innovations can produce increased profits for an organization either by producing new products or by producing new ways of doing old activities. Should you accept the challenge of being a systems innovator, you need to be in love with not just the new and exciting, but also with understanding the current context and history upon your area of focus. Past and present events provide a context to find innovations.

It is the mid 1990s and you are a systems innovator. As a systems innovator, you know that historically most people have to go to a bookstore to buy a book. They have either to call or visit the bookstore to see if it has a particular book, and physical bookstores can only carry a limited number of books. For rare or unique books, chances are your local bookstore will not have the product. Equipped with this knowledge of past and present events, you might think about launching a company where people can visit a central website, search through millions of books, and order the book online and have it delivered to their home. Such an innovation became Amazon.com, and produced millions of dollars for its founding innovators.

Again, it is the mid 1990s, you are a systems innovator, and you see a trend where hard drives increasingly are getting physically smaller with more storage space. You also notice a new audio compression technology that allows entire songs to be compressed into small files (called MP3's). Equipped with this knowledge of past and present events, you might think about building a device that would allow individuals to store MP3's on a portable hard drive with a nice, friendly interface for people to search and find the songs they want to play on this portable device. Such an innovation was Apple's iPod – which included not only a hardware device, but also an information system (a website, called iTunes.com) for people to find, purchase, and download the songs they would like to play on their iPods. This innovation also achieved both a new product and large profits for Apple and its Chief Executive Officer, Steve Jobs.

Third, related to the earlier two points, innovations increase the effectiveness of individuals and organizations. By effectiveness, we mean how well actions of an individual or organization lead to a desired outcome. If an individual has to do a lot of work to produce only a small amount of a desired outcome, the effectiveness of that individual's actions is low. Conversely, if an individual has to do minimal work to produce a large amount of a desired outcome, the effectiveness of that individual's actions is high. 

Innovations can make existing ways of doing activities more effective and thus either more profitable or enriching for the participants. Sometimes the art of being a systems innovator is not necessarily about discovering something completely new, but instead is about "refining" some processes exist and making these processes better and more effective. The Internet is full of examples where existing ideas where translated into the digital world and made more effective. Email allows individuals to send electronic messages to each other and receive them in much faster time than it would take to deliver a hand-written message. Computers allow individuals to compose and edit documents electronically using a word processing program in ways that are much more effective than retyping the document numerous times and changing revisions manually.

Individual improvements in effectiveness can also translate into organizational effectiveness. If a team of people discovers an innovative way of rearranging how they work together, this innovation may translate into faster results or better outcomes for the team. For information systems, innovators are often striving to make not only the system work better and more effectively – but also the organizations of people who interact with the technology also work better and more effectively. 

No human system is completely effective and all of our systems have the potential to be improved. As systems innovator, your mission is to seek ways of increasing individual and organizational effectiveness. You want to discover innovations that require the minimal amount of work to produce the largest amount of a desired outcome. Challenge the unknown, not feasible, or impossible.

As we have discussed, systems are the object of particular designs. The components, or parts, of a specific system can be either real or abstract. Components comprise an aggregate "whole" where each component of a system interacts with at least one other component of the system. To innovate is to make "improvements by introducing something new". A noteworthy innovation must be substantially different, not an insignificant change or adjustment. Innovations can be tangible or intangible, radical or incremental. 

Systems innovators are individuals who design and implement innovations. To design refers to the process of developing a structural plan for an object. Designers seek the requirements and expectations, identify the objectives and measurements of success, give structure to the elements, and form to the components of systems. Success or failure hinges on the ability of systems innovators, as designers, to attain the proper requirements and expectations of a system. 

As a systems innovator, you should be mindful of the increasingly complex environment of our global world. You should seek out the connections and layers among systems. If you spot new connections or uncover a new layer, you may also identify radical innovations. Sometimes the most important part of being an innovator is having the wisdom to know when to form partnerships and with whom to make friends. You should also remember that all human systems are artificial. By "artificial," we mean that human systems would not exist naturally in the world without humans. Part of innovating is identifying when the rules of a system, be it an organization or information system, could be modified. You should seek to identify what are the rules of a human system. As a systems innovator, you should be open to asking "why" a certain rule is in place and allow yourself to consider what would happen if that rule was changed.

As a final important point, systems innovators achieve "magic". By "magic," we mean that innovations designed by systems innovators allow abilities or feats that were previously not possible or realistically feasible. If innovations allow the impossible to be technologically possible, innovations allow "magic". New, innovative technologies often allow such innovation, thereby helping humanity to reshape the natural world. 

Humans have a long history of using new technologies to overcome the physical limitations of human beings. For example, the use of a plow and the irrigation of crops allowed humans to productively farmland and grow crops. By growing crops, humanity began to build settlements (which themselves began to use new technologies like levels, bricks, hammers, and nails). These technologies helped human civilization to grow. With civilization, humanity began to focus on things beyond immediate, short-term survival – to include education. Education is only possible because we have technologies that allow other human individuals to grow enough food for individuals beyond themselves. We can go to school because others will work while we are studying and provide the necessary resources for our society to function, including running water, electricity, healthcare systems, construction of buildings, transportation systems, and more.

In a sense, all the systems that we discussed at the start of this chapter are a result of innovations and human technologies that have allowed us to reshape our world. Civilization is possible by employing innovative technologies and systems that allow humanity to think beyond short-term survival and pursue education, research, global commerce, foreign relations, and even fun recreational activities like books, movies, and television. 

Innovations are "magic" – they reshape the natural world. Humans use tools to accomplish tasks that were either not feasible or impossible. Innovative tools also increase the effectiveness of systems and individuals. Historically, human use of tools has allowed us to extend our physical abilities. Now, with information systems, there is the unique opportunity for human beings to extend not only their physical abilities, but also our cognitive abilities. Not only can we work better or faster, but also we might be able to think better or faster as an individual or organization. All of this will be possible through future innovations.

Innovative information systems in the last 40 years have already dramatically changed our world, to include faster, global transactions between people and the ability to collaborate and electronically share commerce, government, or entertainment-related activities with millions of people. Innovative information systems of the future will achieve what we would label "magic" today. As a systems innovator, the fruits of your successful innovations will not only produce new knowledge, new products, profits, and increased organizational effectiveness – your innovations will also achieve that which previously was impossible or infeasible.

Our closing advice: search for beneficial, new ideas. Through your efforts, bold innovations will produce the world of tomorrow.

1. You are able to go back in time to visit members of your local neighborhood in the 1900's. What would be the "new" knowledge you would share with them? What innovations would be the most important to you and why?

2. You are able to go forward in time to your local neighborhood in the year 2075. What do you imagine, as a time-traveler from the present, would be some of the future innovations that you would observe? How would they change human societies? What innovations do would be the most important to you and why? 

3. You have been hired as a systems innovator to design a new cell phone network for 500,000 subscribers. You are wise enough to include the requirement of future growth of the cell phone network to individual additional subscribers. What other requirements might be worth considering when you design the system? What requirements might influence the success (or failure) of the designed system? 

4. If you could work on designing any innovation, what would it be and why? Would you create something new or extend an existing system? What requirements and other concerns would you need to consider in designing your innovation? What benefits do you think would occur if you could achieve your innovation as you imagine it?

Learning objectives

• Understand the differences between information systems and information technology
• Be able to identify the four components of information systems
• Understand the relationships between the four components of information systems
• Understand the reasons for having an information system
• Be able to assess the value of information systems from the financial as well as managerial points of view

Introduction 

An information system is designed to collect, process, store and distribute information. Although information systems need not be computerized, Information Technology (IT) plays an increasingly important role in organizations due to the fast pace of technological innovation. Today most information systems beyond the smallest are IT-based because modern IT enables efficient operations as well as effective management in organizations of all sizes. This chapter will first define the critical components of modern information systems, and then discuss how organizations achieve higher efficiency, better effectiveness, and improved coordination through their use.

To understand what an information system is we need to first clearly differentiate it from information technology – with which it is often confused. Let's look at example. A manufacturing company with 1,200 employees used to pay the employees by checks. At the end of every month, the human resources staff would look at how much each employee should be paid and cut 1,200 checks; one for each employee. To collect their pay, the employees would have to go to the human resources office with their employee identification cards. Every employee would show his/her identification card to the human resources staff so the staff could ensure the checks were given to the right employees. Note that, while there is a system managing the payroll, the process of issuing paycheck requires no information technology and is completely manual.

One day an ill-advised employee visits the human resources office with a fake identification card and obtains the check which does not belong to him. As a result of the stolen check, the company suffers a loss – having to compensate the employee whose check was stolen. 

Reacting to this event, the director of human resources considers installing a system that automates the end-of-month payment process. The information of employees' bank accounts will be stored in the system and their pay will be directly deposited into their bank accounts at the end of every month. The objectives of this new information system is to improve efficiency – saving the human resources staff's time in manually preparing 1,200 checks and verifying employees identification cards 1,200 times a month – and to improve effectiveness of the organization by reducing the possibility of lost checks. 

After a few months, the human resources director finds out that the human resources staff are still preparing the checks manually for employees every month, and that the employees are still coming to collect their checks in person. In other words, the new technology is not being used. When the director investigates what went wrong with the system, the staff tell him that there is nothing wrong with the system. When an employee's account number is input, the system will notify the bank to deposit the salary into that account on every pay day.

However, upon further investigation, the director discovers several possible causes for the system's failure. First, the employees are reluctant to provide their bank account information for various reasons, such as not feeling comfortable with releasing their personal information. Also, when the wrong account number is entered and the money is deposited into the wrong account, nobody in the human resources department is in charge of contacting the bank to rectify the mistakes. This discredits the new system, and employees who encounter this problem no longer want their salaries directly deposited.

As can be seen from the above example, information technology and information system are two related but separate concepts. In our example the IT component seems to be working quite well, yet the organization is not reaping the benefits of the time saved by human resources staff and employees. In other words, the system fails to achieve its objectives due to the failure of other components.

Let's look at another example. When the most famous banker in the Ching Dynasty, Mr. Hu Syue-Yan, established his first bank, Fu-Kang, in the mid-1800s, we can be absolutely sure that there were no computer systems in the bank! At that time, the services a retail bank provided were very similar to those offered today: a customer could deposit money in the bank and earn interests, borrow money, or remit money orders. All these activities had to be recorded to reflect a customer's current balance in the bank. That is, an information system needed to be in place in order to keep track of how much the customer deposited, how much the customer withdrew, how much the customer borrowed, and how much the customer transferred into other accounts.

How did Mr. Hu Syue-Yan's employees do so? Relevant information was collected, processed, stored and distributed using pen and paper. Thus, although a computerized technology was unavailable at the time, the bank's information system still achieved its goals – enabling the business to serve its customers. Again, here is evidence that information technology is not information system. Even though IT is often at the core of modern information systems, information technology and information system are two different concepts. But what is the difference? What are the components of an information system?

An information system is defined as a socio-technical system comprised of two sub-systems: a technical sub-system and a social sub-system. The technical sub-system encompasses the technology and process components, while the social sub-system encompasses the people and structure components. The critical insight from the examples introduced earlier is that for an information system to perform and achieve its objectives, all four components have to be present and working together. We now define and describe the four components of a modern information system (see Exhibit 2).

Exhibit 2: The socio-technical system

As discussed earlier, an information system needs not to use computers. However, modern organizations increasingly rely on information technology as the core of their information systems. We define information technology to include hardware, software and telecommunication equipment that is used to capture, process, store and distribute information. 

Hardware is the physical equipment – such as a personal computer, a laptop, a portable computing device, and even a modern cell phone – used to process information. Software is the set of coded instructions (programs) that direct the hardware to perform the required tasks. A typical example is Google Docs – a word processing program designed to instruct a computer to create text documents. Telecommunication systems are the networking equipment enabling users and devices to communicate. An example of a telecommunication system is a telephone network, which allows two callers to interact by voice over a distance.

These three elements – hardware, software, and telecommunication systems – comprise the IT component of an information system. For example, the technology components of the automated payroll system mentioned in the first example include:

• hardware – computers and printers
• software – the accounting software application designed to keep track of the salaries and the staff scheduling system designed to keep track of hours worked and how much each employees should be paid
• telecommunication systems – local and inter-organizational channels of communication and routing equipment designed to connect the company to the bank for automatic money transfers.

A process is the set of steps employed to carry out a specific business or organizational activity. In other words, a process maps the set of actions that an individual, a group or an organization must enact in order to complete an activity. Consider the job of a grocery store manager and the process he engages in when restocking an inventory of goods for sale. The store manager must:

• check the inventory of goods for sale and identify the needed items;
• call individual suppliers for quotations and possible delivery dates;
• compare prices and delivery dates quoted among several suppliers for the same goods;
• select one or more suppliers for each of the needed items based on the terms of the agreement (e.g., availability, quality, delivery);
• call these suppliers and place the orders;
• receive the goods upon delivery, checking the accuracy and quality of the shipped items; pay the suppliers.

Note that there are multiple viable processes that an organization can design to complete the same activity. In the case of the grocery store, the timing and form of payment can differ dramatically, from cash on delivery to direct transfer of the payment to the supplier's bank account within three months of the purchase. The critical insight here is that the design of the process must fit with the other components of the information system and be adjusted when changes occur. For example, imagine the grocery store manager purchasing a new software program that enables her to get quotations from all of the suppliers in the nearby regions and place orders online. Clearly the preceding process would need to change dramatically, and the store manager would need to be trained in the use of the new software program – in other words, changes would also affect the people component.

The people component of an information system encompasses all those individuals who are directly involved with the system. These people include the managers who define the goals of the system, and the users. In the opening example concerning the automated payroll system, the people component of the system includes the human resources director who wants to enhance an efficient and effective payroll process, the human resources staff who maintain the correct employee account information, and the employees whose salaries will be deposited directly into their account. An analysis of the opening example clearly shows that problems with the people component were partly to blame. 

The critical insight here is that the individuals involved in the information system come to it with a set of skills, attitudes, interests, biases and personal traits that need to be taken into account when the organization designs the information system. Very often, an information system fails because the users do not have enough skills, or have a negative attitude toward the system. Therefore, there should be enough training and time for users to get used to the new system. 

For example, when implementing the automated payroll system, training on how to enter employees' account information, how to correct wrong entries, and how to deposit the salaries into each account should be provided to the human resources staff. The benefits of the system should be communicated to both the human resources staff and the employees in order to build up positive attitudes towards the new system.

The structure (or organizational structure) component of information systems refers to the relationship among the individuals in the people component. Thus, it encompasses hierarchical and reporting structures, and reward systems. The structure component plays a critical role in an information system, simply because systems often fail when they are resisted by their intended users. This can happen because individuals feel threatened by the new work system, or because of inherent human resistance to change. When designing a new information system the organization needs to be cognizant of the current and future reward system in order to create incentives to secure its success.

Relationships between the four components At this point it should be clear how information systems, while enabled by IT, are not synonymous with IT. Each of the four components discussed above can undermine the success of an information system – the best software application will yield little result if users reject it and fail to adopt it. More subtly, the four components of information systems must work together for the systems to perform. Thus, when the organization decides to bring in a new technology to support its operation, the design team must adjust the existing processes or develop new ones. The people involved must be trained to make sure that they can carry out the processes. If the skills of these individuals are such that they can't perform the required tasks or be trained to do so, a different set of individuals need to be brought in to work with the system. Finally, the design team must evaluate whether the organizational structure needs to be modified as well. New positions may need to be created for additional responsibilities, and old jobs may need to be eliminated. The transition from the old way of doing things to the new system needs to be managed, ensuring that appropriate incentives and a reward structure is put in place. Following is an example that illustrates the interdependence of the four components of information systems.

Mrs. Field's Cookies (Ostofsky and Cash, 1988), one of the world's largest snack-food stand franchisors, which currently owns stores in the United States, Canada, Hong Kong, Japan, the United Kingdom and Australia, was started by a young mother with no business experience. Debbi Fields started baking when she was a teenager. Her cookies were so popular that she decided to open her first store in Palo Alto, California in 1977. When the business started expending, Randy Fields, Debbi's husband, believed that it was more important to keep the size of the staff small in order to enable the decisions making process to be faster and more accurate. He saw information systems as a way to avoid expanding staff while growing the business. 

The system introduce at Ms Field's that was used by the store manager on a daily basis was the day planner system. Every morning, the store manager entered information, such as day of the week and weather condition, into the system. Then, the system computed the projected sales and recommends when the cookies should be baked. The store sales were then periodically entered into the system during the day to adjust the projections and recommendations. Every day, the sales results were sent to the corporate database for review so the headquarter could respond quickly if any store was not performing well.

The objectives of building information systems Having defining what information systems are, we now look at the reasons why modern organizations introduce them.

Efficiency is often referred to as "doing things right". In this chapter, we define efficiency in general terms as the ratio of output to input. In other words, a firm is more efficient when it produces more with the same amount of resources, produces the same amount of output with a lesser investment of resource, or – even better – produces more output with less input. The firm achieves efficiency improvements by reducing resource waste while maximizing productivity.

To illustrate how organizations can be more efficient by introducing an information system, we provide an example of a hospital using an information system to manage patient information. Without a system to manage patients' personal and historical information, a doctor would need to ask a patient the same questions about allergies, family history and the like each time they visit the hospital – even if the patient has been to the same hospital and visited the same doctor a number of times before. As a result, the doctor's time is wasted in asking redundant questions each time the patient visits.

The most immediate solution to this information management problem is to create and maintain a folder for the patient containing their medical history, which is then used by any doctor treating the same patient in the future. The doctor retrieves the patient's historical information from the folder and saves time asking the same questions again. 

With this simple information system, a doctor can serve more patients (more output) within the same amount of time (same input). An even higher degree of efficiency can be achieved by using a computerized information system. That is, doctors enter the patients' clinical results into a computerized database instead of writing on a piece of paper and filing the paper in a folder. When a patient returns to the hospital in the future, a doctor can obtain the patient's information at the click of a mouse. As a result, doctors can serve even more patients, since they do not need to search through all the patients' folders in order to find the specific information needed.

One of the main objectives of any organization is to attempt to control costs and reduce the investment necessary to produce its output – in other words, most organizations are constantly trying to become more efficient by way of cost reductions. Information systems can help in this regard when they help lower costs, for example through a reduction in excess inventory, or by eliminating mistakes in operations. 

Consider a grocery store as an example. If the store is able to better communicate with its suppliers, thus placing more recurrent orders for smaller quantities, it can minimize the costs of holding inventory (less input), yet be able to maintain the same level of service to its customers (same output). The store manager can also install a system that maintains inventory information. The data entered into the system are the items that are sold in the store and the quantity of these items. Every time an item is sold or ordered, the manager adjusts the quantity of the item in the inventory system. Without this system, the manager has to periodically go around the shop and the storage room to check if any items need to be restocked. After this system is installed, the manager can just look at the record to identify which items are almost sold out and need to be restocked. This also reduces the input (manager's time) to achieve the same output (restock all items).

Effectiveness is often referred to as "doing the right thing". In this chapter, we define effectiveness as the ability of an organization to achieve its stated goals and objectives. Typically, a more effective firm is one that makes better decisions and is able to carry them out successfully. 

Responding better to the needs of different customers An organization can create or refine its products and services based on data collected from customers as well as information accumulated from its operations. In other words, information systems help organizations to understand their customers better, and provide products and services customers desire. Doing so even helps organizations to provide personalized service if the organization collects customer data at the individual level.

We can once again use the grocery store as an example. The grocery store can accumulate information about what customers have been purchasing in the past and analyze this information to find out what items tend to sell well and at what time. The manager can also ask customers what kind of products and services they would like to purchase in the future, thereby attempting to anticipate their needs. With this information in hand the grocery store management can order products that will attract customers, and stop ordering unpopular products. 

Information systems can help organizations to improve product or service quality, or maintain the consistency of quality. To be able to improve product or service quality or to ensure consistency, organizations need information from the past as a source of error correction and as a reference point of improvement or consistency.

With the information system, which keeps track of the inventory in a grocery store, the manager can identify which items are popular and which are not. As a result, the manager can reduce the quantity ordered, or stop ordering these slow-selling products. 

In the same manner, a manufacturing company can collect information from quality control tests so as to analyze the most recurrent problems during the manufacturing process. The company can then find a solution to reduce these recurring problems. For example, a furniture manufacturer may find that the majority of the chairs produced do not pass quality control tests. The manager then reviews the results of these quality control tests and finds out that most of them fail because they are unstable. The manager can then look at the machine which produces the chairs and change the specification to rectify the problem. As a result, the quality of the chairs improves.

The company can also collect customer feedback on its products and services, and make improvements based on that feedback. For example, a telephone company collects customer feedback on their phone calls and then adds services such as call waiting according to customer suggestions. As a result, the telephone company can deliver products and services that fit their customers' needs.

Responding better to the needs of different employees An opportunity to improve effectiveness that is often overlooked involves better catering to the needs of the firm's employees. This can be achieved by providing useful information to employees or faster access to information that helps them to perform their job. An information system can respond to the needs of employees by collecting data from various sources, processing the data in order to make it useful, and finally distributing it according to the needs of employees. 

Another often overlooked opportunity to use information systems to fulfill the needs of employees is through empowerment. Empowerment represents the notion that the organization's employees can be trusted to take on more responsibility and make more independent decisions when they are given the information necessary to do so. Consider, for example, the employees of a large grocery store who typically receive and stock goods to be inventoried. If they have access to the appropriate information, such as original order forms and the invoices, they could be given responsibility to check, accept and even pay for the goods.

Better communication and coordination Coordination is rooted in the ability to share information so that different individuals, different departments within an organization, or different organizations are brought together to pursue a common goal. Information systems support communication and coordination by better managing the distribution of information. 

Communication consists in the exchange of information between two points, with the goal of having the recipients understand the sender's message. Communication is essential to every organization, as communication among employees ensures that they work together to carry out internal activities; communication between an organization and its suppliers ensures the suppliers provide correct materials for the organization to generate products and services to sell; and communication between an organization and its customers ensures that customers understand the products and services they are buying, receive confirmation when transactions occur, and are able to resolve problems that may occur encounter purchasing – the after-sale service.

Information systems can enhance communication by providing for more, and at times superior, channels. For example, the invention of electronic mail (e-mail) has reduced the use of memos and written correspondence within an organization. As a consequence, the speed at which communication takes place improves. Multimedia communication elements, including images, sound and video files that employ a combination of presentation formats (text, graphics, animation, audio, and video) have also improved the richness of communication. These multimedia elements can be attached to an e-mail and the e-mail can be sent to suppliers or clients to better present or describe the parts wanted or the products and services provided. 

For example, a salesperson from a hotel can attach a video clip with an advertising e-mail to better illustrate the quality of its guest room. Such attachments can not be done by handwritten correspondence. Thereby, the quality of communication is improved. The invention of e-mail has also reduced the use of the telephone. Now employees can read messages at their convenience without being interrupted by telephone calls while working. 

Information systems not only improve point-to-point communication, but also within networks, which involves more than two parties. A computer network is a group of hardware (nodes in the network) with links to each other so that information can travel among them. A network helps organizations to collect information from and distribute information to different parties (such as suppliers, customers, and partners) in order to receive a more complete set of information of business activities, which then enhances coordination within the organization. For example, the operation department in an manufacturing company can collect information from the sales and marketing department to find out how many products need to be produced, information from the purchasing department to find out the costs of the parts, information from the executives to find out special product changes, and information from quality control to find out how to improve product design and minimize defects.

At times an organization will introduce information systems that may not improve the organization's efficiency, effectiveness, or enable it to communicate and coordinate better. This happens when regulations and laws require the organization to perform certain tasks – for example, recurrent maintenance on the machinery they use – or produce some information – for example, tax reports. Regulatory compliance typically requires the organization to be able to create, manage, store or produce information – for example, maintenance logs or financial reports to compute taxes. In theses situations the firm will introduce an information system. Measuring the impact of an information system The measurement of efficiency and effectiveness gives managers guidelines to assess the value of information systems. Without these measures, managers may be misled and make wrong decisions when investing in new technology and designing information systems. On the one hand, if the value of the system is underestimated, managers may cut back the allocated resources, which will result in foregoing the benefits of the new system. If the value of the system is overestimated, managers are wasting resources which could be used in other projects with higher returns. In this section, we introduce several established methods to measure efficiency and effectiveness improvements (or lack thereof) deriving from the use of information system.

A number of financial metrics have been proposed and used over the years to evaluate the costs and benefits associated with information systems implementation. In this chapter, we will discuss two of them: Return on Investment and IS Budgeting.

Return on investment (ROI) is the ratio of monetary benefits gained from an investment to the amount of money invested.

ROI looks at how the introduction of the information system enables the usage of resources to contribute to the organization. The organization can benefit from the introduction of the new system in various ways. First, a new system can reduce the costs of current operation by increasing efficiency. For example, a business can implement a new system which stores transactional information automatically, therefore saves the labor costs of data entry. Therefore, the estimated benefit in the above equation will be the differences in labor costs. Second, a company may modify the current system to take advantage of newly developed technology. For example, a bank which offers online banking can reduce the cost of mailing monthly statements to clients. Therefore, the estimated benefit will be the differences between the cost of mailing the statements before and after the installation of the system. Finally, a new information system may also support growing business transactions. For example, a retail store may switch to an Internet ordering system from a call center to be able to serve more customers. Doing so enables the business to respond to more customers at the same time by letting customers browse products and services online and enter ordering information by themselves. The estimated benefit is the extra revenue generated from online ordering. 

In all three examples, the initial investment is the cost of bringing in the technology, setting up the new business processes, training the employees, and organizing the reporting and reward structures. In other word, it is the cost of designing, building and implementing the appropriate information system (as defined above). With this information, we can compute the ROI. An information system with a positive ROI indicates that this system can enhance efficiency and/or improve effectiveness of the organization.

The advantage of using ROI is that we can explicitly quantify the costs and benefits associated with the introduction of an information system. Therefore, we can use such metric to compare different systems and see which systems can help your organization to be more efficient and/or more effective. 

The disadvantage of using ROI is that it may be difficult to justify the causal link between the investment in information systems and the gained benefits. For example, the extra revenue generated from online ordering may not be due solely to the introduction of the new system. It may be because your product is in the growing phase and rapidly increasing in popularity, how can you be sure that you would not have generated the increased revenues even without the new online ordering system? As a result, the benefits of the system may over-estimated. On the other hand, some customers may browse your products online but still order through the call center; therefore, you under-estimate the benefits of the system. As you can see, it is difficult to distinguish which part of the revenue is strictly due to the introduction of the new system and this will lead to an inaccurate ROI.

The IS budget provides a reference point of efficiency at the firm level instead of the system level. An organization with relative less IS budget when comparing with similar organizations is considered to be more efficient since it achieve the same level of services (output) with less resource (input). The advantage of using IS budget as a reference is that the information needed can be obtained relatively easily from financial documentation. 

IS budgets, as measure of efficiency, have some significant limitations however. For one, assuming that two organizations are very similar is an over-simplification of reality. Moreover, a firm's IS budget will depend on the systems it currently has, as well as the ones it is currently developing.

Effectiveness measures relate to how well a firm is able to meet its business objectives once it is enabled by the new information system, and therefore measures whether the system has improved the organization's effectiveness. 

Once an information system is implemented, the behaviors of acquiring and using information may be directly influenced. For example, a restaurant manager would not be able to make good staffing decisions without information about forecasted business. An information system which collects data of past business patterns and forecasts future business can provide the restaurant manager with sufficient information to make competent staffing decisions. Therefore, we can measure effectiveness by assessing information usage. Information usage can be evaluated by

• the extent to which the system is used
• the correlation between the system inputs and the business objectives.

The system usage can be measured by the amount of queries needed to make managerial decisions. The correlation between the system inputs and the business objectives should be assessed to ensure the inputs serve their purpose. For example, an information system would not be effective if it was designed to forecast future business, but only allowed the input of supplier information.

Information systems should also be able to help organizations better respond to the needs of different customers and employees. Therefore, we can also assess the impact of information systems by measuring the extent to which the system improves customer satisfaction, and the extent to which the system fits the needs of employees and owners. These measures can be obtained by self-reported surveys.

An information system, designed to collect, process, store and distribute information, is comprised of four critical components: technology, process, structure, and people. Technology and process represent the technical subsystem of an information system, while structure and people represent the social sub-system. 

The technology component includes hardware, software and telecommunication equipment. A process is a set of actions that are designed to carry out a specific business or organizational activity. The people component include all of the individuals who are directly involved with the information system. Finally, the structure component refers to the relationship among the individuals in the people component.

These four components of information systems are interdependent. That is, changes in one component may affect the other components. The major reasons of organizations introducing a new information system are to enhance efficiency (doing things right), and/or to improve effectiveness (doing the right thing). Efficiency can be enhanced by reducing inputs while producing same or more outputs, or producing more outputs while using the same level of inputs. Effectiveness can be improved by better responding to the different needs of stakeholders. The impact an information system brought to an organization can be assessed from the financial point of view as well as from the managerial performance point of view.

Royal Hotel's Espresso! Rapid Response Solution The Royal Hotel in New York City, NY was a luxury allsuite hotel primarily serving an executive clientèle visiting Manhattan on business. These guests were busy and demanding as they used their suite not only as a place to sleep but also as a temporary office. The general manager stressed the importance of the high quality of service due to the high percentage of repeat guests. "Our guests are extremely discerning, it is completely unacceptable to have a light bulb out in the bathroom when the guest checks in, particularly if she is a returning guest," the general manager said.

To ensure the extremely high quality of service, the general manager decided to purchase and install MTech's Espresso! Rapid Response Solution. With this new technology, the housekeepers could report deficiencies directly to the computer, instead of verbally communicated to the maintenance department after they ended of their shift. The housekeepers just needed to dial a special code from the phone in the guest room and an automated attendant would walk them through the reporting process step by step in the language of their choice. Espresso! Then automatically generated, prioritized and dispatches a work order to a printer, fax, or alphanumeric pager. Therefore, the new system should be able to reduce the response time as the housekeepers did not have to wait until the end of the shift to tell the maintenance department, and sometimes they even forgot to tell the maintenance department. Also, Espresso! Had a reporting function so that the management team could obtain information about most frequently occurring or recurring issues, top reporting and completing performers and so on. With this kind of information, the maintenance department could identify recurrent problems and stop them before they even occurred.

Upon installation, a week of on site training was also offered. The installation and the training session seemed to run smoothly. Employees appeared eager to learn about the new system. However, soon after roll-out the GM discovered that the employees had reverted to the old manual system and had rapidly lost interest in Espresso.

Case questions 

5. What are the elements comprising the four components (technology, process, people and structure) of new reporting system? 

6. Why do you think the new reporting system failed? In other words, which of the four components of the information systems failed to support the goal of the system?

Case 

Lands' End's Custom Tailored Apparel Program In October 2001, Lands' End, a direct merchant of traditionally styled clothing who offers products through catalogs and the Internet, announced its new ITdriven strategic initiatives, a custom tailored apparel program. By November 2002, 40% of Lands' End's web shoppers were buying custom-tailored chinos and jeans, while 20% of these shoppers were new customers. 

The concept of this initiative is mass-customization, a process that uses the same production resources to manufacture a variety of similar, yet individually unique products. Experts have found that consumers were willing to pay more for custom apparel and footwear. Other than increasing sales, the custom tailored apparel program brought Lands' End other benefits, including enhancing customer loyalty and lowering the operating costs spent in creating, printing and mailing catalogs. However, withholding catalogs from Internet buyers does not generate online sales. Therefore, sending catalogs at the optimum frequency and pages to keep them apprised of new products is necessary. 

Lands' End's proprietary products, strong distribution infrastructure and established brand made the company ready for this electronic commerce initiative. Also, Lands' End did not set up a separate Internet division; hence, avoided internal competition. To manufacture these individually unique garments, Lends' End partnered with Archetype Solutions, Inc (ASI). After customers entered sizing information on Lands' End website, the orders were sent to ASI and software produced electronic patterns and order files for each order, which were then sent via e-mail to production facilities in Latin America or Asia. Manufacturers produced, inspected and packed the garments. The garments were shipped to a thirdparty shipping center in the U.S. And then shipped to consumers. During the production process, the garments were scanned and the status was updated at each stage of the process. The status report for all orders was sent nightly to Lands' End. ASI contracted with retailers (i.e. Lands' End) and manufacturers. Retailers pay ASI a license fee, which include an annual fixed component based on number of categories and a per unit fee. Therefore, both retailers and ASI had the incentive to sell a lot of units. The manufacturers were also required to license manufacturing and tracking software from ASI. Therefore, the manufacturers need to be able to be adept and flexible, and able to learn new technologies fairly rapidly.

Case questions 

1. Why did Lands' End introduce this new information system? What are the benefits this new system brought to Lands' End? 

2. How can the executives of Lands' End assess the financial and managerial performance impact of this new IT-dependent strategic initiative?