Chapter 5 Managing Information
1. Strategic Importance of Information
- It is the strategic advantage that companies earn by being the first in an industry to use new
information technology to substantially lower costs or to differentiate a product or service from
Sustaining a Competitive Advantage
- Sustaining a competitive advantage through information technology is not easy to do
Companies need to address three critical issues in order to sustain a competitive advantage
through information technology
- First, does the information technology create value for the firm by lowering cost or providing a
better product or service? If information technology doesn’t add value, investing in it would put a
firm at a competitive disadvantage to companies that choose information technologies that do
- Second, is the information technology the same or different across competing firm? If all the
firms have access to the same information technology and use it in the same way, no firm has
an advantage over another
- Third, is the firm’s use of information technology difficult for another company to create or buy?
If so, a firm has established a sustainable competitive advantage over competitors through
information technology. If not, the competitive advantage is just temporary, and competitors
should eventually be able to duplicate the advantages the leading firm has gained from
- The key to sustaining a competitive advantage is using information technology to continuously
improve and support the core functions of a business.
2. Characteristics and Costs of Useful Information
- To be accurate, information must be reliable and valid
- Example: Maintains of airplane
- To be complete, the amount of information must be sufficient to identify the problem and begin
to identify potential solutions.
- Example: providing more information of the plane
- Information is relevant when it pertains to the problem, so that decision makers can use it to
define the problem and begin to identify potential solutions
Page 1 of 5 Chapter 5 Managing Information
- Example: Classified maintains problems into three relevant categories
- To be timely, the information must be available when needed to define a problem or begin to
identify possible solutions
Acquisition Costs is the cost of obtaining data that you don’t have
Processing Costs is the cost of turning raw data into usable information
Storage Costs is the cost of physically or electronically archiving information for later use and retrieval.
- One of the reasons that credit card companies hire companies such as Equifax Canada to help
them identify good customer prospects is that they maintain databases of extremely useful
Retrieval Costs is the costs of accessing already-stored and processed information.
- It is not easy for company to retrieve information. First you have to find the information. Then
you’ve got to convince whoever has it to share it with you. Then the information has to be
processed into a form that is useful for you. By the time you get the information you need, it may
not be timely anymore.
Communication Costs is the cost of transmitting information from one place to another
3. Capturing, Processing, And Protecting Information
There are two basic methods of capturing information:
- Manual capture of information is a labor-intensive process by which data are recorded and
entered by hand into a data storage device.
- The problem with manual capture of information is that it is slow, expensive, and often
- Bar codes and document scanners are the most common methods of electronically
- Bar codes represent numerical data by varying the thickness and pattern of vertical bars. The
primary advantage that bar codes offer is that the data they represent can be read and recorded
in an instant with a hand-held or pen-type scanner Reduce data entry errors by 75%, and save
Page 2 of 5 Chapter 5 Managing Information
- Electronic scanners, which convert printed text and pictures into digital images, have become
an increasingly popular method of electronically capturing data.
- Dffn’: transforming raw data into meaningful information that can be applied to business
- Example: evaluating sales data to determine the best- and worst-selling products, examining
repair records to determine product reliability, or monitoring the cost of long-distance phone
calls are all examples of processing raw data into meaningful information
- One promising tool to help managers dig out from under the avalanche of data is data mining.
Data mining is the process of discovering unknown pattern and relationship in large amounts of
- Data warehouse that stores huge amounts of data that have been prepared for data mining
analysis by being cleaned of errors and redundancy
The data in a data warehouse can then be analyzed using two kinds of data mining:
1. Supervised data mining usually begins with the user telling the data mining software to look
and test for specific patterns and relationships in a data set.
- Example: a grocery store manag