INFORMATION SYSTEMS IN AN ORGANIZATION

The major functions in many organizations are:

- manufacturing and production (or productions and operations)
- marketing and sales
- human resources
- accounting and finance

There are also various levels/types of management/activities within an organization, namely:
- strategic level
- management level
- knowledge level
- operational level




Note that this is not a cut-and-dry arrangement. For instance, there are many situations where data
workers also operate at other levels (eg the operational level).

CLASSIFYING INFORMATION SYSTEMS

Functional Perspective
Traditionally information systems were designed within each functional area, to support the area by
increasing its internal effectiveness and efficiency.

Some characteristics of functional information systems:
- Composed of smaller systems: a functional information system consists of several smaller
IS that support specific activities performed in the functional area.
- Integrated and independent: the specific IS applications in any functional area can be
integrated to form a coherent departmental functional system, or they can be completely
independent. Alternatively, some of the applications within each area can be integrated
across departmental lines to match a business process.
- Interfacing: functional information systems may interface with each other to form the
organization-wide information system. Some functional information systems interface with
the environment outside the organization e.g. a human resources information system can
collect data about the labour market (environment).
- Supportive of different levels: information systems applications support the different levels
of an organizations activities: operational, strategic, etc.

Here below are functional information systems.

Manufacturing and production systems:
The manufacturing and production function in an organization is responsible for the processes that
transform inputs into useful outputs (goods and services). In comparison to the other functional
areas, the function is very diversified and so are its information systems.
Manufacturing and production systems deal with the planning, development, and production of
products and services and with controlling the flow of production.
Examples of areas supported by manufacturing and production systems: in-house logistics and
materials management, planning production/operations, and computer-integrated manufacturing.
- In-house logistics and materials management [note: logistics management deals with
ordering, purchasing, inbound (receiving) logistics and outbound (shipping) logistics.]
Examples of how IT can support in-house logistics and materials management: e-
procurement; scanners, inspection using voice and wireless technologies; robots can perform
distribution and materials handling; inventory management systems (e.g., vendor-managed
inventory systems that can allow suppliers to monitor the inventory level and ship when
needed the monitoring can done using mobile agents over the Internet as Wal-Mart does or
web services like Dell Computer does); web-based quality control systems (e.g., by IBM or
HP); etc.
- Planning production/operations Examples of how IT can support this: materials
requirements planning (MRP) software for production scheduling; just-in-time (JIT) systems
in order to build and deliver products and services efficiently; project management tools;
troubleshooting tools (e.g., Professional PC Diagnostics Software which is used to diagnose
problems during the PC's lifecycle); etc.
- Computer-integrated manufacturing (CIM): CIM is a concept or philosophy that promotes
the integration of various computerized factory systems. It has three main goals 1) the
simplification of all manufacturing technologies, 2) automation of as many of the
manufacturing processes as possible, 3) integration and coordination of all aspects/functions
relating to manufacturing via hardware and software. Typical technologies to be integrated
are CAD, MRP, etc.

Marketing and sales systems:
Channel systems are all the systems involved in the process of getting a product or service to
customers and dealing with all customers needs. In the following, is a description of several
channel system activities: customer relations, distribution channels and in-store innovations, and
marketing management.
- Customer relations: it is essential for companies nowadays to be customer-centered.
Customer profiles and preference analysis sophisticated systems are being developed to
collect data on customers, their demographics, and preferences. Online, customer behaviour
can be tracked by cookies, clickstream data (data recovered from customers clicks as they
move around online) or spyware programs. The behaviour can be analyzed and used for
marketing purposes. For instance, Nettracker (from sane.com) collects data from
client/server logs and provides periodic reports that include demographic data. AOL can
match appropriate ads of advertisers with specific customers.
Prospective customer lists and marketing databases IT can help create lists (as customer
databases) of both existing and potential customers. The lists can be analyzed and sorted by
any desired classification for direct mailing, e-mailing, etc. For instance, by recording
customers ZIP code and what they have purchased, companies can learn a lot about their
customers, where to open new branches, etc.
Personalization businesses can use (tracking) software to find what customers are doing in
a virtual store. Based on that information: personalized product offers can be made,
advertising of related products can be done, etc.
Advertising and promotions IT provides various opportunity for advertising e.g., electronic
brochures, electronic catalogs, Internet (such as through banners, e-mails, viral marketing).
Exercise: What is mass customization and how can IT support it?
- Distribution channels and in-store innovations: organizations can distribute their products
and services through several available delivery channels.
IT-supported distribution channels For example: by connecting mapping technology with
databases of local employers (SBS technologies relies on Mapinfo, which provides
electronic maps showing a marketer where a person is working, so the marketer can design
promotions accordingly); self-service convenience stores (especially at railway stations,
airports, gasoline stations, etc).
Improving shopping and checkout at retail stores IT is being in several ways such as:
installed cheque-writers, computerized cash registers, handheld wireless devices that give all
information about a particular product (including maintenance agreements), handheld
wireless device-based purchase, etc.
Distribution channels management Major shippers (e.g. FedEx, UPS) track the location of
their trucks and airplanes using GPS; they also scan the packages to know their whereabouts;
they also offer customers the ability to self-track packages using web-based systems.
- Marketing management: Here are some ways for supporting marketing management.
Pricing of products and services price determines profit and volumes of sales. Pricing is
therefore a difficult decision. Many companies do use online analytical processing (OLAP)
to support pricing and other marketing decisions. Web-based comparison engines enable
customers to select a vendor at the price they want, and they also enable vendors to see how
their prices compare with others.
Salesperson productivity salespeople differ from each other; some excel in selling certain
products, or to a certain type of customer, or in certain locations. Such information can be
collected and used to determine the assignment of salespeople and calculation of bonuses;
for instance by using spreadsheet software. Web-based systems can be used to boost sales
productivity; for instance in a web-based call center the salesperson can look at the
customers history of purchases, demographics, services available at the customers location,
etc. Sales force automation (providing salespeople with mobile devices, access to databases,
online collaboration, etc) empowers them to be able to close deals at customers
office/location and to configure marketing strategies at home; for instance Netgain
(netgainservices.com) enables companys design and sales teams to collaborate over the web
(e.g., sharing sales leads, sales progress, etc). Sales automation software too can increase
sales; for instance electronic stamps (can assist with mass mailings), contract writing
software, software for making appointments, etc.
Market planning for new products Software tools for analysis, planning and forecasting
can be used to determine when to introduce a new product in the market. IT can also speed
up the process of bringing a new product to the market. Proctor & Gamble expedites the
time-to-market by using the Internet.

Human resources systems:
Here are ways in which IT facilitates the management of human resources.
- Recruitment There are so many jobs advertised on the web. There are also millions of
resumes available online. Online recruitment can be facilitated by the use of matching
services or intelligent systems (e.g., Resumix). Position inventories (lists of all open
positions) can be made accessible: on the Internet, via computers in kiosks in public places,
on an intranet, etc. Human resources portals are also being used to search for jobs, to search
for candidates, and to perform salary surveys (e.g., DirectEmployers.com, Salary.com).
- Human resources maintenance and development IT can be used to facilitate performance
evaluation in order to support decisions such as rewards, transfers, layoffs, salary review, etc;
for instance HP has a web-based system that uses intelligent agents to process wage reviews
of HPs employees. IT can support training; such as through the use of multimedia.
Companies can offer sales-skills training over the Internet and intranets in order to save
money and time e.g. web-based video training clips. Virtual reality is being used to enhance
training. Companies such as IBM, Intel, Motorolla, and Samsung use virtual reality to
simulate different scenarios and configurations; virtual reality is especially effective for
impractical, remote, dangerous, risky environments.
- Human resources planning and management Large companies develop qualitative and
quantitative workforce planning models; such models can be enhanced if IT is used to
collect, update, and process the information. IT can be used to support labour-management
negotiations; for instance through the use of computerized decision support models, group
decision support systems (GDDS), etc. IT can be used to transfer money electronically to the
employees bank accounts, and to prepare and print payrolls. IT can be used to manage the
relationship between an organization and its employees through applications referred to as
employee relationship management (ERM). Improved relationships can result in better
retention and higher productivity.


Accounting and finance systems
This function is responsible for managing money flows into, within, and out of organizations.
- Financial planning and budgeting Financial and economic analysis (and forecasting) is
facilitated by intelligent systems such as neural computing. IT can support budgeting. There
are software packages to support budget preparation and control e.g., Budget 2000 from EPS
consultants. IT can also support the communication among all participants in the budget
preparation. Moreover, IT can support capital budgeting (the financing of asset acquisitions,
including the disposal of assets. It involves options such as keeping the asset, replacing with
an identical asset, replacing with a different asset, discarding the asset, buy-versus-lease
decision, etc). Capital budgeting analysis relies on standard financial models e.g., net profit,
return on investment, etc, which are already supported/provided by most spreadsheet
packages. Budgeting software can yield the following benefits:
It can reduce the time and effort involved in the budget process
It can explore and analyze the implications of organizational and environmental
changes
It can facilitate the integration of the corporate strategic objectives with operational
plans
It can make planning an ongoing, continuous process
It can automatically monitor exceptions for patterns and trends
- Managing financial transactions There exist many software applications to execute
routine accounting transaction processing activities. Examples: QuickBooks (by Intuit),
Sage MAS 90, MAS 200 and MAS 500 (by Sage Software). It should be noted that MAS
90/200/500 is an integrated system in that the accounting activities are combined with other
functional areas in the organization such as marketing, production, etc. The Internet and in
particular the web enables the carrying out of financial transactions via e-commerce. E-
commerce applications include:
electronic bill presentment and payment
globally distributed electronic stock exchanges
handling multiple currencies (and languages)
supporting the marketing, distribution, and trading of bonds over the Internet e.g.,
the World Bank is already doing that
etc
ACCPAC International has managed to integrate its financial accounting software with e-
commerce applications.
- Investment management Investment management is not a trivial task. For instance:
there are many investment alternatives
investment decisions are based on economic and financial forecasts and on multiple
sometimes conflicting objectives (e.g. high yield, safety)
investment may involve seizing opportunities in other countries
investments are often subject to complex regulations and tax laws
investment decisions need to made quickly and frequently
IT is therefore a welcome technology toward supporting investment management. For
instance:
Access to financial and economic information: investors and investment managers
need to evaluate financial and economic reports and news in order to make
investment decisions. The web hosts lots of such information, most of which is free.
Investors and investment managers can access such information by using: Internet
search engines, Internet directories and yellow pages.
Financial analysis: There are many types of software for supporting financial
analysis; for instance: spreadsheet packages, decision-support and intelligent systems
(e.g. based on neural networks), etc.
Exercise: What is financial value chain management?
- Control and auditing Good planning is necessary, but not sufficient, for successful
financial management. It must be supplemented by skilful control. IT can support various
control activities as described below:
Budgetary control: There are numerous software applications that monitor
expenditures and compare them against the budget and operational progress. Most of
them are combined with budget preparation packages such as Sumco ERP,
Comshare BudgetPlus, etc.
Auditing: Auditing is intended to ensure the accuracy and condition of the financial
and operational health of an organization. IT can support auditing in several ways;
for instance: providing real-time data whenever needed; using intelligent systems to
uncover fraud by finding financial transactions that significantly deviate from
previous profiles.
Exercise: What is financial ratio analysis and how can IT support it?


Constituency Perspective/Management level Perspective
However, one of the challenges that face such functional IS is based on the fact that the traditional
functional hierarchical structure may not be the best structure for some organizations, because
certain business processes involve activities that are performed in several functional areas. For
instance: a customers order would come to the marketing department, the customer would need to
pay for the order at the finance department, the product would need to be checked in the
manufacturing and production department, etc. The flow of work and information among the
different departments may not work well, leading to delays and poor customer service.

Moreover, the functional perspective does not indicate how systems help managers manage the firm.
Different levels of management have different information needs.
Senior managers need summary information that can quickly inform them about the overall
performance and overall profitability e.g., gross sales revenues, etc.
Middle managers need more specific information on the results of specific functional areas and
departments e.g., production statistics, employment levels and costs, sales contacts, etc.
Operational managers need transaction-level information e.g., the number of parts in inventory each
day, the number of hours logged on a particular day by each employee, etc.
Knowledge workers may require access to internal databases and external scientific databases.
Production or service workers need access to customer records in order to take orders and answer
questions from customers.

In the sequel is a description of systems in terms of the various levels of management and types of
decisions that they support.

Operational-level Systems
Operational-level systems support operational managers by monitoring the day-to-days elementary
activities and transactions of the organization such as sales, receipts, cash deposits, payroll, and the
flow of materials in a factory. For example: transaction processing systems (TPS). A TPS is a
computerized system that performs and records the daily routine transactions necessary to conduct
business, such as sales order entry, hotel/flight reservations, payroll, employee record keeping,
inventory keeping, shipping, etc. TPS can be used to monitor the status of internal operations and
the firms relations with the external environment. TPS are also major producers of information for
the other types of systems e.g., MIS (discussed later).

Knowledge-level Systems
They support knowledge and data workers in designing products, distributing information, and
coping with paperwork in an organization.
Examples: knowledge work systems (KWS), office automation systems (OAS). A KWS is an
information system that aids knowledge workers in the creation and integration of new knowledge
in the organization (e.g. engineering workstations). An OAS is system that is designed to increase
the productivity of data workers in the office (e.g. word processors, electronic mail systems, and
scheduling systems).
[Note: KWS, OAS are considered to be under the broad category of enterprise applications (later)
referred to as knowledge management systems (KMS), where KMS has the following three
categories: KWS (e.g. CAD), enterprise-wide KMS (e.g. OAS), and intelligent techniques.]

Management-level Systems
They support the monitoring, controlling, decision-making, and administrative activities of middle
managers. According to Laudon, the principal question addressed by such systems is: Are things
working well? Examples: management information systems (MIS), decision-support systems (DSS).
MIS can be defined as the study of information systems in business and management. MIS deal
with both behavioural and technical issues surrounding the development, use, and impact of
information systems. MIS also designate a specific category of information systems serving the
middle management. MIS provide middle managers with reports on the organizations performance.
This information is used to monitor and control the business and predict future performance. MIS
summarize and report on the organizations basic operations using data supplied by TPS.
Most MIS use simple routines such as summaries and comparisons rather than sophisticated
mathematical models or statistical techniques.
Exercise: Give an example of an MIS?
DSS support non-routine decision making for middle management. They focus on problems that are
unique and rapidly changing, for which the procedure for arriving at a solution may not be fully
predefined in advance. Examples of questions that DSS attempt to answer:
What would be the impact on sales if the company were to double its production in July?
How would the sales be affected if we were to stop TV advertising for three months?
Although DSS use internal information from TPS and MIS, they often bring in information from
external sources e.g. current exchange rates, current stock prices, product prices of competitors.
DSS rely on models in order to analyze data or render large amounts of data into a form in which
decision makers can analyze them.
Example: DSSAT4 package allows rapid assessment of agricultural production systems around the
world to facilitate decision-making at the farm and policy levels.

Strategic-level Systems
They support the senior management to address strategic issues and long-term trends, both in the
organization and the environment. The senior management may want to answer questions such as:
What will employment levels be in five years?
What are the long-term industry cost trends?
How well are the competitors performing?
What products should we be making in the next five years?
Example: executive support systems (ESS).
ESS is an information system at the strategic level of an organization that addresses non-
routine/unstructured decision making often through advanced graphics and communications. ESS
address non-routine decisions requiring judgement, evaluation, and insight because there is no
agreed-on procedure for arriving at a solution. ESS are designed to incorporate data about external
events, such as new tax laws and competitors. They also draw summarized information from
internal MIS and DSS. ESS consist of menus, interactive graphics, and communications capabilities
that can access historical and competitive data from internal systems and external databases (e.g.
Dow Jones News or the Gallup Poll).
Exercise: Give an example of an ESS?
Exercise: Illustrate the relationship among the above 4 types of systems (TPS, MIS, DSS, ESS)

Systems that Span the Organization
One of the challenges facing organizations is getting all the different types of systems in an
organization to work together.
One way of addressing the challenge is by implementing systems that span functional areas, focus
on executing business process across the business firm, and include all levels of management. Such
systems are referred to as enterprise applications. Enterprise applications are IT applications that
serve key corporate functions, and involve centralized information shared by many users. They
include one or more databases. They also include programs to add, delete, change, analyze, or
otherwise act upon data elements in those databases. There are four major categories of enterprise
applications: enterprise resource planning (ERP) systems, supply chain management (SCM)
systems, customer relationship management (CRM) systems, and knowledge management systems
(KMS).




Management challenges:
Enterprise applications raise the following management challenges:
- Integration - Integrating systems for different organizational levels, functions, and business
processes to freely exchange information can be technologically difficult and costly.
Managers need to determine what level of system integration is required and how much it
will cost.
- Enlarging the scope of management thinking - Most managers are trained to manage a line,
a division, or an office. They are rarely trained to optimize the performance of the
organization as a whole, and often are not given the means to do so. Enterprise applications
and industrial networks require managers to take a much larger view of their own behaviour
to include other products, divisions, departments, and even outside organizations.

Exercise: What are industrial networks?

Enterprise resource planning (ERP) systems
1

They integrate many software applications and business functions using a common database. They
collect data from various key organization functions (accounting and finance, marketing and sales,
etc) and store it in a single central repository.


1
Some authors refer to ERP systems as Enterprise Systems
Some potential benefits:
Firm Structure and Organization - Organizations can use ERP systems to support organizational
structures that were not previously possible or to create a more disciplined organizational culture.
An enterprise-enabled organization does business the same way worldwide, with functional
boundaries deemphasized in favour of cross-functional coordination and information flowing freely
across business functions.

Firmwide Knowledge-based Management Processes - In addition to automating many essential
business transactions, such as taking orders, paying suppliers, or changing employee benefits status,
ERP systems can also improve management reporting and decision making. Information supplied
by an ERP system is structured around cross-functional business processes and it can be obtained
rapidly. No longer would general managers be stuck without any hard data on firm performance, or
data that applies only to their own immediate department. An ERP system could supply
management with better data about business processes and overall organizational performance.

Unified Platform - ERP systems promise to provide firms with a single, unified, and all-
encompassing information system technology platform and environment. ERP systems promise to
create a single, integrated repository that gathers data on all the key business processes.

More Efficient Operations and Customer-driven Business Processes - ERP systems can help create
the foundation for a customer-driven or demand organization. By integrating discrete business
processes such as sales, production, finance, and logistics, the entire organization can efficiently
respond to customer requests for products or information, forecast new products, and build and
deliver them as demand requires. Using ERP systems to capture unit cost and quality data, firms can
improve the quality of their products and services.

Challenges:
Daunting Implementation - ERP systems bring dramatic changes to business. They require not only
deep-seated technological changes but also fundamental changes to business processes,
organizational structure and culture.

High Up-front Costs and Future Benefits - The costs of ERP systems are large, upfront and highly
visible, and often politically charged. Although the costs to buy or build the system are obvious, the
benefits often cannot be precisely quantified at the beginning.

Inflexibility - ERP system software tends to be complex, difficult to install, master and maintain.
The software is deeply intertwined with corporate business processes. If an organization needs to
make major changes, the system will have to be changed. Since ERP systems are integrated, it is
difficult to make a change in only one part of the business without affecting other parts as well.

Realizing Strategic Value - Organizations may also fail to achieve strategic benefits from ERP
systems if integrating business processes using the generic models provided by standard ERP
software prevents the firm from using unique business processes that had been sources of advantage
over competitors. ERP systems promote centralized organizational coordination and decision
making, which may not be the best way for some firms to operate.

Example of an ERP system: SAP R/3. Note that Oracle, Computer Associates, PeopleSoft, etc also
do make ERP systems.

CRM systems
According to Thompson, CRM (not CRM system) itself is a business strategy to select and
manage customers to optimize long-term value. CRM requires a customer-centric business
philosophy and culture to support effective marketing, sales and services processes. CRM systems
support CRM. CRM systems help organizations manage their relationships with customers. They
provide information to coordinate all of the business process that deal with customers. The
information enables organizations to identify, attract, and retain customers; provide better service to
existing customers; and hopefully increase sales. CRM systems can provide operations such as:
managing leads and contacts, configuring products and services, call centers, etc. It is interesting to
observe that the web is also playing a major in this matter. For instance: supporting online sales
(product catalogs, shopping carts, shopping lists, etc); online customer service; online marketing
analysis; etc.
Examples: Major vendors include: Siebel Systems (acquired by Oracle Corporation), Clarify and
Salesforce.com.

SCM systems
They help organizations manage their relationships with suppliers. They provide information to
help suppliers, purchasing firms, distributors, and logistics companies share information about
orders, production, inventory levels, and delivery of products and services so that they can source,
produce, and deliver goods and services effectively and efficiently.
The ultimate goal is to get the right amount of their products from their source to their point of
consumption with the least amount of time and with the lowest cost.
Some of the potential benefits:
- Track status of orders and shipments
- Rapidly communicate orders and changes in product design
- Check inventory availability and monitor inventory levels
- Decide when and what to produce, store, and move
- Reduce inventory, transportation, and warehousing costs
Examples: IBMs Asset Management Tool (AMT), Wal-Mart Retail Link system which connects
suppliers to Wal-Mart (we have mentioned this before in inventory management), HP has created a
supply chain management system that produces PCs to order and gets them to purchasers within 48
hours. The following too are vendors of SCM systems: i2 corporation (i2.com) and Manugistics.

KMS
KMS enable organizations to better manage processes for capturing and applying knowledge and
expertise. KMS collect all relevant knowledge and experience in and/or outside the organization
and make it available wherever and whenever it is needed to improve business processes and
management decisions. KMS support processes for acquiring, storing, distributing, and applying
knowledge, as well as processes for creating new knowledge and integrating it into the organization.
Examples: CAD, KWorld by KPMG, Knowledge Garden KMS by J.D. Edwards