Management Information System

Chapter Three
Key System Applications for the Digital Age

Lecture 5- Managing Knowledge to Enhance

Decision Making

Ketema A. Gemeda (PhD)

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 Knowledge Management Landscape
 Knowledge: facts which exist in the mind of beholder
– Complex structures in human memory.
– It is the collection of information, and the ability to change such
information into action.
 Important dimensions of knowledge:
 To transform information into knowledge: firm must expend additional
resources to discover patterns, rules, and contexts where knowledge
works.
 Knowledge is a firm asset: intangible
– Creation of knowledge from data or information that requires
organizational resources.
 Knowledge is situational
– Conditional: knowing when to apply procedure
– Contextual: knowing circumstances to use certain tool
 Wisdom: collective and individual experience of applying knowledge to
solve problems.
– Involves where, when, and how to apply knowledge

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 Knowledge management value chain
 Knowledge Management: set of business processes developed in an
organization to create, store, transfer, and apply knowledge.
 Knowledge management value chain:
– As raw data and information are transformed into usable knowledge,
each stage adds value to them.
1. Knowledge acquisition: Knowledge discovering
2. Knowledge storage: databases document management systems
3. Knowledge dissemination: ways the knowledge disseminated within
the organization.
4. Knowledge application: become systematic part of management
decision making.

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 Knowledge management value chain
 Involves both information systems activities and a host of enabling
management and organizational activities.

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 Knowledge Management System
 The three major types of IS used to manage knowledge ( i.e., knowledge
management systems):
1. Enterprise-Wide Knowledge Management Systems
2. Knowledge Work Systems (KWS)
3. Intelligent Techniques
• Each of them can be broken down further into more specialized types of
knowledge management systems.

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 1. Enterprise-Wide Knowledge Management Systems
 Three major types of knowledge in enterprise
1. Structured documents: formal rules: eg. reports and presentations
2. Semistructured documents: eg. E-mails and videos
3. Unstructured: tacit knowledge
– Most of an organization‟s business content is semistructured or unstructured

a) Enterprise content management systems

– Capabilities for knowledge capture, store, retrieve, distribute and
preserve to help firms improve their business processes and decisions.
• Documents, reports and best practices
• Semistructured knowledge
– Bring in external sources: eg. news feeds and research
– Tools for communication and collaboration

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 1. Enterprise-Wide Knowledge Management Systems
 Enterprise content management system: has capabilities for
classifying, organizing and managing structured and semistructured
knowledge and making it available throughout the enterprise.

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 1. Enterprise-Wide Knowledge Management Systems
b) Enterprise Knowledge Network System
• Maintains knowledge database of
firm experts, as well as accepted
solutions to known problems, and
then facilitates the communication
between employees looking for
knowledge and experts who have
that knowledge.
• Provide online directory of
corporate experts in well-defined
knowledge domains.
• Use ICT to make it easy for
employees to find appropriate
expert in a company.
• Solutions developed by experts
and stored in knowledge database
in the form of best practices,
Frequently asked questions
(FAQs) or other documents.
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 1. Enterprise-Wide Knowledge Management Systems
c) Portal and collaboration technologies
– Enterprise knowledge portals: access to external and internal
information.
• News feeds and research
• Capabilities: e-mail, chat and videoconferencing discussion
– Use of consumer Web technologies such as: blogs, wikis and social
bookmarking.
d) Learning management systems
– Provide tools for management, delivery, tracking, and assessment of
various types of employee learning and training.
– Support multiple modes of learning: CD-ROM, Web-based classes,
online forums, live instruction & etc.
– Automates selection and administration of courses
– Assembles and delivers learning content
– Measures learning effectiveness

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 2. Knowledge Work Systems (KWSs)
 KWS: systems for knowledge workers to help and create new
knowledge and integrate that knowledge into business.
 Knowledge workers: researchers, designers, architects, scientists,
engineers who create knowledge for the organization.
 Three key roles:
1. Keeping organization current in knowledge
2. Serving as internal consultants regarding their areas of expertise
3. Acting as change agents, evaluating, initiating, and promoting
change projects
 The main components of a knowledge work station:
– Having both specialized software and hardware
– Access to external information
– An easy-to-use interface

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 3. Intelligent Techniques
 Intelligent techniques: used to capture individual and collective
knowledge and to extend knowledge base
– To capture tacit knowledge: Expert systems, case-based reasoning and
fuzzy logic
– Knowledge discovery: Neural networks and data mining
– Generating solutions to complex problems: Genetic algorithms
– Automating tasks: Intelligent agents
• Artificial intelligence (AI) technology: computer-based systems that
emulate human behavior
Expert systems
– Capture tacit knowledge in very specific and limited domain of human
expertise.
– Capture knowledge of skilled employees as set of rules in software
system that can be used by others in organization.
– Typically perform limited tasks that may take a few minutes or hours.
– e.g.:
• Diagnosing malfunctioning machine
• Determining whether to grant credit for loan
– Used for discrete and highly structured decision-making.
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 Enhancing Decision Making

Merge with
How many object
another
should I order?
company?

low high
Frequency

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 Decision Making and Information Systems
 Business value of improved decision making
– Improving hundreds of thousands of “small” decisions adds up to large
annual value for the business
 Types of decisions:
– Unstructured: decision maker must provide judgment, evaluation, and
insight to solve problem.
• Senior managers: make many unstructured decisions
• E.g. Should we enter a new market?
– Semistructured: only part of problem has clear-cut answer provided
by accepted procedure.
• Middle managers: make more structured decisions but these may include
unstructured components.
• E.g. Why is order fulfillment report showing decline in Minneapolis?
– Structured: repetitive and routine; involve definite procedure for
handling so they do not have to be treated each time as new.
• Operational managers and employees: make more structured decisions
• E.g. Does customer meet criteria for credit?
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 Decision Making and Information Systems
 Different types of decisions and information requirements are needed
for key decision-making groups in a firm: senior managers, middle
managers, operational managers, and employees.

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 Decision Making and Information Systems
 Four stages of the
decision making
process
1. Intelligence: discovering,
identifying and
understanding the problems
occurring in the
organization.
2. Design: identifying and
exploring solutions to the
problem.
3. Choice: choosing among
solution alternatives.
4. Implementation: making
chosen alternative work and
continuing to monitor how
well solution is working.
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 Transactions
 Transactions: basic business operations such as customer orders,
purchase orders, receipts, invoices, and payroll checks in an
organization.
 Transaction processing systems (TPS)
– Perform routine operations and serve as a foundation for other systems.
 Objectives of TPS:
– Process data generated by and about transactions
– Ensure data and information integrity and maintain a high degree of
accuracy
– Produce timely documents and reports
– Increase labor efficiency
– Help provide increased and enhanced service
– Help build and maintain customer loyalty
– Achieve competitive advantage

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 Transaction processing systems (TPS)
 Payroll TPS: captures and processes employee payment transaction data (such
as a time card).
– System outputs include online and hard-copy reports for management
and employee paychecks.

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 Batch vs. On-Line Transaction Processing
 Two types of TPS:
• Batch processing: system whereby business transactions are
accumulated over a period of time and prepared for processing as a
single unit or batch.
Batch Schematic

Data entry Input

of accumulated Output
(batched)
transactions

On-line Schematic
• On-line transaction
processing (OLTP):
Terminal
system whereby Terminal Terminal
each transaction is
processed Output
Immediate
immediately, processing
Terminal
without the delay of of each
transaction
accumulating
transactions into a Terminal
batch. Terminal 18
 Data Processing Activities Common to TPSs
 A transaction processing cycle:
– Data collection
– Data editing Original data
– Data correction
– Data manipulation Data
collection
– Data storage
– Document production Data
edit

Data
Data manipulation
correction

Data
storage

Document
production
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 MIS
 MIS: Support middle managers whose job is to control the operations of
the company on a daily, monthly, and quarterly basis.
 Characteristics of a MIS
– Provides reports with fixed and standard formats
• Hard-copy and soft-copy reports
– Uses internal data stored in the computer system
– End users can develop custom reports
– Requires formal requests from users
 Outputs of a MIS:
– Scheduled reports: produced periodically, or on a schedule (daily,
weekly, monthly).
– Key-indicator report: summarizes the previous day‟s critical activities
• Typically available at the beginning of each day.
– Demand report: gives certain information at a manager‟s request.
– Exception report: automatically produced when a situation is unusual
or requires management action.
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 Subsystems of MIS
 MIS is an integrated collection of functional information systems, each
supporting particular functional areas.

Internet An Organization’s
MIS

Financial
Business MIS
transactions

Drill down reports

Accounting
Transaction Databases MIS Exception reports
processing of
Demand reports
systems valid
transactions Key-indicator reports
Marketing
MIS Scheduled reports
Business
transactions Databases Human
of
Resources Etc.
external
data MIS
Extranet
Etc.
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 Decision Support Systems (DSS)
 DSS:
– Offer potential to assist in solving both semi-structured and
unstructured problems.
– Information gathering and reporting tool for management, a model
mostly used by middle level manager.
– To make a decision it is based on internal and external data (from
customer situation and organization).
– Interested for future decision and its process is predicting and
projecting on future.
– Use mathematical or analytical models.
 Characteristics of DSS:
– Supports repeated exercise down analysis
– Performs complex, sophisticated analysis and comparisons using
advanced software packages.
– Supports optimization, satisficing, and heuristic approaches
– Handles large amounts of data from different sources
– Provides report and presentation
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 Business Intelligence Constituencies
 Group Decision Support Systems (GDSS)
– Contains most of the elements of DSS plus software to provide
effective support in group decision-making settings
– Interactive system to facilitate solution of unstructured problems by
group.
– Specialized hardware and software; typically used in conference
rooms.
• Overhead projectors and display screens
• Software to collect, rank, edit participant ideas and responses
– Enables increasing meeting size and increasing productivity
– Promotes collaborative atmosphere and guaranteeing anonymity
– Uses structured methods to organize and evaluate ideas

 Geographic information systems (GIS):

– Ties location-related data to maps

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 Executive Support System(ESS)
 ESS:
– A specialized DSS that includes all the hardware, software, data,
procedures, and people used to assist senior-level executives within
the organization
– Used by top level strategic manager (for 5 years strategic plan
development)
– The most complex type of information system designed for higher
manager and not accurate report some times, but summarized
– Not designed specifically to solve specific problems, but for general
problem
– Its input is a report comes from DSS and output is very summarized
report.

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 ESS
 Characteristics of ESSs
– Customized to individual executives
– Easy to use and drill down capabilities (data or information organized
in hierarchical)
– Support the need for external data
– Help situations with high degree of uncertainty
– Futures orientation (predictions and forecasting)
– Linked with value-added business processes (relating to the
increasing value of a product as it proceeds through the various stages
of its manufacture and distribution)
 Capabilities of an ESS: support for
– Defining overall vision
– Strategic planning
– Strategic organizing and staffing
– Strategic control
– Crisis management of the business
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 TPS, MIS, DSS, and ESS/AI
Hierarchy
Information ESS/AI Less More Less More

DSS
Decision Input & Sophistication
Routine support output & complexity of
MIS processing & analysis

Data TPS More Less More Less

 Interrelationships ESS
– TPS major producer of data
– External data also required for MIS, MIS DSS
DSS and ESS
– „Digital firms‟ have tighter integration
KWS
OAS TPS
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 IS at the Organisational Level
 Operational-level: elementary activities and routine transactions
– Monitor day to day business activities
 Knowledge-level: support knowledge and data workers
– Integrate new knowledge into the business
– Office automation
 Management-level: periodic monitoring, control, decision-making and
administration
– Is the business working well?
 Strategic-level: long-term (e.g. 5 year) planning and strategy
– Internal and external information

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 IS at the Organisational Level

Kind of System Groups Served

STRATEGIC LEVEL SENIOR MANAGERS

MANAGEMENT LEVEL MIDDLE MANAGERS

KNOWLEDGE LEVEL KNOWLEDGE &

DATA WORKERS

OPERATIONAL OPERATIONAL LEVEL

MANAGERS
SALES & Manufac Finance Human
Marketing turing Accounting Resources 28
 IS at the Organisational Level
 Transaction Processing Systems: systems that perform and record
daily routine transactions necessary for business.
Operational-level Systems
Order tracking Machine control Securities trading Payroll Compensation

Order Plant scheduling Cash management Accounts Training and

processing payable development
Material movement Accounts Employee
and control receivable records
Sales and Manufacturing Finance Accounting Human
Marketing Resources

 Knowledge work system: systems that aid the creation and integration
of new knowledge into an organisation.
Knowledge-level Systems
Engineering workstations Graphics workstations Managerial workstations

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 IS at the Organisational Level
 Office Automation Systems: systems that are designed to increase the
productivity of data workers
Knowledge-level Systems
Word processing Document imaging E-mail / electronic calendars

 Management Information Systems: systems that serve planning,

control and decision-making through producing routine summary and
reports

Management-level Systems
Sales Inventory control Annual budgeting Capital Relocation
management investment analysis
Sales and Manufacturing Finance Accounting Human
Marketing Resources

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 IS at the Organisational Level
 Decision-support Systems: systems that combine data, models and
analysis tools for non-routine decision-making.
Management-level Systems
Sales region Production Cost analysis Pricing / profitability Contract cost
analysis scheduling analysis analysis

Sales and Manufacturing Finance Accounting Human

Marketing Resources

 Executive Support Systems: systems that support non-routine decision-

making through advanced graphics and communications.

Strategic-level Systems
5-year sales 5-year operating 5-year budget Profit Personnel
trend plan forecasting planning planning
forecasting
Sales and Manufacturing Finance Accounting Human
Marketing Resources
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 IS by Business Function
 Examples of IS by Business Function: the major areas of decision
making commonly found in organizations.
– Sales and marketing:
– Manufacturing and production
– Finance and accounting
– Human resources

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 Sales and Marketing
 Supports managerial activities in product development, distribution, pricing
decisions, and promotional effectiveness
 Input: strategic plan and corporate policies
– TPS
– External sources: the competition and the market
 Marketing MIS Subsystems and Outputs:
– Marketing research
– Product development
– Promotion and advertising
– Product pricing

System Description Organisational Level

Order processing Enter, process and track Operational
orders
Market analysis Identify customers and Knowledge
markets
Pricing analysis Determine prices Management
Sales trends Prepare 5 year forecasts Strategic 33
 Manufacturing and Production
 Manufacturing systems
encompasses all the activities
necessary to ensure
manufacturing and production.
 Input: Strategic plan or corporate
policies.
– TPS: Order processing,
Inventory data, Receiving and
inspecting data, Personnel
data and Production process
– External sources
 Subsystems and Outputs
– Design and engineering
– Master production scheduling
– Inventory control
– Manufacturing resource planning
– Just-in-time inventory and
manufacturing
– Process control
– Computer-integrated
manufacturing (CIM)
– Quality control and testing

System Description Organisational Level

Machine control Control actions of equipment Operational
Computer-aided Design new products Knowledge
design (CAD)
Production planning Decide number and schedule of products Management
Facilities location Decide where to locate facilities Strategic 34
 Finance and Accounting
 Provides financial information to all financial managers within an organization.
 Input: Strategic plan or corporate policies: contains major financial objectives
and often projects financial needs.
– TPS: important financial information collected - payroll, inventory control,
order processing, accounts payable, accounts receivable, general ledger.
– External sources
– Annual reports and financial statements of competitors and general news items.
 Financial subsystems output:
• Profit/loss and cost systems
• Auditing: internal auditing and external auditing
• Uses and management of funds
 Accounting MISs: provides aggregated information on accounts payable,
accounts receivable, payroll, and other applications.
System Description Organisational Level
Accounts receivable Track money owed to firm Operational
Portfolio analysis Design firm‟s investments Knowledge
Budgeting Prepare short-term budgets Management
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Profit planning Plan long-term profits Strategic
 Human Resources
 Concerned with all of the activities related to employees and potential
employees of the organization
 Input: strategic plan or corporate policies
– TPS: Payroll data, Order processing data and Personnel data
– External sources
 MIS Subsystems and Outputs
– Human resource planning
– Personnel selection and recruiting
– Training and skills inventory
– Scheduling and job placement
– Wage and salary administration

System Description Organisational Level

Training and development Track training, skills and appraisals Operational

Career paths Design employee career paths Knowledge

Compensation analysis Monitor wages, salaries and benefits Management
Human resources planning Plan long-term workforce needs Strategic
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 THANK YOU!!

Q&A?
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