Information Systems (2)

Information Management
References:

Slides taken from:

Laudon & Laudon (2006). Management

Information Systems (9th edition), New Jersey:
Pearson Prentice Hall (Chap.2)
 OBJECTIVES

• Evaluate the role played by the major types

of systems in a business and their
relationship to each other

• Describe the information systems

supporting the major business functions:
sales and marketing, manufacturing and
production, finance and accounting, and
human resources
 Levels of Decision Making
Senior management:
Long term (5+ years)
planning; large scale
investment decisions.
Strategic
Middle management:
medium term (1-5 yrs)
planning; capital
investment decisions; Tactical
facilities, pricing

Short-term planning
Operational
(0-12 months) e.g.
production schedules,
stock, facilities, etc.
 Different Kinds of Systems

Three main categories of information systems serve

different organisational levels:

1. Operational-level systems: support operational managers,

keeping track of the elementary activities and transactions

2. Management-level systems: serve the monitoring,

controlling, decision-making, and administrative activities

3. Strategic-level systems: help senior management tackle and

address strategic issues
Operational Systems

 Structured In Form - data is always presented in the

same format (eg invoice number)
 Detailed and Accurate - data must be detailed and
accurate (eg invoice number and itemised prices)
 Historical - usually concentrating on past activities or
recording transactions made
 Repetitive - frequency is often at pre -determined
periods of time
 Predictable - the output only rarely provides anything
out of the ordinary
Tactical Systems

 Source data tends to be internal and

external in origin
 Summaries are provided rather than
detailed information
 Comparative and possibly unexpected,
as may be found when an exception
occurs to the norm
Strategic Systems

 Abstract information provided in

summary form
 Ad-hoc, infrequent, on demand
 Predictive - many strategic level systems are
used in forecasting
 Output may be unexpected
Activity 1:
Classify the following decisions by organisational level:

1. “Does the customer qualify for a discount on a

large order?”
2. “At what level should we set the budget next
year?”
3. “How should we deal with a takeover bid?”
4. “Should we employ more staff?”
5. “Should we expand abroad?”
6. “Should we launch an advertising campaign?”
7. “What new markets should we move into?”
8. “What should we do about a faulty machine?”
MAJOR TYPES OF SYSTEMS IN
ORGANISATIONS
Types of Information Systems
 Major Types of Systems

• Transaction Processing Systems (TPS)

• Management Information Systems (MIS)

• Decision-Support Systems (DSS)

• Executive Support Systems (ESS)

 Type Description Usefulness
Data processing system The processing of repetitive tasks Provides first line managers with vital day-to-day information
(DPS) or transaction using well-defined and structured about efficiency of operations and activities, but is limited
processing system information that is relatively easy due to the inflexible nature of information produced.
(TPS) to capture and store in large Examples: payroll systems, purchase/sales order entry systems
volumes. and stock control systems.
Management Report-producing packages that use Provides middle managers with information to monitor and
information systems information from the same source control the organisation’s activities and to report this to the
(MIS) as the DPS. senior-level managers. Useful for decision-making, planning,
program implementation and control.
Examples: forecasting, reporting, budgeting and control
information (exception reports, variance reports, etc.)
Decision support Possesses interactive capabilities, Provides managers with information to support unstructured,
systems (DSS) assists in solving ‘ad hoc’ queries one-off decisions by retrieving and analysing data. The
and provides data-modelling complex mathematical models used are designed to
facilities. simulate the behaviour of an organisational activity in an
unpredictable situation. DSS generate a number of potential
solutions, enabling managers to carry out ‘what if?’ analysis.
Executive information Powerful software for supporting Provides senior-level managers with strategic-level
system (EIS) the types of high-risk, information to help them make strategic decisions.
unstructured decisions that are Presents output using text and graphics (e.g. bar charts and
made by strategic-level managers. histograms), which can be tailored and customised.
EIS combines information from Examples: key performance indicators (KPIs) through user-
within the organisation and from friendly interface graphical user interface (GUI)
its external environment, then
organises analyses and presents it.
Expert systems (ES) A system that simulates the problem- Higher degree of support than that provided by the EIS or
solving techniques of human experts, by DSS. The major benefits of expert systems include a
applying human expertise and
preservation of knowledge and its distribution.
knowledge to a range of specific
problems about a particular area of Examples: investment appraisal decisions
 Management Information Systems

MAJOR TYPES OF SYSTEMS IN ORGANIZATIONS

The Four Major Types of Information Systems

Transaction Processing Systems (TPS)

• Basic business systems that serve the operational level

• A computerized system that performs and records the daily routine

transactions necessary to the conduct of the business
A Symbolic Representation for a
Payroll TPS
Typical Applications of TPS
Management Information Systems
(MIS)

Management level

• Inputs: High volume transaction level data

• Processing: Simple models

• Outputs: Summary reports

• Users: Middle managers

Example: Annual budgeting

Management Information Systems
(MIS) (continued)
Management Information Systems (MIS)
(continued)

A sample MIS report

Decision-Support Systems (DSS)

Management level

• Inputs:Transaction level data

• Processing: Interactive

• Outputs: Decision analysis

• Users: Professionals, staff

Example: Contract cost analysis

EXECUTIVE SUPPORT SYSTEMS
(ESS):

• Inputs:Aggregate data

• Processing: Interactive

• Outputs: Projections

• Users: Senior managers

Example: 5 year operating plan

Model of a Typical Executive
Support System
EXECUTIVE SUPPORT SYSTEMS (ESS)
(Continued)

• Top Level Management

• Designed to the individual senior manager

• Ties CEO to all levels

• Very expensive to keep up

• Extensive support staff

Relationship of Systems to One
Another
Interrelationships among systems
Activity 2- Do you want
to be a Millionaire?
Relationship of Systems to One Another

 In contemporary digital firms, the different types of systems are

closely linked to one another. This is the ideal.
 In traditional firms these systems tend to be isolated from one
another, and information does not flow seamlessly from one end
of the organization to the other. Efficiency and business value
tend to suffer greatly in these traditional firms
SYSTEMS FROM A FUNCTIONAL
PERSPECTIVE
1. Sales and Marketing Systems

Major functions of systems:

• Sales management, market research, promotion, pricing, new
products

Major application systems:

• Sales order info system, market research system, pricing system
 Sales and Marketing Systems
SYSTEM DESCRIPTION ORGANISATIONAL
LEVEL

Order processing Enter, process, and track orders Operational

Pricing analysis Determine prices for products and Management

services

Sales trend Prepare 5-year sales forecasts Strategic

forecasting
SYSTEMS FROM A FUNCTIONAL
PERSPECTIVE

2. Manufacturing and Production Systems

Major functions of systems:
• Scheduling, purchasing, shipping, receiving, engineering, operations

Major application systems:

• Materials resource planning systems, purchase order control
systems, engineering systems, quality control systems
 Manufacturing and
Production Systems
SYSTEM DESCRIPTION ORGANISATIONAL
LEVEL

Machine control Control the actions of machines and Operational

equipment

Production Decide when and how many products should Management

planning be produced

Facilities Decide where to locate new production Strategic

location facilities
SYSTEMS FROM A FUNCTIONAL
PERSPECTIVE
3. Financing and Accounting Systems

Major functions of systems:

• Budgeting, general ledger, billing, cost accounting

Major application systems:

• General ledger, accounts receivable, accounts payable, budgeting,
funds management systems
3.Financing & Accounting Systems (Continued)

SYSTEM DESCRIPTION ORGANISATIONAL

LEVEL

Accounts receivable Tracks money owed the firm Operational

Budgeting Prepares short-term budgets Management

Profit planning Plans long-term profits Strategic

SYSTEMS FROM A FUNCTIONAL
PERSPECTIVE

4. Human Resource Systems

Major functions of systems:
• Personnel records, benefits, compensation, labor relations, training

Major application systems:

• Payroll, employee records, benefit systems, career path systems,
personnel training systems
 Human Resource Systems
(Continued)

SYSTEM DESCRIPTION ORGANISATIONAL

LEVEL

Training and Tracks employee training, skills, and Operational

development performance appraisals

Compensation Monitors the range and distribution of Management

analysis employee wages, salaries, and benefits

Human resources Plans the long-term labour force needs Strategic

planning of the organisation
4. Human Resource Systems (Continued) An
Employee Recordkeeping System
Business Processes and Information
Systems

Business processes:
• Manner in which work is organised, coordinated, and focused to
produce a valuable product or service

• Concrete work flows of material, information, and knowledge—sets of

activities

• Unique ways to coordinate work, information, and knowledge

• Ways in which management chooses to coordinate work
Business Processes and Information
Systems (Continued)

• Information systems help organisations achieve great

efficiencies by automating parts of processes

• IS also contributes to completely rethinking processes.

• Business processes typically span several different functional

areas.
Activity 3

 In pairs, give examples of Business Processes

 Examples of Business Processes

Manufacturing and production:

• Assembling product, checking quality, producing bills of materials

Sales and marketing:

• Identifying customers, creating customer awareness, selling
Examples of Business Processes (Continued)

Finance & accounting:

• Paying creditors, creating financial statements, managing cash
accounts

Human resources:
• Hiring employees, evaluating performance, enrolling employees in
benefits plans
Cross-Functional Business Processes:
• Transcend boundary between sales, marketing, manufacturing, and
research and development

• Group employees from different functional specialties to a complete

piece of work

Example: Order Fulfillment Process

The Order Fulfilment Process
Part 2:
Systems for Enterprise-Wide Process
Integration

Enterprise applications:

Designed to support organisation-

wide process coordination and
integration
 Traditional “Silo” View of
Information Systems
Within the business:
• There are functions, each having its uses of
information systems

Outside the organisation’s boundaries:

• There are customers and vendors

Functions tend to work in isolation

Traditional View of Systems
Systems for Enterprise-Wide
Process Integration (II)
Consist of :

1. Enterprise Systems
2. Supply Chain Management Systems
3. Customer Relationship Management Systems
4. Knowledge Management Systems
 1. Enterprise (ERP) Systems

• Enterprise systems, also known as Enterprise

Resource Planning (ERP) systems, provide a single
information system for organisation-wide
coordination and integration of key business
processes.

• Information that was previously fragmented in

different systems can seamlessly flow throughout
the firm so that it can be shared by business
processes in manufacturing, accounting, human
resources, and other areas.
Enterprise Application
Architecture
ERP Systems
 Benefits of ERP Systems

• Help to unify the firm’s structure and

organisation: One organisation
• Management: Firm wide knowledge-based
management processes
• Technology: Unified platform
• Business: More efficient operations & customer-
driven business processes
Challenges of Enterprise Systems

• Difficult to build: Require fundamental changes

in the way the business operates

• Technology: Require complex pieces of

software and large investments of time, money,
and expertise

• Centralised organisational coordination and

decision making: Not the best way for the
firms to operate
 2. Supply Chain Management
(SCM)
• Close linkage and coordination of activities
involved in buying, making, and moving a
product
• Integrates supplier, manufacturer,
distributor, and customer logistics time
• Reduces time, redundant effort, and
inventory costs
• Network of organisations and business
processes
 Supply Chain Management (SCM) II

• Helps in procurement of materials,

transformation of raw materials into
intermediate and finished products
• Helps in distribution of the finished
products to customers
• Includes reverse logistics - returned items
flow in the reverse direction from the buyer
back to the seller
 Information from
• Supply Chain Management Systems
helps firms:
• Decide when and what to produce,
store, and move
• Rapidly communicate orders
• Track the status of orders
• Check inventory availability and monitor
inventory levels
 Information
• from Supply Chain Management Systems
helps firms
• Reduce inventory, transportation, and
warehousing costs
• Track shipments
• Plan production based on actual
customer demand
• Rapidly communicate changes in product
design
 3. Customer Relationship Management
(CRM)

• Manages all ways used by firms to deal

with existing and potential new customers
• Business and technology discipline
• Uses information system to coordinate
entire business processes of a firm
Customer Relationship Management
(CRM)

• Provides end-to-end customer care

• Provides a unified view of customer
across the company
• Consolidates customer data from multiple
sources and provides analytical tools for
answering questions
Customer Relationship
Management (CRM)
4. Knowledge Management Systems

• Collects relevant knowledge and make it

available wherever and whenever it is needed
• Support business processes and management
decisions
• Also link the firm to external sources of
knowledge
• Support processes for acquiring, storing,
distributing, and applying knowledge
MANAGEMENT OPPORTUNITIES

Management Opportunities:
• There are extraordinary
opportunities to use information
systems to achieve business value,
and increase profitability
 Management Challenges:

• Integration and the whole firm view: Given

the different interests and perspectives
within a firm, it is difficult to achieve
consensus about the need for the "whole
firm" viewpoint.
• Management and employee training: Training
a large number of employees on many
systems in a large organisation involves
commensurately large investments.
 Management Challenges II
• Accounting for the cost of systems and
managing demands for systems: Given
the large number of different types of
systems in a firm and the large number of
people involved with using them, it is a
complex task to understand which
systems are truly necessary and
productive with high returns on
investment
 Solution Guidelines:
• Inventory the firm’s information systems:
Develop a list of firm-wide information
requirements to give a 360-degree view of the
most important information needs of the firm.

• Employee and management education: Ensure

that you understand how much training is
required.

• Account for the costs and benefits: Develop an

accounting system for information services
firm- wide.