CHAPTER TWO

Organization and Information

Systems

1
 Outline
 Organization: Definition
 Features of Organization
 Levels of Management, Decision Types and Information
Requirements
 Categories of Information Systems
 Office Automation System
 Transaction Processing System (TPS)
 Management Information System (MIS)
 Decision Support System (DSS)
 Executive Support System (ESS)
 Integrated Systems (ERP, CRM, SCM)
 Artificial Intelligent Technologies
 Organizational Impact of Information System

2
 Organization: definition
 Collection of people working together in a coordinated and structured fashion to achieve
one or more goals.
 there are defined relationships between members of the organization and their
various activities
 procedures are defined that assign roles, responsibilities, and authority to complete
the various activities
 Work – designed and grouped
 responsibility & authority – defined & delegated
 Resources (Capital & labor) taken from environment  processed  Output to
Environment
 Legal entity: Internal rules & procedures; legal capacity (contracts, obligations,
incur & pay debt, sue & be sued….)

 devoted to the principle of efficiency: maximizing output using limited inputs.

3
General model of an organization

4
Features of Organization

5
 Example: Functional Business Processes

Example: Order Fulfillment Process(cross many different functional

areas)

6
 Cont.
 Politics
 View points – how resources, rewards, punishments
distributed  competition & conflict;
 finding ways to gain advantage (access to resources, preferential
treatment, power, etc.)

 Resistance to change – IS investment

 Structure:
• lines of authority/reporting; workflow

• Any IS reflect the existing organizational structure – functional

area based IS

7
 Cont.
 External - Environment
 Economic
 DD/SS, inflation, unemployment
 Technological
 Methods /tools
 Socio-cultural
 Customs, values, demographic characteristics
 Political-legal
 Gov’t – business relationship, regulations
 International
 Trade, FDI(foreign direct inverstment)  impact

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 Chapter II – Organization &
IS
Levels of Management and Information
Functions, Information Requirement
Decision Structure
& Information System

Unstructured Top • Info: Low volume, highly aggregated, Not current,

 Decision under uncertain approximate, futuristic, more external,
situation – undefined I, O, • IS: DSS, ESS, AI (Expert Systems)
Procedures
Middle Short-medium term planning, budget control, sales management,
Semi-structured inventory control, resource allocation, scheduling, measurement of
performances
 Some I, O, Procedures not
• Info: Intermediate level of volume, aggregation, current,
well defined
accuracy and more of internal, etc.
• IS: MIS

Structured Bottom short-range planning, production schedules, day-to-day

decisions , use of resources, enforce polices, follow
 Well defined decision procedures
making procedure
• Info: High volume, low level of aggregation, high
currency, high accuracy, entirely internal, etc.
• IS: TPS

9
 Chapter II – Organization &
IS
Decision Environments

Complete Information Incomplete information Very poor information

10
 Chapter II – Organization &
Categories of Information
IS Systems
 Two categories of Information System:
 Operation Support System: business operation
 Enterprise collaboration systems
 TPS
 ERP, SCM, CRM

 Management Support System: Support of managerial decision

making
 MIS
 DSS
 ESS/EIS
 Artificial Intelligence (AI) Systems
11
 Enterprise Collaboration Systems
 Digitally create, collect, store, manipulate, transfer office information  basic tasks
 Helps to:
 Communicate: Share information with each other.

 Coordinate: Organize our individual work efforts and use of resources.

 Collaborate: Work together cooperatively on joint projects and assignments

12
 Cont.
 Advantages:
 Enables to get many tasks accomplished faster

 Reduced work load

 Management of data becomes easy

 Exchanging data

 Less storage is required to store data

 Multiple people can update simultaneously in the event of changes in schedule.

13
 Transaction Processing System
 Transaction: business event  generate/modify data in IS
 TPS = collects & stores data about routine/daily transaction (buying,
selling, offering services, paying bills, payroll)
 TYPE: Operational-level

 INPUT: Transactions, events (e.g. order entry, employee attendance)

 Internal: Functional areas (product, employee, budget)

 External: Customers (order), suppliers (delivery of materials), …..

 PROCESS: Updating

 OUTPUTS: Detailed operational reports

 purchase orders, pay checks, sales receipts, invoices, bank statements, etc.

 USERS: Employees of functional areas

 INTERFACES: with MIS, DSS, ESS

14
 Cont.
 Data processing methods
 Batch processing, where transaction data are accumulated over a period of
time and processed periodically

 Real-time processing (online processing), where data are processed

immediately after a transaction occurs. E.g.: Sales and Inventory Processing,
transfers funds from a customer’s bank account to a retail outlet’s account
after scanning a customer’s debit card

15
16
17
 Cont.
 Advantages of TPS
 Reduce manual data entry (reduce errors)
 Speed up transaction process; lesser cost
 Eliminate redundant data entry: a single sells transaction:
 Customer database: Updating
 Inventory Database: Decrease
 Credit Card Database: Decrease
 Sales Database: Increase

 Informs managers:
 status of internal operations
 firm’s relations with the external environment

 Immediate response to customers

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 Management Information System (MIS)
 Management Information System is:
 Summarize and report on the company’s basic operations using data
supplied by transaction processing systems.
 TYPE: Middle/Tactical level

 INPUT: transaction data (TPS)

 PROCESS: consolidation, computing totals and averages,…

 OUTPUT: Summary reports

 USERS: Middle level managers

 INTERFACE: with DSS, ESS

19
 Cont.
 Types of Reports
 Scheduled report: periodically 
(e.g. daily sales)

 Key-indicator report: critical

activities (e.g. actual total sales vs.
forecasted)

 Demand report: on demand or when

requested
 Example: daily sales by sales
person

20
 Chapter II – Organization &
IS
Cont.
 Exception report: Unusual situation
(automatic) or requires management action
 E.g. Inventory reorder; daily sales
exception report  order over Br.
200,000
 Drill-down report: detailed data about a
given situation

Example:
 1st level DDR  earnings by quarter
 2nd level DDR  sales and expenses
 3rd level DDR  sales by division
 4th level DDR  sales by product
category
21
 Cont.
 Characteristics of MIS
 Integrated

 Blends information from several operational areas

 Centralized database

 Organized along functional lines: finance, HR, marketing.

 Reports with fixed and standard formats: ease for managers

 Not flexible and have little analytical capability

22
Cont.

Sample MIS Report

23
 Decision Support System (DSS)

 Problem solving system  choice between alternatives

 uncertainties about the possible outcomes of decisions
 unstructured or semi-structured
 Overcome the limitations of
 TPS: repetitive clerical processes
 MIS: inflexible report

 Components of DSS:
 Model Management (Model Base):
 Computational and analytical models – mathematical expressions of relationship
among variables
 Data Management: information
 User Interface: to communicate with the DSS

24
 Cont.
 TYPE: Middle level & Top level
 INPUT: TPS & external data (such as current stock prices or product
prices of competitors)
 PROCESS: simulations and analysis
 OUTPUT: possible alternatives & predicted outcomes of decision
 determine best/optimal decision

 reporting (graphical and tabular report)

25
 Chapter II – Organization &
IS
Factors DSS MIS
Problem type unstructured problems structured problems
Support decision support techniques information on performance
Approach Direct support interactive reports on Indirect support  regular reports
computer screens
System Real time (providing immediate results) Not immediate  scheduled reports

Information flexible, and adaptable format Pre-specified, fixed format

format

Information Analytical modeling Extraction and manipulation

Processing
Methodology
Example(Sales) The effects of changes in a variety of Produce sales analysis reports (by
factors (e.g., promotion expense and product line, salesperson, sales
salesperson compensation) on sales region, and so on)
performance
26
Example: Voyage-estimating DSS

27
 Executive Support System (ESS)
 Tailored to executives (Top)  Strategic Decision
 Combines many features of MIS and DSS  specialized form of DSS
 Immediate and easy access to internal and external information
 Critical factors  strategic objectives
 Components of ESS
 INPUTS: aggregate data; internal(MIS and DSS) and external(such as
new tax laws or competitors)
 PROCESS: analyzing, compare and highlight trends in critical variables
 statistical, financial & other quantitative analysis
 OUTPUTS: projections based on trend analysis and exception reports
 USERS: senior managers; strategic level; work on long term
 DECISION MAKING: highly unstructured

 EXAMPLE: 5 year operating plan; predicting future trends, analyzing

merger possibilities, new product lines and services
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29
 Cont.
 Characteristics of ESS
 Ability to filter and organize data

 Drill-down feature – more details when needed

 Built-in graphics, charts, etc

 Customization - Content and format

 Availability of analysis tools: e.g. What-if

 Easy to learn and to use: busyness

30
 Chapter II
Comparison of EIS & DSS

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32
 Enterprise Resource Planning (ERP)

 Firm wide IS  integrates key business processes & consolidates data

 Integrated system as opposed to individual software

 main business area (inventory management, accounting, payroll, human resource,

marketing, product planning)
 Collect, Store, manage and interpret data from various functional areas

 Data is available on real-time basis (up-to-the minute information)  faster and

informed decision.

 Centralized DB – all TPSs into single DBs

 Combines all databases across departments into a single database  Shared

 Single data entry  available for many processes

 Large enterprises – Integrated systems - huge investment (HW, SW,

Skilled)
 Small business - Light weight ERP solutions – (selected paired modules) 33
 Cont.

Human resources processes,

Finance & Accounting: personnel administration,
general ledger, time accounting,
accounts payable, payroll,
accounts receivable, personnel planning and
fixed assets, development,
cash management and forecasting, benefits accounting,
product-cost accounting, applicant tracking,
cost-center accounting, time management, compensation,
asset accounting, workforce planning,
tax accounting, performance management
credit management
financial reporting
34
 Cont.

Manufacturing and
production processes,
Sales and marketing processes,
procurement,
order processing,
inventory management,
quotations,
production planning,
contracts,
production scheduling,
product configuration,
material requirements
pricing,
planning,
billing,
quality control,
credit checking,
distribution,
incentive and commission
transportation execution,
management,
plant and equipment
sales planning
maintenance 35
 Business Values of ERP
 Increase operational efficiency:
 Standardization, coordination

 Free flow of information across different functional areas (Production  sales data)

 Manual data entry and repetitive processes are eliminated

 Quick look-ups at key performance indicators across the organization  financial data,
inventory status, customers’ purchasing activities

 Promote Collaboration:
 Data integration & interlinked processes  collaboration among teams
(geographically dispersed)

 Accurate forecast
 Centralized database (data integrity) + business intelligence tools using machine
learning and predictive algorithms  hidden pattern extraction

 Lower Operational Cost:

 Multiple business units working closely together using real-time data  resolving
sudden problems faster with minimum operating cost 36
 Chapter II – Organization &
IS
Cont.
 Rapid responses to customer requests
 Order, manufacturing and delivery data

 Comply with Regulations

 Built-in regulatory process standards and compliance reporting to meet large
numbers of business requirements

 Data Security Features

37
 Supply Chain Management (SCM)

 Manage the entire value chain  integrating:

 Production, sourcing, transportation, inventory & warehousing, shipping

 supplier, distributor, retailor and customer logistics requirements

 Coordinating & integrating the flow of:

 Material: goods from point of origin to final destination

 Information: order, delivery

 Finance: credit terms, payment schedules, consignment and title ownership

arrangements

 Goal: reducing inventory (products are available when they

are needed)
38
 Cont.
 Two major functions

 Supply Chain Planning Systems

 Modeling the existing supply chain, demand forecasts, manufacturing plans, level of inventory (raw
material, intermediate & finished products), transportation modes

 Supply chain execution systems

 Manage flow of products  distribution centers & warehouses

 Tracking physical status, warehousing & transportation, financial information

 Features of SCM
 Inventory Management: tracking and managing the available materials, quantity of stocked goods & spare
parts

 Order Management: purchase order process (generating and tracking; scheduling delivery, etc.)

 Logistics and Shipping status: coordinate transportation channels, warehouse management (storage
optimization, labelling, labor management, etc.)
 Forecasting: anticipating customer demand & planning procurement and production processes (unnecessary raw material,
excess finished goods)

 Return Management: inspection and handling of damaged or faulty goods and processing of refunds or insurance claims
39
 Business Value of SCM system
 Match supply to demand: accurate plan and forecast of demand

 Reduce inventory levels: supplier and customer collaboration and communication

 Improve delivery service – coordinating activities across supply chain

 Reduced supply chain costs:

 Speed of analyzing data and collaboration on a real-time basis

 Identifying excess materials or processes  cost saving in logistics, warehousing, and manufacturing

 up to 75% of the operating budget  increased profitability

 Increased sales – the right product at the right time

 Visibility: where the inventory is (along the global supply chain; from manufacturer 

storage  transport  store shelf

 Minimize risk by improving responsiveness to unforeseen events – e.g. late shipment,

logistical errors, machine failures, missing goods, urgent customer orders, human errors

40
 Customer Relation Management (CRM) System

 Captures, integrates and analyze customer data from all over the organization

& distribute results to various systems and customer touch points across the

enterprise

 Single enterprise view of customers

 Customer satisfaction by understanding them

 Ease of communication,

 Organized data

 Improved customer service  customers get what they want

41
 Cont.

 Major Features of CRM

 Contact Management: contact info, support interaction, demographics, transaction

 Email Tracking: gives visibility when your email campaigns are clicked and opened.
Integrated with popular e-mail services (Gmail, Outlook, etc.)

 Campaign management: managing it from creation to delivery by segmenting

customers, targeting, and streamlining workflows, tools to measure the success of
campaigns with data driven insights.

 Social media management: insight on how your clients interacts with your social
media accounts  information from comments, likes, dislikes,  to improve
marketing strategies and customer experience.

 Report and Dashboards: accelerates how you generate reports in real-time with
accuracy  insight on market, trends, patterns, behaviors.

42
 Cont.
 Benefits of CRM
 Improved informational organization:

 What they do and interact is recorded more knowledge about customers 

positive experience

 Accurately quantifying and categorization of data

 Availability across departments

 Enhanced communication

 having access to the same customer data by whoever assisting the client &

understanding their unique preferences and issues

43
 Cont.

 Enhanced customer Service

 Retrieving all available activity concerning past purchases, preferences, etc.

to address their problems and providing high level service

 Reduced direct-marketing costs

 customer retention & returning

 Automation of Routines

 Hundreds of time-consuming smaller tasks in a sale – filling forms,

generating and sending reports, addressing legal issues, etc. can be taken

care by CRM  more time to focus on resolving customer problems

44
 Cont.
 Increased Efficiency for multiple teams

 Automatically stored communication  ability for multiple teams to access the same

information (e-mails, calendars, phone call details)

 Sales, marketing, customer service teams share valuable information about the client,

new product, excellent customer service  teams can work together to improve the

service

 Improved Analytical Data and Reporting

 Storing information in one place and  improved analysis of the data as a whole and

generate automatic reports  effective decision  customer loyalty and long run

profitability

 Challenges of implementing Integrated systems (ERP, SCM, CRM):

 Expensive: cost of software, on premise installation, ongoing running and maintenance

 Software Integration: with existing systems (considerable investment, time & training)
45
 Artificial Intelligence (AI) Technologies
 Artificial intelligent systems:
 make machines imitate human thinking and behavior  replace human decision making

 computers that can simulate the ability to think as well as see, hear, walk, talk, and feel

Robotics produces robot machines with computer intelligence

and computer controlled, humanlike physical capabilities 46
 Commercial Applications of AI
 Decision support
 Information retrieval
 AI-based intranet and Internet systems that distill tidal waves of information into

simple presentations

 E.g. Database mining for marketing trend analysis, financial forecasting, etc.

 Virtual Reality
 Automated animation interfaces that allow users to interact with virtual objects via

touch (e.g., medical students can “feel” what it’s like to suture severed aortas).

 Robotics
 Machine-vision inspections systems for gauging, guiding, identifying, and inspecting

products and providing competitive advantage in manufacturing.

47
 Expert System
 Expert (Knowledge Based) System:
 Codify human expertise  applying reasoning capability by computers

 Knowledge engineer  elicits the expertise and encodes it in the expert system

 An ES can store facts and rules  advice to a user.

 Three components:
 Knowledge base

 Containing facts and rules that express the reasoning procedures of an expert

 Inference engine

 Processes the knowledge and recommends a course of action

 User interface

 communications between the user and the computer

48
49
 Cont.
 Used for  Limitation:
 Diagnostic problems (what’s wrong?)
 Inability to learn
 Prescriptive problems (what to do?)
 Do not useful for dealing with
 Possible areas of applications:

unstructured problems
diagnose human illnesses,

 make financial forecasts,  Do not scale well to the kinds of very

 schedule routes for delivery vehicles, large data sets

 calculating loan/credit decisions in banks
 Expensive to build
 buy/sell; risk/no risk; rain/no rain

 An expert system can

 Reduce errors

 Improve customer service

 Reduce cost

50
 Neural Network
 Computing systems modeled after the brain’s networks of interconnected
processing elements (neurons)
 Interconnected processors operate in parallel and interact with each other

 Allows the network to learn from the data it processes

 capable of finding and differentiating patterns

 Neural Networks can:
 Learn and adjust to new circumstances on their own

 Take part in massive parallel processing

 Function without complete information

 Cope with huge volumes of information

 Analyze nonlinear relationships

51
Examples of Neural Network

52
 Genetic Algorithm
 mimics the evolutionary, survival-of-the-fittest process to generate
increasingly better solutions to a problem
 Useful for situations in which thousands of solutions are possible and must be evaluated

to produce an optimal solution

 Uses sets of mathematical process rules ( algorithms ) that specify how combinations of

process components or steps are to be formed. The process may involve:

 Random process combinations ( mutation ),

 combining parts of several good processes ( crossover ), and

 selecting good sets of processes and discarding poor ones ( selection )

53
 Intelligent Agents
 Acts on your behalf, in performing repetitive computer-related tasks
(software robots or bots)
 Built-in and learned knowledge base to make decisions and accomplish tasks

 Information agents
 search for information of some kind and bring it back

 E.g.: Buyer agent or shopping bot –find products and services

 Monitoring-and-surveillance or predictive agents

 observe and report on some entity of interest, a network, or manufacturing equipment,

 User or personal agents

 intelligent agent that takes action on your behalf

 Examples:

 Prioritize e-mail

 Act as gaming partner

 Assemble customized news reports

54
 Organizational Impact of IS

 Operational efficiency
 New products, services, and business models
 Customer and supplier intimacy
 Improved decision making
 Competitive advantage
 Survival

55
 Cont.
A) Operational Efficiency
The capability of a firm to deliver products or services to its customers in the most cost-effective

manner while still ensuring high quality.

Wal-Mart’s Retail Link System

 Digitally linked suppliers to each Wal-Mart’s stores for replenishment

 Once an item is sold, the system automatically informs the supplier and the supplier

packs and ships the item to the specific store.

B) New products, services, and business models

New Products & Services

 E.g. Apple’s – iPhone, iPod, iMac, iPad, Apple Watch, Apple TV,

 iPhone – the latest iPhone 8 and iPhone 8 Plus - faster processor, improved display

technology, upgraded camera systems and wireless charging.

56
 Cont.
 New Business Model

 Business Model: how company produces, delivers, and sells product or service to

create wealth

C) Customer and supplier intimacy:

 Customer intimacy

 higher customer loyalty, customer returning and purchasing more – increase

revenues and profits

 Better understanding of customers’ needs

 greater adaptation of products to customer needs,

 stronger relationships with customers

 Example – Role of IS:

 Hotel - tracking customer preferences (preferred room temperature, check-in time, TV
program etc. – customizing,)
 Supermarket - Collecting & analyzing customer data – which areas of stores they visited,
their product preferences, what they wanted to buy but not available
57
 Cont.
 Supplier intimacy

 Information System – establishing electronic data exchange with suppliers

 access to production schedules of the firm – what materials to supply, how

and when

 fast flow of products from suppliers to store shelves

 lowering costs

D) Improved Decision Making

 IS improved decision – accurate & timely information

 real-time data on customer complaints, unmet demands of customers

 analyze sales data, projecting revenues, and evaluating scenarios

 allocating resources,

 comparing budget to actual results,

58
 Cont.
E) Competitive advantage
E = A + B + C + D

The firm sustains profits that exceed the average for its industry.

This can be attained through:

 Cost leadership strategy

 Differentiation Strategy

 Growth Strategy

 Alliance Strategy

59
 Cont.
 Cost Leadership Strategy
 Becoming low cost producers using IT  lower prices

 Example:
 Garment – Automated pattern drawers, fabric cutters & delivering of cloth to sewing
machine – cut 50% of labor cost
 Retail stores – Replenishing inventory with no cost (Wal-Mart)

 Online auction and auction-set pricing – eBay.com

 Differentiation Strategy
 Distinguishing products through developing New design features 
Stimulating Demand
 Ex. Dell Computer - IT enabled build-to-order business model that other firms have not been
able to imitate – customers select the design & color option they want and order
 bundling more information with the physical product package (characteristics and how it
should be used and supported)

 Making the product difficult to imitate

60
 Cont.
 Growth Strategy
 Expanding production capacity

 Changing the Competitive Scope Broader geographic scope to create more

competitive advantage  entering new national, regional, global market
 distribute key business activities to where they are needed, where they are best
performed, or where they best support the competitive advantage
 Coordinating the activities using Information System

 Alliance Strategy
 Develop inter-organizational information systems linked by the Internet and
extranets that support strategic business relationships with customers,
suppliers, competitors, consultants, subcontractors, and others.
 E.g. Financial institutions – banks, insurance corporations & brokers

61
 Influencing the Five Competitive Forces (with strategic use of IS)

Huge IT investment 
  •Interaction and collaboration
IT enabled product/service   •Rich customer information
differentiation; electronic market Potential Threats of Outcome  Barrier to Entry
Outcome  cost effectiveness; New Entrants
increased market access

  Industry Competitors  

Bargaining Power of Bargaining Power of

Suppliers Buyers

E-procurement system
Online Customer Services
Integrate backward linkages
Outcome  increasing
Outcome  Reduce operating
switching cost, buyer selection
costs of suppliers  
Threats of Substitute
Products

Computer-aided design and manufacturing:

Outcome  quicker, easier, and cheaper
adaptation; Improved price/performance 62
 Cont.
 Potential Threats of New Entrants
 Strategic Use of IS: Huge investment on IT and increase in its complexity
 Strong IT to support interaction and collaboration among product designers,
market specialists, production planners & managers
 Rich information repository about customers

 Bargaining Power of Consumers

 Strategic uses of IS: Increasing switching costs by introducing innovative IS:
 reluctance to pay more costs (time, money, effort, inconvenience) by changing
brand, product or supplier
 E.g. Online reservation system for airlines; efficient on-line cash management
(account information) to corporate customers

63
 Cont.
 Threat of Substitute
 Strategic Use of IS: Flexible Use of computer-aided design and
manufacturing system – quicker, easier, and cheaper to incorporate
enhanced features into the product
 Threats of Suppliers
 Strategic Use of IS: Integrate backward linkages; Reduce operating costs of
suppliers – e-procurement system, computer controlled cutting machine
(sewers)
 Industry Competitors
 Strategic Use of IS:
 Differentiate products or services

 build new markets such as e-market.

64
 Cont.
 Survival
 Investing on Information Systems out of necessity
 Introduction of ATM (Banks) – in order to keep-up with competitors

 Financial management system – as a government requirement

65
Thank you !!!!

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