Business Processes, Information, and

Information Systems

Chapter 2
 Study Questions
Q1: Why do we need to understand business
processes?
Q2: What is a business process?
Q3: How can information systems improve process
quality?
Q4: What is information?
Q5: What data characteristics are necessary for
quality information?

2-2
Study Processes and Look for
Inefficiencies
Can any processes be simplified?

Can tasks be re-ordered or re-organized to

eliminate tasks and save labor hours?

Can process costs be reduced by applying

information technology?

2-3
 Q2: What Is a Business
Process?
A network of activities, resources, facilities, and
information that interact to achieve/accomplish
some business function.

Resources Facilities

Activities Information
Busines
s
Function

2-4
FlexTime’s Three Business
Processes
Figure 2-1

2-5
Register Participants
Process

2-6
Register Participants Process

Figure 2-4

2-7
Proces
s
Symbol
s
(BPMN
Standa
rd)
 Components of a Business
Process

Activities Resources
— Decisions Roles— Repository
—
— Sets of —
Transform People, or
resources A question procedures Collection
facilities, or
and that can be of business
computer
information answered records
programs
of one type Yes or No
that are
into another assigned to
type roles

2-9
Q3: How Can Information
Systems Improve Process
Quality?
Figure 2-3

2-10
Revised GearUp Process Using
BPMN
Buyers and
Operations
share a
single,
integrated
repository
of vendor
data
Q4: What Is Information?
Knowledge derived from data (recorded
facts or figures)

Data that is presented in a meaningful

context

Data processed by summing, ordering,

averaging, grouping, comparing, or other
similar operations
A difference that makes a difference

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 Where Is Information?
• Graph is not, itself, information
• Graph is data you and others perceive, use
to conceive information
• Ability to conceive information from data
determined by cognitive skills
• People perceive different information from
same data
 5. Characteristics of Quality
Information?
1. Accurate
• Correct and complete
• Crucial for management
• Cross-check information to ensure accuracy
2. Timely
• Produced in time for intended use

3. Relevant to both:
• Context
• Subject

2-14
 Characteristics of Quality
Information (cont’d)
4. Just barely sufficient
• Sufficient for purpose it is generated
• Avoid too much or extraneous information
5. Worth its cost
• Relationship between cost and value
• Information systems cost money to develop,
maintain, and use
• Must be worth that cost (i.e., trip vs. web
conference)

2-15
Q6 Where Is the Information in
Business Processes?
Information Stored in Repositories
Status
Membe
r
Check Membership Record
Status s

Customer data: Name, Email, Address, Phone(s), DateOfBirth

Membership data: DateOfMembership, MembershipType, FeePaid,
ExpirationDate
Course data: Name, Description, StandardFee, PromotionalTerms
Class data: CourseName, StartDate, EndDate, Instructor, AvailableSeats

2-16
 Information for Unstructured
Processes
Quality of information determined by people and
procedures used to interpret that data
Data is a
stimulus that
causes you
Data to create
information
…in your
mind

Your mind and your thinking are most important

part of an information system
How Does the Knowledge In
This Chapter Help You?
• Be able to document GearUp’s
business processes, and explain in a
professional way how GearUp should
develop new or adjust existing
information systems
• Think about similar issues you will
likely encounter in your career.
• Go through Ethics Guide topics in the
textbook
 Additional Points
1 Management tasks differ with levels of decision
2 Different tools/data may be needed at different
levels
3 Same tools and sources may be used differently

4 IS Tools are interrelated in an organization

5 A digital firm = DM (processes + assets +
relationships)
6 Social-technical approach to study MIS

2-19
SystemsThat Span the Enterprise

1-20
 Case Study 2: Fulfillment by
Amazon (FBA)
Sold via
  Sold elsewhere
Amazon.com
Order handling
$1.00 $4.75 (+)
(per order)
Pick & pack
$1.00 $0.75
(per item)
Weight handling
$0.37 $0.45 (+)
(per pound)
Storage Minimum $0.45 Minimum $.045
(cubic foot per (rates vary by time (rates vary by time
month) of year) of year)
Chapter 4

Business Processes
1. Define Process.
 Process
 Process – A set of logically related tasks or
activities performed to achieve a defined
business outcome. © 2010 APICS Dictionary
2. What are the three elements of a
business process?
 Elements of Business Process
 Primary process – A process that addresses the
main value-added activities of an organization.
 Support process – A process that performs
necessary, albeit not value added activities.
 Development process – A process that seeks to
improve the performance of primary and support
processes.
 Improving Business Processes

Figure 4.3
3. What are some process improvement tools?
 Processes Improvement
Tools (1 of 2)
• Lean production
• Value Steam Mapping (VSM)
• Six Sigma
• Business Process Analysis (BPA)
• Reengineering
• Poka-yoke and mistake-proofing
• Process flow charts
• Service Blueprinting
• Business Process Reengineering
 Process Improvement Tools (2 of 2)

 Root cause analysis

 Cause-and-effect diagrams
 Five Whys
 Scatter plot
 Check sheet
 Pareto Chart
 Run Chart
 Bar Chart
 Histogram
 VSM

• Value Stream Mapping

– A common “lean systems” tool
– Examines entire value stream for
waste

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Process Improvement Tools
(continued)
• Service Blueprints

4-34
4-35
 Other Process
Improvement Tools
• Poka-Yoke
– Mistake-proofing products and services
– Preventing errors, reducing costs and improving
quality
– Design to prevent doing it any but the correct way
• McDonald’s wrapping of burger
• Car won’t start unless transmission is in “Park”
• “Deadman switch” on lawn mower

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 Other Process
Improvement Tools
• Business Process Analysis
– Focus on processes that cross functional
boundaries and transitions between departments
– Identified nonvalue-adding activities
 Broad Improvement Frameworks
• Lean Systems
– Organization-wide waste elimination
– Evolved from JIT
• Six Sigma
– Structured quality improvement process
– Training intensive
– Elimination of variability is focus

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 Root Cause Analysis
 Root cause analysis – A process by which
organizations brainstorm about possible causes
of problems and then narrow the focus to a
root case.
Cause-and-Effect Diagram

Branches are organized around the Five Ms

Commonly known as a fishbone or Ishikawa diagram

Figure 4.8
 Five Whys
 Five Whys - An approach used in root cause
analysis to brainstorm successive answers to
the question “why is this a cause of the
original problem?”
 Scatter Plot

Figure
4.10
 Check sheet - Example

Table 4.9
 Pareto Chart

Figure
4.17
 Business Process
Reengineering (BPR)

 Business Process Reengineering – A procedure

that involves the fundamental rethinking and
radical redesign of business processes to
achieve dramatic organizational improvements
in cost, quality, service, and speed.
© 2010 APICS Dictionary
 Bar Graph

Figure
4.12
 Run Chart

Figure
4.12
 Histogram

Figure
4.12
4. Define process maps?
 Mapping Business Processes
• Process Map – A detailed map that identifies
the specific activities that make up the
informational, physical, and/or monetary flow
of a process.

• Mapping – The process of developing graphic

representations of the organizational
relationships and/or activities that make up a
business process.
Process Mapping Symbols

Figure 4.4
 Mapping Business Processes

Process Map for the

Bluebird Café

Figure 4.5

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Copyright © 2016 Pearson Education, Inc.

Example 4.1 – Distribution Center
• San Diego Distribution Center (DC)
• Process:
– Dealer emails an order to the DC which is automatically printed on the copier. One
out of 25 orders are lost because the copier jams or an employee accidentally throws it
away.
– Printed order sits in an inbox around 2 hours (0 to 4) until internal mail picks it up.
– Internal mail takes about one hour on average to deliver the order to the picking area.
One out of 100 orders are delivered to the wrong place.
– Order sits in clerk’s inbox until it is processed for 0 to 2 hours (average 1 hour).
Processing time takes 5 minutes.

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Copyright © 2016 Pearson Education, Inc.

Example 4.1 – Distribution Center
• San Diego Distribution Center (DC)
• Process:
– If item is in stock, worker picks and packs order (Average = 20 minutes, with range
from 10 to 45 minutes).
– Inspector takes 2 minutes to check order. Still, one out of 200 orders are completed
incorrectly.
– Transport firm delivers order with average delivery time of 1 to 3 hours (average 2
hours).
– If the item is out of stock, the clerk notifies the dealer and passes the order along to the
plant while arranging a special shipment directly to the dealer, usually without a week.

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Copyright © 2016 Pearson Education, Inc.

Example 4.1 – Distribution Center

Figure 4.6

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Copyright © 2016 Pearson Education, Inc.

Process Improvement Tools

• Process
Maps
– A visual
model of
a process

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 Purposes of Mapping
 Create a common understanding of the
processes, activities, and results.

 Define the boundary of the process.

 Provide a baseline to measure the impact of

improvement efforts.
 Process Mapping Guidelines
 Identify the entity that will serve as your focal
point.
 Customer?
 Order?
 Item?
 Identify clear boundaries and starting and
ending points.
 Keep it simple
 Does this detail add any insight?
 Do we need to map every exception condition?
 Swim Lane Process Maps
 Swim lane process map – A process map that
graphically arranges the process steps so that
the user can see who is responsible for each
step.
Swim Lane Process Example

Figure 4.7
 5. What are three
important measures of
business process
performance?
 Measuring Business Process

• Productivity
• Efficiency
• Cycle Time
 Measuring and Improving
Business Processes
Competitive Benchmarking Data for Selected
U.S. Airline Carries, 12 Months Ending March
2014

Table 4.7

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Copyright © 2016 Pearson Education, Inc.

6. Define Productivity.
 Productivity
• Productivity – a measure of how well inputs
are used by a business, typically the ratio of an
output to the input of interest/A measure of
process performance
• Productivity = Outputs
Inputs
 Productivity
 Single-factor productivity – A productivity
score that measures output levels relative to
single input.

 Multifactor productivity – A productivity score

that measures output levels relative to more
than one input.
 Efficiency
 Efficiency – A measure of process
performance; the ratio of actual outputs to
standard outputs.

 Standard output – An estimate of what should

be produced, given a certain level of resources.
 Cycle Time
 Cycle Time – The total elapsed time needed to
complete a business process.

 Percent Value-Added Time – The percentage

of total cycle time that is spent on activities
that actually provide value.
Percent Value-Added Time =
100% (value-added time)/(total cycle time)
 7. What are the two
general processes for
manufacturing and
service?
 General Processes
Product/Process matrix
Service system design matrix

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 Process flow selection and the
Product Process Matrix

Tend to be process-oriented

Can be either

Tend to be product-
oriented
 Choices for Service Providers:
The Service System Design Matrix

Customer contact & sales opportunity versus efficiency.

Exhibit 4.7 Service System Design Matrix

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8. Define Concurrent
Engineering.
 A Closer Look at Concurrent Engineering

Performing product and service

development engineering
functions in tandem to reduce
time and improve communication.

4-74
9. Define Benchmarking.
 Benchmarking
 Benchmarking – The process of identifying,
understanding, and adapting outstanding
practices from within the same organization or
from other businesses to help improve
performance.
 10. What are the two
types of benchmarking?
 Benchmarking
 Competitive Benchmarking – The comparison
of an organization’s processes with those of
competing organizations.
 Process Benchmarking – The comparison of
an organization’s processes with those of non-
competitors that have been identified as having
superior processes.
Competitive Benchmarking

Table 4.7
11. Define Six Sigma
Methodology.
 The Six Sigma Methodology
 Six Sigma – A business improvement
methodology that focuses an organization on:
 Understanding and managing customer
requirements
 Aligning key business processes to achieve those
requirements
 Utilizing rigorous data analysis to understand and
ultimately minimize variation in those processes
 Driving rapid and sustainable improvement to the
business processes.
 Six Sigma People

 Champion

 Master Black Belt

 Black Belt
 Green Belt
 Team Members
12. What are the two Six
Sigma processes?
 Six Sigma Methodology
 DMAIC
 Define the goals of the improvement activity
 Measure the existing process
 Analyze the process
 Improve the process
 Control the new process
 DMADV
 Define, Measure, Analyze, Design, Verify (Ch 15)
13. Define Reengineering.
 Other Process
Improvement Tools
• Reengineering – the design of processes
starting from a clean slate rather than
incrementally improving the process.
– Clean slate
– Focus on behind-the-scenes activities
– High use of technology
– High rate of use in the service sector

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 Reengineering steps

• Process selection

– Identify potential areas for improvement based on need and

• Description of current process
likelihood of success
– Using process flow diagram techniques, describe, precisely, the
• Process improvement
current process
– Identify new ways to accomplish the process goals
– Technology is often used as a catalyst for improvement
• Process verification
• “Technology-enabled reengineering”
– Identify problems with the proposed changes and ensure that they can
• Implementing and monitoring
be eliminated
– Make the changes and monitor the results for effectiveness

4-87
 14. What are the
characteristics of a
reengineered process?
 Reengineered Process

• Several jobs are combined into one

• Workers make decisions
• The steps in the process are performed in a natural
order
• Processes have multiple versions
• Work is performed where it makes the most sense

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The use of Information
systems in business
processes
 The Organisation
Organisational Organisational
Problem Level

Strategic Senior Management

General or Middle
Tactical Management

Knowledge or Data
Knowledge Workers

Operations Production Workers

Pro d u ctio n Fin an ce/ Sales/ Hu m an

acco u n tin g m ark etin g Reso u rces
 A business process
• A business process is a set of logically
related tasks & behaviors that organization
develop to produce specific business
results and the manner in which these
activities are organized and coordinated.
• ” these activities are designed to produce a
specific output for a particular customer or
market” and give the firm a competitive
advantage in order to generate revenue.
Some core Business Processes
• Sales/Marketing:
– Customer Strategy & Relationships (Marketing)
– Customer Acquisition (Sales)

• Finance and accounting

– Financial Analysis, Reporting, & Capital
Management
– Management Responsibility
– Accounting Management
Some core business processes
• H.R.
– Employee Development & Satisfaction

• Production
– Product Development
– Product/Service Delivery

• Technology Management
 The Digital Firm
• A company/organisation/firm in which all
business process with customers, suppliers and
employees are digitally “managed”.
• Corporate assets: intellectual property and core
competencies (activities and resources that
could give a competitive advantage), financial
and human assets are digitally managed.
• These firms sense and respond to
environmental changes rapidly as any
information is available anytime and anywhere.
 The digital firm
• Two implications are:
– Time shifting refers to business being
conducted continuously, 24x7, rather than in
narrow "work day" time bands of 9 a.m. to 5
p.m.
– Space shifting means that work takes place in
a global workshop, as well as within national
boundaries.
Strategic Business Objectives of IS
• Ideally the objectives of Information's
systems are the Interdependence between
a firm’s ability to:
– Use information technology
– Implement corporate strategies and achieve
corporate goals
Strategic Business Objectives of IS
• Six Strategic Business objectives include:
– Operational Excellence
– New products, services and business models
– Improve customer and supplier relations
– Improved decision making
– Competitive advantage
– Survival
 Operational Excellence
• Improvement of efficiency to attain higher profitability

• Information systems, technology an important tool in achieving greater

efficiency and productivity

• Companies that pursue operational excellence provide consumers with

products at the lowest total cost but the same quality.—operational excellence
demands zero defects.
• Procedures for manufacturing pursue the highest level of efficiency, often
using IT to track inventory and orders.

• A “Customer service” product pursues the highest level of convenience, with

the goal of making every customer interaction easy, pleasant, quick, and
accurate

• Wal-Mart, McDonalds, Dell, and Ryanair are examples of companies that

pursue, arguably, operational excellence.
Operational excellence example
• Retaillink Walmart’s system used to tracks and
store all point of sales data for the company. 
• Walmart handles more than 1m customer
transactions every hour and stores of over 2.5
petabytes (1000 terabyte) of data
• A large amount of this data is available to Walmart
supplier who can register for access to their
companies information.
• This allows companies to accurately track sales,
manage inventory, review forecasts, and perform
a variety of granular analysis to improve their
business. 
 New products, services, and business models:

• Describes how company produces, delivers,

and sells product or service to create wealth
[ensure a competitive advantage]
• Information systems and technology are major
enabling tools for “new products, services,
business models”
• E.g. Apple’s iPod, iTunes and Netflix’s Internet-
based DVD rentals
• Can you think of any other examples?
Customer and supplier intimacy:
– Serving customers well leads to customers
returning, which raises revenues and profits
• E.g. large hotels that use computers to track
customer preferences and subsequently use to
monitor and customize environment
– Intimacy with suppliers allows them to provide
vital inputs, which lowers costs
• E.g. Wal Marts or that of most big retail firms’
information system which links sales records to
contact manufacturer. Can assist in “just in time”
production
 Improved decision-making
• Without accurate information:
 Managers must use forecasts, best guesses, luck
 Leads to:
 Overproduction, underproduction of goods and services
 Misallocation of resources
 Poor response times
 Poor outcomes raise costs, lose customers
 Competitive advantage

– Delivering better performance

– Charging less for superior products
– Responding to customers and suppliers in real time
– Often achieved when firm achieves one of first four
advantages
– E.g. Dell: Consistent profitability over 25 years; Dell
remains one of the most efficient producer of PCs in
world.
– But Dell has lost some of its advantages to fast
followers-- HP
 Survival
• Information technologies as necessity of
business
• May be:
• Industry-level changes, e.g. Citibank’s introduction
of ATMs
• Governmental regulations requiring record-keeping
 Information Systems
• Information Technology: All hardware and software
that a firm needs to achieve business objectives.
• Information System
– Set of interrelated components that collect,
process, store and distribute information to
support decision making, coordination &
control of organizations.
– Also help in analyzing problems, visualize
complex subjects and create new products.
 Information Systems
Information Systems contain information
about:
• People
• Places

• Things
Data, Information, and Systems
• Data vs. Information
– Data
• A “given” or fact: a number, a statement, or a
picture
• The raw materials in the production of information
– Information
• Data that have meaning within a context
• Raw data or data that have been manipulated
 Data Manipulation
• Raw data
– Time-consuming to read
– Difficult to understand

• Manipulated Data
– Provides useful information
 Generating Information

Raw data are

processed in an IS
to create final useful
information
Process:
Manipulation of data
Computer-based
ISs: process data to
produce information
 Information: Important Resource

Information
must be useful
Relevant
Complete
Accurate
Current
Cost effective
in business
 The Four Stages of Data
Processing
• Input: Data are collected and entered into
computer
• Data processing: Data are manipulated into
information using mathematical, statistical,
and other tools
• Output: Information is displayed or
presented
• Storage: Data and information are
maintained for later use
Components of an Information System
 Computer Equipment for Information
System

• Input devices: introduce data into the

IS
• Processor: manipulates data through
the IS
• Output devices: display information
• Storage devices: store data and
information
Information systems are more than
computers
Dimensions of Information Systems

• Computer Literacy: Knowledge of

information technology
• Information Systems Literacy:
Understanding:
– Organization
– Management
– Information Technology (technical)
Organisational Dimension of information
systems
– Hierarchy of authority, responsibility
• Senior management
• Middle management
• Operational management
• Knowledge workers
• Data workers
• Production or service workers
Levels in an organisation
Organisational Dimension of information
systems (2)
– Separation of business functions
• Sales and marketing
• Human resources
• Finance and accounting
• Production and manufacturing)
– Unique business processes
– Unique business culture
– Organizational politics
Management dimension of information
systems
– Managers set organizational strategy for
responding to business challenges
– In addition, managers must act creatively:
• Creation of new products and services
• Occasionally re-creating the organization
Technology dimension of information systems

– Computer hardware and software

– Data management technology
– Networking and telecommunications technology
• Networks, the Internet, intranets and extranets, World Wide
Web
– IT infrastructure: provides platform that system is
built on
 Business Perspective on IS
• Investment in information Technology &
systems must provide economic value to
business
• Return on investment must be justified
• RoI must be better than other investments in
other tangible assets
• Increase productivity
• Increase revenues
• Strategic positioning
• High stocks value
 Business Perspective on IS
• Creating VALUE for the firm
• Decrease costs
• Improve decision making
• Improve execution of business processes
• Provide solution to a problem or a
challenge
Business information value chain

• Raw data acquired and transformed through stages

that add value to that information
• Value of information system determined in part by
extent to which it leads to better decisions, greater
efficiency, and higher profits
Business information value
chain
 Variation in Returns on
Information Technology Investment
• Investing in information technology does not
guarantee good returns

• Considerable variation in the returns firms

receive from systems investments

• Factors:
– Adopting the right business model
– Investing in complementary assets (organizational
and management capital)
 Complementary assets
• Assets required to derive value from a primary
investment
• Firms supporting technology investments with
investment in complementary assets receive
superior returns
• E.g.: invest in technology and the people to
make it work properly
Complementary assets include
– Organizational investments, e.g.
• Appropriate business model
• Efficient business processes
– Managerial investments, e.g.
• Incentives for management innovation
• Teamwork and collaborative work environments
– Social investments, e.g.
• The Internet and telecommunications infrastructure
• Technology standards