Lecture-2-The Strategic Role of Information Systems

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1 Lecture-2-The Strategic Role of Information Systems Thepul Ginige 1

2 LEARNING OBJECTIVES Analyze roles of 6 types of information systems Describe types of information systems Analyze relationships between business processes 2

3 LEARNING OBJECTIVES Explain how systems & networks create new efficiencies Evaluate benefits & limitations of systems & networks 3

4 MANAGEMENT CHALLENGES Key system applications Functional perspective of systems Integrating functions & processes 4

5 MANAGEMENT CHALLENGES 1. INTEGRATION: Different systems serve variety of functions, connecting organizational levels difficult, costly 2. ENLARGING SCOPE OF MANAGEMENT THINKING: Huge system investments, long development time must be guided by common objectives 5

6 TYPES OF INFORMATION SYSTEMS KIND OF SYSTEM GROUPS SERVED STRATEGIC LEVEL SENIOR MANAGERS MANAGEMENT LEVEL MIDDLE MANAGERS KNOWLEDGE LEVEL KNOWLEDGE & DATA WORKERS OPERATIONAL OPERATIONAL LEVEL MANAGERS SALES & MANUFACTURING FINANCE ACCOUNTING HUMAN MARKETING RESOURCES 6

7 MAJOR TYPES OF SYSTEMS 1. EXECUTIVE SUPPORT SYSTEMS (ESS) 2. DECISION SUPPORT SYSTEMS (DSS) 3. MANAGEMENT INFORMATION SYSTEMS (MIS) 4. KNOWLEDGE WORK SYSTEMS (KWS) 5. OFFICE AUTOMATION SYSTEMS (OAS) 6. TRANSACTION PROCESSING SYSTEMS (TPS) 7

8 TYPICAL TPS APPLICATIONS Sales & 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 8

9 TYPICAL TPS APPLICATIONS Manufacturing & 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 9

10 TYPICAL TPS APPLICATIONS Finance & 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 10

11 TYPICAL TPS APPLICATIONS Human Resources 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 11

12 TYPICAL TPS APPLICATIONS Other Types (e.g., University) MAJOR FUNCTIONS OF SYSTEMS: Admissions, grade records, course records, alumni MAJOR APPLICATION SYSTEMS: Registration system, student transcript system, curriculum class control system, alumni benefactor system 12

13 OFFICE AUTOMATION SYSTEMS (OAS) Toward a paperless office Redesign of work flow Integrated software Ergonomic design Bright, cheerful work space EXAMPLE: PRESENTATION GRAPHICS 13

14 KNOWLEDGE WORK SYSTEMS (KWS) KNOWLEDGE LEVEL INPUTS: DESIGN SPECS PROCESSING: MODELLING OUTPUTS: DESIGNS, GRAPHICS USERS: TECHNICAL STAFF EXAMPLE: ENGINEERING WORK STATION 14

15 MANAGEMENT INFORMATION SYSTEMS (MIS) MANAGEMENT LEVEL INPUTS: HIGH VOLUME DATA PROCESSING: SIMPLE MODELS OUTPUTS: SUMMARY REPORTS USERS: MIDDLE MANAGERS EXAMPLE: ANNUAL BUDGETING 15

16 MANAGEMENT INFORMATION SYSTEMS (MIS) Structured & semi-structured decisions Report control oriented Past & present data Internal orientation Lengthy design process 16

17 TPS DATA FOR MIS APPLICATIONS TPS MIS Order Processing System SALES DATA ORDER FILE Materials Resource Planning System PRODUCTION MASTER FILE General Ledger System UNIT PRODUCT COST PRODUCT CHANGE DATA EXPENSE DATA MIS REPORTS MANAGERS ACCOUNTING FILES MIS FILES 17

18 DECISION SUPPORT SYSTEMS (DSS) MANAGEMENT LEVEL Inputs: low volume data Processing: interactive Outputs: decision analysis Users: professionals, staff EXAMPLE: CONTRACT COST ANALYSIS 18

19 DECISION SUPPORT SYSTEMS (DSS) Flexible, adaptable, quick User controls inputs/outputs No professional programming Supports decision process Sophisticated modeling tools 19

20 EXECUTIVE SUPPORT SYSTEMS (ESS) STRATEGIC LEVEL Inputs: aggregate data Processing: interactive Outputs: projections Users: senior managers EXAMPLE: 5 YEAR OPERATING PLAN 20

21 EXECUTIVE SUPPORT SYSTEMS (ESS) Top level management Designed to the individual Ties CEO to all levels Very expensive to keep up Extensive support staff 21

22 INTERRELATIONSHIPS AMONG SYSTEMS ESS MIS DSS KWS OAS TPS 22

23 SYSTEMS FROM A FUNCTIONAL PERSPECTIVE Sales & marketing systems Manufacturing & production systems Finance & accounting systems Human resources systems 23

24 SALES & MARKETING INFORMATION SYSTEM SALES SYSTEM DESCRIPTION ORGANIZATIONAL LEVEL ORDER PROCESSING ENTER, PROCESS, TRACK ORDERS OPERATIONAL MARKET ANALYSIS IDENTIFY CUSTOMERS & MARKETS KNOWLEDGE PRICING ANALYSIS DETERMINE PRICES MANAGEMENT SALES TRENDS PREPARE 5-YEAR FORECASTS STRATEGIC 24

25 MANUFACTURING INFORMATION SYSTEM MFG SYSTEM DESCRIPTION ORGANIZATIONAL LEVEL MACHINE CONTROL CONTROL ACTIONS OF EQUIPMENT OPERATIONAL COMPUTER-AIDED-DESIGN DESIGN NEW PRODUCTS KNOWLEDGE PRODUCTION PLANNING DECIDE NUMBER, SCHEDULE OF PRODUCTS MANAGEMENT FACILITIES LOCATION DECIDE WHERE TO LOCATE FACILITIES STRATEGIC 25

26 FINANCE & ACCOUNTING INFORMATION SYSTEM FINANCE SYSTEM DESCRIPTION ORGANIZATIONAL LEVEL ACCOUNTS RECEIVABLE TRACK MONEY OWED TO FIRM OPERATIONAL PORTFOLIO ANALYSIS DESIGN FIRM'S INVESTMENTS KNOWLEDGE BUDGETING PREPARE SHORT TERM BUDGETS MANAGEMENT PROFIT PLANNING PLAN LONG-TERM PROFITS STRATEGIC 26

27 HUMAN RESOURCES INFORMATION SYSTEM HUMAN RESOURCES SYSTEM DESCRIPTION ORGANIZATIONAL LEVEL TRAINING & DEVELOPMENT TRACK TRAINING, SKILLS, APPRAISALS OPERATIONAL CAREER PATHING DESIGN EMPLOYEE CAREER PATHS KNOWLEDGE COMPENSATION ANALYSIS MONITOR WAGES, SALARIES, BENEFITS MANAGEMENT HUMAN RESOURCES PLANNING PLAN LONG-TERM LABOR FORCE NEEDS STRATEGIC 27

28 EXAMPLES OF BUSINESS PROCESSES MANUFACTURING & PRODUCTION: Assembling product, checking quality, producing bills of materials SALES & MARKETING: Identifying customers, creating customer awareness, selling 28

29 EXAMPLES OF BUSINESS PROCESSES FINANCE & ACCOUNTING: Paying creditors, creating financial statements, managing cash accounts HUMAN RESOURCES: Hiring employees, evaluating performance, enrolling employees in benefits plans 29

30 SUPPLY-CHAIN MANAGEMENT CUSTOMERS ORDER PROCESSING PLANNING & FORECASTING SUPPLIERS ACCOUNTING INTRANET PROCUREMENT PRODUCTION LOGISTICS SERVICES SHIPPING INVENTORY DISTRIBUTORS 30

31 HOW INFORMATION SYSTEMS FACILITATES SUPPLY CHAIN MANAGEMENT Decide when, what to produce, store, move rapidly communicate orders, track order status, check inventory availability, monitor levels, track shipments, plan production based on actual demand rapidly communicate product design changes provide product specifications share information about defect rates, returns... 31

32 TRADITIONAL VIEW OF SYSTEMS WITHIN THE BUSINESS: There are functions, each having its uses of information systems OUTSIDE THE ORGANIZATION S BOUNDARIES: There are customers and vendors FUNCTIONS TEND TO WORK IN ISOLATION 32

33 BENEFITS OF ENTERPRISE SYSTEMS FIRM STRUCTURE & ORGANIZATION: One organization MANAGEMENT: Firm wide knowledge- based management processes TECHNOLOGY: Unified platform BUSINESS: More efficient operations & customer-driven business processes 33

34 CHALLENGES OF ENTERPRISE SYSTEMS Daunting implementation High up front costs & future benefits Inflexibility Hard to realize strategic value 34

35 INDUSTRIAL NETWORKS LINK FIRMS INTO INDUSTRY-WIDE SYSTEM HORIZONTAL: Link firms in same industry, including competitors VERTICAL: Link firm with suppliers in same industry 35

36 Emerging information system trends in organisations 36

37 EnterpriseResourcePlanningsystems Enterprise Resource Planning systems(erp) are software systems for businesses management encompassing modules supporting functional areas such as Manufacturing, Accounting, Finance, Sales & Marketing, Human Resource, ect. 37

38 ENTERPRISE SYSTEM Manufacturing Accounting Vendors Business Processes Enterprise-wide Business Processes Customers Human Resources Finance Sales & Marketing 38

39 ERP system contd.. ERP is a commodity --product in the form of software SAP, Oracle Applications, PeopleSoft, JD Edwards, Greatplainsetc. are world s leading ERP packages The market leader is SAP 39

40 Features of an ERP system Architecture of ERP system facilitates transparent integration of modules providing flow of information between all function within enterprise in real time. Many different software are replaced by one integrated system. Reliable information access through common DBMS Eliminates data and operational redundancies (no duplication of work or data entries etc.) 40

41 Features of an ERP system contd.. Cost reduction through time saving, improved control by organizational wise analysis of organizational decisions. Delivery and cycle time reduction Scalable systems Global outreach through extended modules such as CRM or SCM E-Business Providing business solutions in support of core processes Process-oriented view cutting across functions of an enterprise Huge potential for customizing 41

42 Business and Technical Benefits Automation of business transactions Flexibility in changing the system catering to newer business processes. Coordination across business functions Coordination across geographical distances resulting in better Managerial control Consistent information and interface thus easier to understand and work in Single system 42

43 Prime Reasons for Implementing ERP Need for common platform Process improvement. Data visibility that could be used to improve operating decisions. Operation cost reductions. Increased customer responsiveness. Improved strategic decision making Personal Improvement 43

44 Knowledge Management Knowledge management is the process of capturing, distributing, and effectively using knowledge. So it s a discipline that promotes an integrated approach to identifying, capturing, evaluating, retrieving, and sharing all of an enterprise's information assets. These assets may include databases, documents, policies, procedures, and previously un-captured expertise and experience in individual workers. 44

45 Explicit, Implicit and Tacit Knowledge Explicit: information or knowledge that is set out in tangible form. Implicit: information or knowledge that is not set out in tangible form but could be made explicit. Tacit: information or knowledge that one would have extreme difficulty operationally setting out in tangible form. 45

46 Customer Relationship Management (CRM) Customer relationship management (CRM) refers to the practices, strategies and technologies that companies use to manage, record and evaluate customer interactions in order to drive sales growth by deepening and enriching relationships with their customer bases. 46

47 The CRM Strategy The CRM strategy allows you to following: Understand the customer Retain customers through better customer experience Attract new customers Win new clients and contracts Increase profitably Decrease customer management costs 47

48 The Impact of Technology on CRM Technology and the Internet have changed the way companies approach customer relationship strategies. Advances in technology have changed consumer buying behavior, and today there are many ways for companies to communicate with customers and to collect data about them. With each new advance in technology especially the proliferation of self-service channels like the Web and smartphones customer relationships are being managed electronically. 48

49 The Benefits of CRM The biggest benefit most businesses realize when moving to a CRM system comes directly from having all your business data stored and accessed from a single location. Before CRM systems, customer data was spread out over office productivity suite documents, systems, mobile phone data and even paper note cards and Rolodex entries 49

50 Storing all the data from all departments (e.g., sales, marketing, customer service and HR) in a central location gives management and employees immediate access to the most recent data when they need it. Departments can collaborate with ease, and CRM systems help organization to develop efficient automated processes to improve business processes. 50

51 Other benefits include a 360-degree view of all customer information, knowledge of what customers and the general market want, and integration with your existing applications to consolidate all business information. 51

52 Electronic Commerce Electronic Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet. Electronic commerce describes the buying and selling of products, services, and information via computer networks including the Internet. The infrastructure for EC is a networked computing environment in business, home, and government. E-Business describes the broadest definition of EC. It includes customer service and intrabusinesstasks. It is frequently used interchangeably with EC. 52

53 The Driving Forces of Electronic Commerce The New World of Business Business pressures Organizational responses The role of Information Technology (including electronic commerce) 53

54 Electronic Commerce Terms Business-to-business (B2B) Businesses make online transactions purchases with other business Business-to-consumer (B2C) Online transactions between businesses and consumers Consumer-to-Consumer (C2C) Online auctions, posting to newspaper sites, personal websites, e-commerce portals 54

55 Electronic Commerce Terms (cont.) Pure vs. Partial EC: based on the degree of digitization of Product Process Delivery agent Traditional commerce: all dimensions are physical Pure EC: all dimensions are digital Partial EC: all other possibilities include a mix of digital and physical dimensions 55

56 The Dimensions of E-Commerce 56

57 Benefits of ecommerce Discuss the benefits to Business Customer 57

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