2 Information Systems in the Enterprise - Main Web
2 Information Systems in the Enterprise - Main Web
2 Information Systems in the Enterprise - Main Web
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2<br />
2 <strong>Information</strong><br />
<strong>Systems</strong> <strong>in</strong> <strong>the</strong><br />
<strong>Enterprise</strong><br />
objectives<br />
2<br />
After complet<strong>in</strong>g this chapter, you will be able to:<br />
1. Analyze <strong>the</strong> role played by <strong>the</strong> six major types of <strong>in</strong>formation systems <strong>in</strong><br />
organizations and <strong>the</strong>ir relationship to each o<strong>the</strong>r.<br />
2. Describe <strong>the</strong> types of <strong>in</strong>formation systems support<strong>in</strong>g <strong>the</strong> major functional<br />
areas of <strong>the</strong> bus<strong>in</strong>ess.<br />
3. Assess <strong>the</strong> relationship between organizations, <strong>in</strong>formation systems and<br />
bus<strong>in</strong>ess processes, <strong>in</strong>clud<strong>in</strong>g <strong>the</strong> processes for customer relationship<br />
management and supply cha<strong>in</strong> management.<br />
4. Expla<strong>in</strong> how enterprise systems and <strong>in</strong>dustrial networks create new efficiencies<br />
for bus<strong>in</strong>esses.<br />
5. Evaluate <strong>the</strong> benefits and limitations of enterprise systems and <strong>in</strong>dustrial<br />
networks.<br />
Alp<strong>in</strong>a Mooves Faster<br />
with <strong>Enterprise</strong> <strong>Systems</strong><br />
Alp<strong>in</strong>a Productos Alimenticios is a privately owned dairy products company headquartered <strong>in</strong><br />
Bogota, Colombia. It produces more than 400,000 liters of milk daily and sells more than 200<br />
products <strong>in</strong> Colombia, Central America, and North America, <strong>in</strong>clud<strong>in</strong>g a wide array of cheeses,<br />
yogurts, milk-based beverages, fruit juices, and chilled desserts. Alp<strong>in</strong>a has 21 sales agencies,<br />
plants <strong>in</strong> Venezuela and Ecuador, and 3,400 employees, which process 72 million orders and<br />
400,000 <strong>in</strong>voices per year. The diversity of its products, <strong>the</strong> delivery volume, and <strong>the</strong> size of<br />
Alp<strong>in</strong>a’s market creates enormous supply cha<strong>in</strong> management tasks. Dairy products require constant<br />
refrigeration and have an average shelf life of only 21 days. The company must deliver products<br />
directly to stores or distributors with<strong>in</strong> 24 hours after an order has been placed.<br />
The company wants to expand <strong>in</strong>to new regional and export markets by ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g an<br />
exceptionally high level of product quality, service, and production efficiency. It must cope with<br />
a regional economic downturn, consumer demand for lower prices, and new global and local<br />
competitors. Although Alp<strong>in</strong>a was doubl<strong>in</strong>g sales every two years, its <strong>in</strong>formation systems could<br />
not support its pace of growth. Alp<strong>in</strong>a had built a series of systems itself that were not <strong>in</strong>tegrated
and <strong>the</strong> systems operated <strong>in</strong> isolation from each o<strong>the</strong>r. The firm had no way of<br />
communicat<strong>in</strong>g or consolidat<strong>in</strong>g company-wide <strong>in</strong>formation.<br />
To <strong>in</strong>crease productivity and competitiveness, Alp<strong>in</strong>a decided to <strong>in</strong>stall enterprise<br />
resource plann<strong>in</strong>g software, embark<strong>in</strong>g <strong>in</strong> 1995 on an ambitious project to<br />
create <strong>in</strong>tegrated systems for <strong>in</strong>dustrial processes, logistics management, adm<strong>in</strong>istrative<br />
and f<strong>in</strong>ancial functions, and commercial functions. Alp<strong>in</strong>a started its enterprise<br />
project with pieces of software from a number of different vendors but eventually<br />
used Oracle Consumer Packaged Goods (CPG) software to <strong>in</strong>tegrate <strong>the</strong>se<br />
functions. By December 1998 Alp<strong>in</strong>a had <strong>in</strong>stalled <strong>the</strong> Oracle CPG software <strong>in</strong> its<br />
production plants and sales agencies.<br />
Monitor market<br />
changes<br />
Monitor service<br />
and costs<br />
Oracle Consumer<br />
Packaged Goods<br />
software<br />
Sales agencies<br />
Plants<br />
Distributors<br />
Integrate production<br />
logistics, sales, and<br />
f<strong>in</strong>ancial data<br />
Improve <strong>in</strong>ventory<br />
plann<strong>in</strong>g<br />
Consolidate delivery<br />
loads<br />
Calculate consumer<br />
demand<br />
Short shelf life of products<br />
Rapid growth<br />
New global and local<br />
competitors<br />
The new system has enabled Alp<strong>in</strong>a to reduce its <strong>in</strong>ventory through better<br />
plann<strong>in</strong>g and stock<strong>in</strong>g of raw materials and f<strong>in</strong>ished products. Alp<strong>in</strong>a has reduced<br />
turnaround <strong>in</strong> raw materials from 35 days to 25 days and has reduced turnaround<br />
<strong>in</strong> f<strong>in</strong>ished products from 8 days to 5 days. Through better supply cha<strong>in</strong> management,<br />
Alp<strong>in</strong>a is sav<strong>in</strong>g $2.7 million each year. Alp<strong>in</strong>a has also reduced costs by<br />
us<strong>in</strong>g <strong>the</strong> <strong>in</strong>formation from its system to consolidate delivery loads and create more<br />
efficient delivery routes. The system’s transportation plann<strong>in</strong>g capabilities have<br />
helped <strong>the</strong> company reduce <strong>the</strong> number of trucks at each of its major distribution<br />
centers by 15 percent, sav<strong>in</strong>g $200,000 annually <strong>in</strong> transport costs.<br />
With <strong>in</strong>formation about past order history, Alp<strong>in</strong>a’s system helps customers<br />
plan and stock <strong>the</strong>ir shelf space, provid<strong>in</strong>g <strong>the</strong>m with <strong>in</strong>formation about which<br />
products, flavors, and sizes are most <strong>in</strong> demand <strong>in</strong> <strong>the</strong>ir stores. Alp<strong>in</strong>a is us<strong>in</strong>g this<br />
<strong>in</strong>formation as well to help calculate customer demand as it <strong>in</strong>troduces new products<br />
<strong>in</strong> <strong>the</strong> sub-Andes region, Central America, and <strong>the</strong> United States.<br />
Sources: Michael Miley, “Fast Moov<strong>in</strong>g,” Profit Magaz<strong>in</strong>e, February 2000 and www.alp<strong>in</strong>a.com.co.<br />
Increase service<br />
Reduce costs<br />
Alp<strong>in</strong>a Mooves Faster with<br />
<strong>Enterprise</strong> <strong>Systems</strong><br />
Management<br />
Challenges<br />
2.1 Key System Applications <strong>in</strong><br />
<strong>the</strong> Organization<br />
Different K<strong>in</strong>ds of <strong>Systems</strong><br />
Six Major Types of <strong>Systems</strong><br />
Relationship of <strong>Systems</strong> to One<br />
Ano<strong>the</strong>r<br />
2.2 <strong>Systems</strong> from a Functional<br />
Perspective<br />
Sales and Market<strong>in</strong>g <strong>Systems</strong><br />
W<strong>in</strong>dow on Management:<br />
How Southstream Seafoods<br />
Lands <strong>the</strong> Big Customers<br />
Manufactur<strong>in</strong>g and Production<br />
<strong>Systems</strong><br />
F<strong>in</strong>ance and Account<strong>in</strong>g<br />
<strong>Systems</strong><br />
Human Resources <strong>Systems</strong><br />
2.3 Integrat<strong>in</strong>g Functions and<br />
Bus<strong>in</strong>ess Processes:<br />
<strong>Enterprise</strong> <strong>Systems</strong> and<br />
Industrial Networks<br />
Bus<strong>in</strong>ess Processes and<br />
<strong>Information</strong> <strong>Systems</strong><br />
Customer Relationship<br />
Management and Supply<br />
Cha<strong>in</strong> Management<br />
W<strong>in</strong>dow on Organizations:<br />
Supply Cha<strong>in</strong> Management<br />
Keeps Inventory Fresh at HP<br />
<strong>Enterprise</strong> <strong>Systems</strong><br />
Management Decision Problem<br />
Analyz<strong>in</strong>g <strong>Enterprise</strong> Process<br />
Integration<br />
Benefits and Challenges of<br />
<strong>Enterprise</strong> <strong>Systems</strong><br />
Extended <strong>Enterprise</strong>s and<br />
Industrial Networks<br />
Application Software Exercise:<br />
Database Exercise<br />
Management Wrap-Up •<br />
Summary • Key Terms • Review<br />
Questions • Group Project • Tools<br />
for Interactive Learn<strong>in</strong>g • Case<br />
Study<br />
3
4 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Management<br />
Challenges<br />
operational-level systems<br />
<strong>Information</strong> systems that monitor<br />
<strong>the</strong> elementary activities and<br />
transactions of <strong>the</strong> organization.<br />
Bus<strong>in</strong>esses need different types of <strong>in</strong>formation systems to support decision mak<strong>in</strong>g and<br />
work activities for various organizational levels and functions.To respond to new competitive<br />
pressures, many are implement<strong>in</strong>g enterprise-wide systems that <strong>in</strong>tegrate <strong>in</strong>formation<br />
and bus<strong>in</strong>ess processes from different functional areas. Alp<strong>in</strong>a, for <strong>in</strong>stance, needed <strong>in</strong>formation<br />
systems that would allow it to move its products more efficiently through its supply<br />
cha<strong>in</strong>. It found a solution <strong>in</strong> build<strong>in</strong>g systems that could l<strong>in</strong>k important bus<strong>in</strong>ess<br />
processes for sales, production, and logistics.The open<strong>in</strong>g vignette presents <strong>the</strong> potential<br />
rewards to firms with well-conceived systems l<strong>in</strong>k<strong>in</strong>g <strong>the</strong> entire enterprise. Such systems<br />
typically require a significant amount of organizational and management change and raise<br />
<strong>the</strong> follow<strong>in</strong>g management challenges:<br />
1. Integration. Although it is necessary to design different systems serv<strong>in</strong>g different<br />
levels, functions, and bus<strong>in</strong>ess processes <strong>in</strong> <strong>the</strong> firm, more and more firms are f<strong>in</strong>d<strong>in</strong>g<br />
advantages <strong>in</strong> <strong>in</strong>tegrat<strong>in</strong>g systems. However, <strong>in</strong>tegrat<strong>in</strong>g systems for different organizational<br />
levels, functions, and bus<strong>in</strong>ess processes to freely exchange <strong>in</strong>formation can<br />
be technologically difficult and costly. Managers need to determ<strong>in</strong>e what level of system<br />
<strong>in</strong>tegration is required and how much it is worth <strong>in</strong> dollars.<br />
2. Enlarg<strong>in</strong>g <strong>the</strong> scope of management th<strong>in</strong>k<strong>in</strong>g. Most managers are tra<strong>in</strong>ed to<br />
manage a product l<strong>in</strong>e, a division, or an office.They are rarely tra<strong>in</strong>ed to optimize <strong>the</strong><br />
performance of <strong>the</strong> organization as a whole, and often are not given <strong>the</strong> means to<br />
do so. But enterprise systems and <strong>in</strong>dustrial networks require managers to take a<br />
much larger view of <strong>the</strong>ir own behavior to <strong>in</strong>clude o<strong>the</strong>r products, divisions, departments,<br />
and even outside bus<strong>in</strong>ess firms. Investments <strong>in</strong> enterprise systems are huge,<br />
<strong>the</strong>y must be developed over long periods of time, and <strong>the</strong>y must be guided by a<br />
shared vision of <strong>the</strong> objectives.<br />
In this chapter we exam<strong>in</strong>e <strong>the</strong> role of <strong>the</strong> various types of <strong>in</strong>formation systems <strong>in</strong> organizations.<br />
First we look at ways of classify<strong>in</strong>g <strong>in</strong>formation systems based on <strong>the</strong> organizational<br />
level <strong>the</strong>y support. Next we look at systems <strong>in</strong> terms of <strong>the</strong> organizational function <strong>the</strong>y<br />
serve. We <strong>the</strong>n show how systems can support bus<strong>in</strong>ess processes, <strong>in</strong>clud<strong>in</strong>g processes spann<strong>in</strong>g<br />
more than one function, such as customer relationship management and supply cha<strong>in</strong><br />
management. F<strong>in</strong>ally, we exam<strong>in</strong>e enterprise systems and <strong>in</strong>dustrial networks, which enable<br />
organizations to <strong>in</strong>tegrate <strong>in</strong>formation and bus<strong>in</strong>ess processes across entire firms and even<br />
entire <strong>in</strong>dustries.<br />
2.1 Key System Applications <strong>in</strong> <strong>the</strong><br />
Organization<br />
Because <strong>the</strong>re are different <strong>in</strong>terests, specialties, and levels <strong>in</strong> an organization, <strong>the</strong>re are different<br />
k<strong>in</strong>ds of systems. No s<strong>in</strong>gle system can provide all <strong>the</strong> <strong>in</strong>formation an organization<br />
needs. Figure 2-1 illustrates one way to depict <strong>the</strong> k<strong>in</strong>ds of systems found <strong>in</strong> an organization.<br />
In <strong>the</strong> illustration, <strong>the</strong> organization is divided <strong>in</strong>to strategic, management, knowledge, and<br />
operational levels and <strong>the</strong>n is fur<strong>the</strong>r divided <strong>in</strong>to functional areas such as sales and market<strong>in</strong>g,<br />
manufactur<strong>in</strong>g, f<strong>in</strong>ance, account<strong>in</strong>g, and human resources. <strong>Systems</strong> are built to serve<br />
<strong>the</strong>se different organizational <strong>in</strong>terests (Anthony, 1965).<br />
Different K<strong>in</strong>ds of <strong>Systems</strong><br />
Four ma<strong>in</strong> types of <strong>in</strong>formation systems serve different organizational levels: operationallevel<br />
systems, knowledge-level systems, management-level systems, and strategic-level systems.<br />
Operational-level systems support operational managers by keep<strong>in</strong>g track of <strong>the</strong> elementary<br />
activities and transactions of <strong>the</strong> organization, such as sales, receipts, cash deposits,<br />
payroll, credit decisions, and <strong>the</strong> flow of materials <strong>in</strong> a factory. The pr<strong>in</strong>cipal purpose of systems<br />
at this level is to answer rout<strong>in</strong>e questions and to track <strong>the</strong> flow of transactions through<br />
<strong>the</strong> organization. How many parts are <strong>in</strong> <strong>in</strong>ventory? What happened to Mr. Williams’s pay
Operational<br />
Level<br />
FUNCTIONAL<br />
AREAS<br />
KIND OF<br />
INFORMATION SYSTEM<br />
Knowledge<br />
Level<br />
Sales and<br />
Market<strong>in</strong>g<br />
Management<br />
Level<br />
Strategic<br />
Level<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 5<br />
GROUPS<br />
SERVED<br />
Senior<br />
Managers<br />
Middle<br />
Managers<br />
Knowledge and<br />
Data Workers<br />
Manufactur<strong>in</strong>g F<strong>in</strong>ance Account<strong>in</strong>g Human<br />
Resources<br />
Operational<br />
Managers<br />
ment? To answer <strong>the</strong>se k<strong>in</strong>ds of questions, <strong>in</strong>formation generally must be easily available,<br />
current, and accurate. Examples of operational-level systems <strong>in</strong>clude a system to record bank<br />
deposits from automatic teller mach<strong>in</strong>es or one that tracks <strong>the</strong> number of hours worked each<br />
day by employees on a factory floor.<br />
Knowledge-level systems support <strong>the</strong> organization’s knowledge and data workers. The<br />
purpose of knowledge-level systems is to help <strong>the</strong> bus<strong>in</strong>ess firm <strong>in</strong>tegrate new knowledge <strong>in</strong>to<br />
<strong>the</strong> bus<strong>in</strong>ess and to help <strong>the</strong> organization control <strong>the</strong> flow of paperwork. Knowledge-level<br />
systems, especially <strong>in</strong> <strong>the</strong> form of workstations and office systems, are <strong>the</strong> fastest-grow<strong>in</strong>g<br />
applications <strong>in</strong> bus<strong>in</strong>ess today.<br />
Management-level systems serve <strong>the</strong> monitor<strong>in</strong>g, controll<strong>in</strong>g, decision-mak<strong>in</strong>g, and<br />
adm<strong>in</strong>istrative activities of middle managers. The pr<strong>in</strong>cipal question addressed by such systems<br />
is: Are th<strong>in</strong>gs work<strong>in</strong>g well? Management-level systems typically provide periodic<br />
reports ra<strong>the</strong>r than <strong>in</strong>stant <strong>in</strong>formation on operations. An example is a relocation control system<br />
that reports on <strong>the</strong> total mov<strong>in</strong>g, house-hunt<strong>in</strong>g, and home f<strong>in</strong>anc<strong>in</strong>g costs for employees<br />
<strong>in</strong> all company divisions, not<strong>in</strong>g wherever actual costs exceed budgets.<br />
Some management-level systems support nonrout<strong>in</strong>e decision mak<strong>in</strong>g (Keen and<br />
Morton, 1978). They tend to focus on less-structured decisions for which <strong>in</strong>formation<br />
requirements are not always clear. These systems often answer “what if” questions: What<br />
would be <strong>the</strong> impact on production schedules if we were to double sales <strong>in</strong> <strong>the</strong> month of<br />
December? What would happen to our return on <strong>in</strong>vestment if a factory schedule were<br />
delayed for six months? Answers to <strong>the</strong>se questions frequently require new data from outside<br />
<strong>the</strong> organization, as well as data from <strong>in</strong>side that cannot be easily drawn from exist<strong>in</strong>g<br />
operational-level systems.<br />
Strategic-level systems help senior management tackle and address strategic issues and<br />
long-term trends, both <strong>in</strong> <strong>the</strong> firm and <strong>in</strong> <strong>the</strong> external environment. Their pr<strong>in</strong>cipal concern<br />
is match<strong>in</strong>g changes <strong>in</strong> <strong>the</strong> external environment with exist<strong>in</strong>g organizational capability.<br />
What will employment levels be <strong>in</strong> five years? What are <strong>the</strong> long-term <strong>in</strong>dustry cost trends,<br />
and where does our firm fit <strong>in</strong>? What products should we be mak<strong>in</strong>g <strong>in</strong> five years?<br />
<strong>Information</strong> systems also serve <strong>the</strong> major bus<strong>in</strong>ess functions, such as sales and market<strong>in</strong>g,<br />
manufactur<strong>in</strong>g, f<strong>in</strong>ance, account<strong>in</strong>g, and human resources. A typical organization has<br />
operational-, management-, knowledge-, and strategic-level systems for each functional area.<br />
For example, <strong>the</strong> sales function generally has a sales system on <strong>the</strong> operational level to record<br />
daily sales figures and to process orders. A knowledge-level system designs promotional displays<br />
for <strong>the</strong> firm’s products. A management-level system tracks monthly sales figures by sales<br />
territory and reports on territories where sales exceed or fall below anticipated levels. A system<br />
to forecast sales trends over a five-year period serves <strong>the</strong> strategic level.<br />
Figure 2-1 Types of <strong>in</strong>formation<br />
systems. Organizations can<br />
be divided <strong>in</strong>to strategic, management,<br />
knowledge, and operational<br />
levels and <strong>in</strong>to five major<br />
functional areas: sales and market<strong>in</strong>g,<br />
manufactur<strong>in</strong>g, f<strong>in</strong>ance,<br />
account<strong>in</strong>g, and human<br />
resources. <strong>Information</strong> systems<br />
serve each of <strong>the</strong>se levels and<br />
functions.<br />
knowledge-level systems<br />
<strong>Information</strong> systems that support<br />
knowledge and data workers<br />
<strong>in</strong> an organization.<br />
management-level systems<br />
<strong>Information</strong> systems that support<br />
<strong>the</strong> monitor<strong>in</strong>g, controll<strong>in</strong>g,<br />
decision-mak<strong>in</strong>g, and adm<strong>in</strong>istrative<br />
activities of middle managers.<br />
strategic-level systems<br />
<strong>Information</strong> systems that support<br />
<strong>the</strong> long-range plann<strong>in</strong>g<br />
activities of senior management.
6 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Figure 2-2 The six major<br />
types of <strong>in</strong>formation systems:<br />
TPS, office systems, KWS, DSS,<br />
MIS, and ESS, show<strong>in</strong>g <strong>the</strong> level of<br />
<strong>the</strong> organization and bus<strong>in</strong>ess<br />
function that each supports.<br />
transaction process<strong>in</strong>g<br />
systems (TPS)<br />
Computerized systems that perform<br />
and record <strong>the</strong> daily rout<strong>in</strong>e<br />
transactions necessary to conduct<br />
<strong>the</strong> bus<strong>in</strong>ess; <strong>the</strong>y serve <strong>the</strong><br />
organization’s operational level.<br />
TYPES OF SYSTEMS Strategic-Level <strong>Systems</strong><br />
Executive Support<br />
<strong>Systems</strong> (ESS)<br />
Management<br />
<strong>Information</strong><br />
<strong>Systems</strong> (MIS)<br />
Decision-Support<br />
<strong>Systems</strong> (DSS)<br />
Knowledge Work<br />
<strong>Systems</strong> (KWS)<br />
Office<br />
<strong>Systems</strong><br />
Transaction<br />
Process<strong>in</strong>g<br />
<strong>Systems</strong><br />
(TPS)<br />
Sales<br />
management<br />
Sales region<br />
analysis<br />
Eng<strong>in</strong>eer<strong>in</strong>g<br />
workstations<br />
Word<br />
process<strong>in</strong>g<br />
Order track<strong>in</strong>g<br />
Order process<strong>in</strong>g<br />
Sales and<br />
Market<strong>in</strong>g<br />
5-year<br />
sales trend<br />
forecast<strong>in</strong>g<br />
Inventory<br />
control<br />
Production<br />
schedul<strong>in</strong>g<br />
5-year 5-year<br />
operat<strong>in</strong>g budget<br />
plan forecast<strong>in</strong>g<br />
Profit<br />
plann<strong>in</strong>g<br />
Management-Level <strong>Systems</strong><br />
Annual<br />
budget<strong>in</strong>g<br />
Cost<br />
analysis<br />
Knowledge-Level <strong>Systems</strong><br />
Graphics<br />
workstations<br />
Document<br />
imag<strong>in</strong>g<br />
Operational-Level <strong>Systems</strong><br />
Personnel<br />
plann<strong>in</strong>g<br />
Managerial<br />
workstations<br />
Electronic<br />
calendars<br />
Mach<strong>in</strong>e control Securities Payroll Compensation<br />
trad<strong>in</strong>g<br />
Plant schedul<strong>in</strong>g Accounts Tra<strong>in</strong><strong>in</strong>g &<br />
payable development<br />
Material<br />
Cash<br />
movement control management<br />
Capital<br />
<strong>in</strong>vestment<br />
analysis<br />
Pric<strong>in</strong>g/profitability<br />
analysis<br />
Accounts<br />
receivable<br />
Relocation<br />
analysis<br />
Contract cost<br />
analysis<br />
Employee<br />
record keep<strong>in</strong>g<br />
Manufactur<strong>in</strong>g F<strong>in</strong>ance Account<strong>in</strong>g Human<br />
Resources<br />
We first describe <strong>the</strong> specific categories of systems serv<strong>in</strong>g each organizational level and<br />
<strong>the</strong>ir value to <strong>the</strong> organization. Then we show how organizations use <strong>the</strong>se systems for each<br />
major bus<strong>in</strong>ess function.<br />
Six Major Types of <strong>Systems</strong><br />
Figure 2-2 shows <strong>the</strong> specific types of <strong>in</strong>formation systems that correspond to each organizational<br />
level. The organization has executive support systems (ESS) at <strong>the</strong> strategic level; management<br />
<strong>in</strong>formation systems (MIS) and decision-support systems (DSS) at <strong>the</strong> management<br />
level; knowledge work systems (KWS) and office automation systems (OAS) at <strong>the</strong> knowledge<br />
level; and transaction process<strong>in</strong>g systems (TPS) at <strong>the</strong> operational level. <strong>Systems</strong> at each<br />
level <strong>in</strong> turn are specialized to serve each of <strong>the</strong> major functional areas. Thus, <strong>the</strong> typical systems<br />
found <strong>in</strong> organizations are designed to assist workers or managers at each level and <strong>in</strong><br />
<strong>the</strong> functions of sales and market<strong>in</strong>g, manufactur<strong>in</strong>g, f<strong>in</strong>ance, account<strong>in</strong>g, and human<br />
resources.<br />
Table 2-1 summarizes <strong>the</strong> features of <strong>the</strong> six types of <strong>in</strong>formation systems. It should be<br />
noted that each of <strong>the</strong> different k<strong>in</strong>ds of systems may have components that are used by organizational<br />
levels and groups o<strong>the</strong>r than <strong>the</strong>ir ma<strong>in</strong> constituencies. A secretary may f<strong>in</strong>d <strong>in</strong>formation<br />
on an MIS, or a middle manager may need to extract data from a TPS.<br />
Transaction Process<strong>in</strong>g <strong>Systems</strong><br />
Transaction process<strong>in</strong>g systems (TPS) are <strong>the</strong> basic bus<strong>in</strong>ess systems that serve <strong>the</strong> operational<br />
level of <strong>the</strong> organization. A transaction process<strong>in</strong>g system is a computerized system<br />
that performs and records <strong>the</strong> daily rout<strong>in</strong>e transactions necessary to conduct <strong>the</strong> bus<strong>in</strong>ess.<br />
Examples are sales order entry, hotel reservation systems, payroll, employee record keep<strong>in</strong>g,<br />
and shipp<strong>in</strong>g.<br />
At <strong>the</strong> operational level, tasks, resources, and goals are predef<strong>in</strong>ed and highly structured.<br />
The decision to grant credit to a customer, for <strong>in</strong>stance, is made by a lower-level supervisor
TABLE 2-1<br />
accord<strong>in</strong>g to predef<strong>in</strong>ed criteria. All that must be determ<strong>in</strong>ed is whe<strong>the</strong>r <strong>the</strong> customer meets<br />
<strong>the</strong> criteria.<br />
Figure 2-3 depicts a payroll TPS, which is a typical account<strong>in</strong>g transaction process<strong>in</strong>g<br />
system found <strong>in</strong> most firms. A payroll system keeps track of <strong>the</strong> money paid to employees.<br />
The master file is composed of discrete pieces of <strong>in</strong>formation (such as a name, address, or<br />
employee number) called data elements. Data are keyed <strong>in</strong>to <strong>the</strong> system, updat<strong>in</strong>g <strong>the</strong> data<br />
elements. The elements on <strong>the</strong> master file are comb<strong>in</strong>ed <strong>in</strong> different ways to create reports of<br />
<strong>in</strong>terest to management and government agencies and to send paychecks to employees. These<br />
TPS can generate o<strong>the</strong>r report comb<strong>in</strong>ations of exist<strong>in</strong>g data elements.<br />
O<strong>the</strong>r typical TPS applications are identified <strong>in</strong> Figure 2-4. The figure shows that <strong>the</strong>re<br />
are five functional categories of TPS: sales/market<strong>in</strong>g, manufactur<strong>in</strong>g/production, f<strong>in</strong>ance/<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 7<br />
Characteristics of <strong>Information</strong> Process<strong>in</strong>g<br />
<strong>Systems</strong><br />
Type of System <strong>Information</strong> Inputs Process<strong>in</strong>g <strong>Information</strong> Outputs Users<br />
ESS<br />
DSS<br />
MIS<br />
KWS<br />
Office systems<br />
TPS<br />
Aggregate data; external, <strong>in</strong>ternal<br />
Low-volume data or massive<br />
databases optimized for data<br />
analysis; analytic models and<br />
data analysis tools<br />
Summary transaction data; highvolume<br />
data; simple models<br />
Design specifications; knowledge<br />
base<br />
Documents; schedules<br />
Transactions; events<br />
Employee data (various departments)<br />
Payroll<br />
master<br />
file<br />
Data elements <strong>in</strong><br />
payroll master file<br />
Employee Number<br />
Name<br />
Address<br />
Department<br />
Occupation<br />
Pay rate<br />
Vacation time<br />
Gross pay<br />
Earn<strong>in</strong>gs<br />
(year to date)<br />
Withhold<strong>in</strong>gsFederal <strong>in</strong>come tax<br />
State tax<br />
FICA<br />
O<strong>the</strong>r<br />
Payroll<br />
system<br />
On-l<strong>in</strong>e<br />
queries:<br />
earn<strong>in</strong>gs<br />
Figure 2-3 A symbolic representation for a payroll TPS.<br />
Graphics; simulations;<br />
<strong>in</strong>teractive<br />
Interactive; simulations;<br />
analysis<br />
Rout<strong>in</strong>e reports; simple<br />
models; low-level<br />
analysis<br />
Model<strong>in</strong>g; simulations<br />
Document management;<br />
schedul<strong>in</strong>g;<br />
communication<br />
Sort<strong>in</strong>g; list<strong>in</strong>g; merg<strong>in</strong>g;<br />
updat<strong>in</strong>g<br />
Projections; responses<br />
to queries<br />
Special reports; decision<br />
analyses; responses<br />
to queries<br />
Summary and exception<br />
reports<br />
Models; graphics<br />
Documents; schedules;<br />
mail<br />
Detailed reports; lists;<br />
summaries<br />
To general ledger: wages and salaries<br />
Management<br />
reports<br />
Government documents<br />
Employee checks<br />
Employee Employee Gross<br />
Payroll<br />
Federal State FICA<br />
number name pay tax tax<br />
46848 Stoker, K. 2000.00 400.00 50.00 140.00<br />
Senior managers<br />
Professionals; staff managers<br />
Middle managers<br />
Professionals; technical staff<br />
Clerical workers<br />
Operations personnel;<br />
supervisors<br />
Earn<strong>in</strong>gs<br />
(year to date)<br />
6000.00
8 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Major functions<br />
of system<br />
Major<br />
application<br />
systems<br />
Sales/<br />
market<strong>in</strong>g<br />
systems<br />
Manufactur<strong>in</strong>g/<br />
production<br />
systems<br />
Sales management Schedul<strong>in</strong>g<br />
Market research Purchas<strong>in</strong>g<br />
Promotion Shipp<strong>in</strong>g/receiv<strong>in</strong>g<br />
Pric<strong>in</strong>g Eng<strong>in</strong>eer<strong>in</strong>g<br />
New products Operations<br />
Sales order<br />
<strong>in</strong>formation system<br />
Market research<br />
system<br />
Sales commission<br />
system<br />
TYPE OF TPS SYSTEM<br />
F<strong>in</strong>ance/<br />
account<strong>in</strong>g<br />
systems<br />
Human<br />
resources<br />
systems<br />
Figure 2-4 Typical applications of TPS. There are five functional categories of TPS: sales/market<strong>in</strong>g,<br />
manufactur<strong>in</strong>g/production, f<strong>in</strong>ance/account<strong>in</strong>g, human resources, and o<strong>the</strong>r types of systems specific to<br />
a particular <strong>in</strong>dustry.With<strong>in</strong> each of <strong>the</strong>se major functions are subfunctions. For each of <strong>the</strong>se subfunctions<br />
(e.g., sales management) <strong>the</strong>re is a major application system.<br />
knowledge work systems<br />
(KWS)<br />
<strong>Information</strong> systems that aid<br />
knowledge workers <strong>in</strong> <strong>the</strong> creation<br />
and <strong>in</strong>tegration of new<br />
knowledge <strong>in</strong> <strong>the</strong> organization.<br />
office systems<br />
Computer systems, such as<br />
word process<strong>in</strong>g, electronic mail<br />
systems, and schedul<strong>in</strong>g systems,<br />
that are designed to <strong>in</strong>crease <strong>the</strong><br />
productivity of data workers <strong>in</strong><br />
<strong>the</strong> office.<br />
Mach<strong>in</strong>e control<br />
systems<br />
Purchase order<br />
systems<br />
Quality control<br />
systems<br />
O<strong>the</strong>r types<br />
(e.g., university)<br />
Budget<strong>in</strong>g Personnel records Admissions<br />
General ledger Benefits Grade records<br />
Bill<strong>in</strong>g Compensation Course records<br />
Cost account<strong>in</strong>g Labor relations<br />
Tra<strong>in</strong><strong>in</strong>g<br />
Alumni<br />
General ledger Payroll Registration system<br />
Accounts<br />
receivable/payable<br />
Funds management<br />
systems<br />
Employee records Student transcript<br />
system<br />
Benefit systems Curriculum class<br />
control systems<br />
Career path<br />
systems<br />
Alumni benefactor<br />
system<br />
account<strong>in</strong>g, human resources, and o<strong>the</strong>r types of TPS that are unique to a particular <strong>in</strong>dustry.<br />
The UPS package track<strong>in</strong>g system described <strong>in</strong> Chapter 1 is an example of a manufactur<strong>in</strong>g<br />
TPS. UPS sells package delivery services; <strong>the</strong> system keeps track of all of its package<br />
shipment transactions.<br />
Transaction process<strong>in</strong>g systems are often so central to a bus<strong>in</strong>ess that TPS failure for a<br />
few hours can spell a firm’s demise and perhaps o<strong>the</strong>r firms l<strong>in</strong>ked to it. Imag<strong>in</strong>e what would<br />
happen to UPS if its package track<strong>in</strong>g system were not work<strong>in</strong>g! What would <strong>the</strong> airl<strong>in</strong>es do<br />
without <strong>the</strong>ir computerized reservation systems?<br />
Managers need TPS to monitor <strong>the</strong> status of <strong>in</strong>ternal operations and <strong>the</strong> firm’s relations<br />
with <strong>the</strong> external environment. TPS are also major producers of <strong>in</strong>formation for <strong>the</strong> o<strong>the</strong>r<br />
types of systems. (For example, <strong>the</strong> payroll system illustrated <strong>in</strong> Figure 2-4, along with o<strong>the</strong>r<br />
account<strong>in</strong>g TPS, supplies data to <strong>the</strong> company’s general ledger system, which is responsible<br />
for ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g records of <strong>the</strong> firm’s <strong>in</strong>come and expenses and for produc<strong>in</strong>g reports such as<br />
<strong>in</strong>come statements and balance sheets.)<br />
Knowledge Work and Office <strong>Systems</strong><br />
Knowledge work systems (KWS) and office systems serve <strong>the</strong> <strong>in</strong>formation needs at <strong>the</strong><br />
knowledge level of <strong>the</strong> organization. Knowledge work systems aid knowledge workers,<br />
whereas office automation systems primarily aid data workers (although <strong>the</strong>y are also used<br />
extensively by knowledge workers).<br />
In general, knowledge workers are people who hold formal university degrees and who are<br />
often members of a recognized profession, such as eng<strong>in</strong>eers, doctors, lawyers, and scientists.<br />
Their jobs consist primarily of creat<strong>in</strong>g new <strong>in</strong>formation and knowledge. Knowledge work<br />
systems (KWS), such as scientific or eng<strong>in</strong>eer<strong>in</strong>g design workstations, promote <strong>the</strong> creation<br />
of new knowledge and ensure that new knowledge and technical expertise are properly <strong>in</strong>tegrated<br />
<strong>in</strong>to <strong>the</strong> bus<strong>in</strong>ess. Data workers typically have less formal, advanced educational<br />
degrees and tend to process ra<strong>the</strong>r than create <strong>in</strong>formation. They consist primarily of secretaries,<br />
accountants, fil<strong>in</strong>g clerks, or managers whose jobs are pr<strong>in</strong>cipally to use, manipulate,<br />
or dissem<strong>in</strong>ate <strong>in</strong>formation. Office systems are <strong>in</strong>formation technology applications<br />
designed to <strong>in</strong>crease data workers’ productivity by support<strong>in</strong>g <strong>the</strong> coord<strong>in</strong>at<strong>in</strong>g and commu-
nicat<strong>in</strong>g activities of <strong>the</strong> typical office. Office systems<br />
coord<strong>in</strong>ate diverse <strong>in</strong>formation workers, geographic<br />
units, and functional areas: The systems communicate<br />
with customers, suppliers, and o<strong>the</strong>r organizations<br />
outside <strong>the</strong> firm and serve as a clear<strong>in</strong>ghouse for<br />
<strong>in</strong>formation and knowledge flows.<br />
Typical office systems handle and manage documents<br />
(through word process<strong>in</strong>g, desktop publish<strong>in</strong>g,<br />
document imag<strong>in</strong>g, and digital fil<strong>in</strong>g), schedul<strong>in</strong>g<br />
(through electronic calendars), and communication<br />
(through electronic mail, voice mail, or videoconferenc<strong>in</strong>g).<br />
Word process<strong>in</strong>g refers to <strong>the</strong> software and<br />
hardware that creates, edits, formats, stores, and<br />
pr<strong>in</strong>ts documents (see Chapter 6). Word process<strong>in</strong>g<br />
systems represent <strong>the</strong> s<strong>in</strong>gle most common application<br />
of <strong>in</strong>formation technology to office work, <strong>in</strong> part<br />
because produc<strong>in</strong>g documents is what offices are all<br />
about. Desktop publish<strong>in</strong>g produces professional,<br />
publish<strong>in</strong>g-quality documents by comb<strong>in</strong><strong>in</strong>g output<br />
from word process<strong>in</strong>g software with design elements, graphics, and special layout features.<br />
Companies are now start<strong>in</strong>g to publish documents <strong>in</strong> <strong>the</strong> form of <strong>Web</strong> pages for easy access<br />
and distribution. We describe <strong>Web</strong> publish<strong>in</strong>g <strong>in</strong> more detail <strong>in</strong> Chapter 12.<br />
Document imag<strong>in</strong>g systems are ano<strong>the</strong>r widely used knowledge application.<br />
Document imag<strong>in</strong>g systems convert documents and images <strong>in</strong>to digital form so that <strong>the</strong>y can<br />
be stored and accessed by <strong>the</strong> computer.<br />
Management <strong>Information</strong> <strong>Systems</strong><br />
In Chapter 1, we def<strong>in</strong>ed management <strong>in</strong>formation systems as <strong>the</strong> study of <strong>in</strong>formation systems<br />
<strong>in</strong> bus<strong>in</strong>ess and management. The term management <strong>in</strong>formation systems (MIS) also designates<br />
a specific category of <strong>in</strong>formation systems serv<strong>in</strong>g management-level functions.<br />
Management <strong>in</strong>formation systems (MIS) serve <strong>the</strong> management level of <strong>the</strong> organization,<br />
provid<strong>in</strong>g managers with reports and, <strong>in</strong> some cases, with on-l<strong>in</strong>e access to <strong>the</strong> organization’s<br />
current performance and historical records. Typically, <strong>the</strong>y are oriented almost exclusively to<br />
<strong>in</strong>ternal, not environmental or external, events. MIS primarily serve <strong>the</strong> functions of plann<strong>in</strong>g,<br />
controll<strong>in</strong>g, and decision mak<strong>in</strong>g at <strong>the</strong> management level. Generally, <strong>the</strong>y depend on<br />
underly<strong>in</strong>g transaction process<strong>in</strong>g systems for <strong>the</strong>ir data.<br />
MIS summarize and report on <strong>the</strong> company’s basic operations. The basic transaction<br />
data from TPS are compressed and are usually presented <strong>in</strong> long reports that are produced on<br />
a regular schedule. Figure 2-5 shows how a typical MIS transforms transaction-level data<br />
from <strong>in</strong>ventory, production, and account<strong>in</strong>g <strong>in</strong>to MIS files that are used to provide managers<br />
with reports. Figure 2-6 shows a sample report from this system.<br />
MIS usually serve managers <strong>in</strong>terested <strong>in</strong> weekly, monthly, and yearly results–not dayto-day<br />
activities. MIS generally provide answers to rout<strong>in</strong>e questions that have been specified<br />
<strong>in</strong> advance and have a predef<strong>in</strong>ed procedure for answer<strong>in</strong>g <strong>the</strong>m. For <strong>in</strong>stance, MIS reports<br />
might list <strong>the</strong> total pounds of lettuce used this quarter by a fast-food cha<strong>in</strong> or, as illustrated<br />
<strong>in</strong> Figure 2-6, compare total annual sales figures for specific products to planned targets.<br />
These systems are generally not flexible and have little analytical capability. Most MIS use<br />
simple rout<strong>in</strong>es such as summaries and comparisons, as opposed to sophisticated ma<strong>the</strong>matical<br />
models or statistical techniques.<br />
Decision-Support <strong>Systems</strong><br />
Decision-support systems (DSS) also serve <strong>the</strong> management level of <strong>the</strong> organization. DSS<br />
help managers make decisions that are unique, rapidly chang<strong>in</strong>g, and not easily specified <strong>in</strong><br />
advance. They address problems where <strong>the</strong> procedure for arriv<strong>in</strong>g at a solution may not be<br />
fully predef<strong>in</strong>ed <strong>in</strong> advance. Although DSS use <strong>in</strong>ternal <strong>in</strong>formation from TPS and MIS,<br />
<strong>the</strong>y often br<strong>in</strong>g <strong>in</strong> <strong>in</strong>formation from external sources, such as current stock prices or product<br />
prices of competitors.<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 9<br />
Graphics designers use desktop<br />
publish<strong>in</strong>g software to design a<br />
page for “La Op<strong>in</strong>ion.” Desktop publish<strong>in</strong>g<br />
software enables users to<br />
control all aspects of <strong>the</strong> design and<br />
layout process for professionallook<strong>in</strong>g<br />
publications.<br />
word process<strong>in</strong>g<br />
Office automation technology<br />
that facilitates <strong>the</strong> creation of<br />
documents through computerized<br />
text edit<strong>in</strong>g, formatt<strong>in</strong>g,<br />
stor<strong>in</strong>g, and pr<strong>in</strong>t<strong>in</strong>g.<br />
desktop publish<strong>in</strong>g<br />
Technology that produces<br />
professional-quality documents<br />
comb<strong>in</strong><strong>in</strong>g output from word<br />
processors with design, graphics,<br />
and special layout features.<br />
document imag<strong>in</strong>g systems<br />
<strong>Systems</strong> that convert documents<br />
and images <strong>in</strong>to digital form so<br />
that <strong>the</strong>y can be stored and<br />
accessed by <strong>the</strong> computer.<br />
management <strong>in</strong>formation<br />
systems (MIS)<br />
<strong>Information</strong> systems at <strong>the</strong> management<br />
level of an organization<br />
that serve <strong>the</strong> functions of plann<strong>in</strong>g,<br />
controll<strong>in</strong>g, and decision<br />
mak<strong>in</strong>g by provid<strong>in</strong>g rout<strong>in</strong>e<br />
summary and exception reports.<br />
decision-support systems<br />
(DSS)<br />
<strong>Information</strong> systems at <strong>the</strong> organization’s<br />
management level that<br />
comb<strong>in</strong>e data and sophisticated<br />
analytical models or data analysis<br />
tools to support semistructured<br />
and unstructured decision mak<strong>in</strong>g.
10 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Order<br />
file<br />
Production<br />
master<br />
file<br />
Account<strong>in</strong>g<br />
files<br />
Transaction Process<strong>in</strong>g <strong>Systems</strong> Management <strong>Information</strong> <strong>Systems</strong><br />
Order<br />
process<strong>in</strong>g<br />
system<br />
Materials<br />
resource<br />
plann<strong>in</strong>g<br />
system<br />
General<br />
ledger<br />
system<br />
Figure 2-6 A sample report<br />
that might be produced by <strong>the</strong><br />
MIS <strong>in</strong> Figure 2-5.<br />
Consolidated Consumer Products Corporation<br />
Sales by Product and Sales Region: 2001<br />
PRODUCT<br />
CODE<br />
4469<br />
MIS FILES<br />
Figure 2-5 How management <strong>in</strong>formation systems obta<strong>in</strong> <strong>the</strong>ir data from <strong>the</strong> organization’s TPS. In<br />
<strong>the</strong> system illustrated by this diagram, three TPS supply summarized transaction data at <strong>the</strong> end of <strong>the</strong><br />
time period to <strong>the</strong> MIS report<strong>in</strong>g system. Managers ga<strong>in</strong> access to <strong>the</strong> organizational data through <strong>the</strong><br />
MIS, which provides <strong>the</strong>m with <strong>the</strong> appropriate reports.<br />
Sales<br />
data<br />
Unit<br />
product<br />
cost data<br />
Product<br />
change<br />
data<br />
Expense<br />
data<br />
Clearly, by design, DSS have more analytical power than o<strong>the</strong>r systems. They are built<br />
explicitly with a variety of models to analyze data, or <strong>the</strong>y condense large amounts of data<br />
<strong>in</strong>to a form where <strong>the</strong>y can be analyzed by decision makers. DSS are designed so that users<br />
can work with <strong>the</strong>m directly; <strong>the</strong>se systems explicitly <strong>in</strong>clude user-friendly software. DSS are<br />
<strong>in</strong>teractive; <strong>the</strong> user can change assumptions, ask new questions, and <strong>in</strong>clude new data.<br />
An <strong>in</strong>terest<strong>in</strong>g, small, but powerful DSS is <strong>the</strong> voyage-estimat<strong>in</strong>g system of a subsidiary<br />
of a large American metals company that exists primarily to carry bulk cargoes of coal, oil,<br />
ores, and f<strong>in</strong>ished products for its parent company. The firm owns some vessels, charters o<strong>the</strong>rs,<br />
and bids for shipp<strong>in</strong>g contracts <strong>in</strong> <strong>the</strong> open market to carry general cargo. A voyageestimat<strong>in</strong>g<br />
system calculates f<strong>in</strong>ancial and technical voyage details. F<strong>in</strong>ancial calculations<br />
<strong>in</strong>clude ship/time costs (fuel, labor, capital), freight rates for various types of cargo, and port<br />
expenses. Technical details <strong>in</strong>clude a myriad of factors such as ship cargo capacity, speed, port<br />
distances, fuel and water consumption, and load<strong>in</strong>g patterns (location of cargo for different<br />
ports). The system can answer questions such as <strong>the</strong> follow<strong>in</strong>g: Given a customer delivery<br />
schedule and an offered freight rate, which vessel should be assigned at what rate to maximize<br />
PRODUCT<br />
DESCRIPTION<br />
Carpet Cleaner<br />
TOTAL<br />
SALES<br />
REGION<br />
Nor<strong>the</strong>ast<br />
South<br />
Midwest<br />
West<br />
ACTUAL<br />
SALES<br />
4,066,700<br />
3,778,112<br />
4,867,001<br />
4,003,440<br />
16,715,253<br />
5674 Room Freshener Nor<strong>the</strong>ast 3,676,700<br />
TOTAL<br />
MIS<br />
South<br />
Midwest<br />
West<br />
Reports Managers<br />
5,608,112<br />
4,711,001<br />
4,563,440<br />
18,559,253<br />
PLANNED<br />
4,800,000<br />
3,750,000<br />
4,600,000<br />
4,400,000<br />
17,550,000<br />
3,900,000<br />
4,700,000<br />
4,200,000<br />
4,900,000<br />
17,700,000<br />
ACTUAL VS.<br />
PLANNED<br />
0.85<br />
1.01<br />
1.06<br />
0.91<br />
0.95<br />
0.94<br />
1.19<br />
1.12<br />
0.93<br />
1.05
PC<br />
Graphics<br />
Reports<br />
Analytical<br />
models<br />
database<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 11<br />
Ship file (e.g.,<br />
speed capacity)<br />
Port distance<br />
restrictions file<br />
Fuel consumption<br />
cost file<br />
Ship charter hire<br />
history cost file<br />
Port<br />
expense file<br />
profits? What is <strong>the</strong> optimum speed at which a particular vessel can optimize its profit and<br />
still meet its delivery schedule? What is <strong>the</strong> optimal load<strong>in</strong>g pattern for a ship bound for <strong>the</strong><br />
U.S. West Coast from Malaysia? Figure 2-7 illustrates <strong>the</strong> DSS built for this company. The<br />
system operates on a powerful desktop personal computer, provid<strong>in</strong>g a system of menus that<br />
makes it easy for users to enter data or obta<strong>in</strong> <strong>in</strong>formation. We describe o<strong>the</strong>r types of DSS<br />
<strong>in</strong> Chapter 13.<br />
Executive Support <strong>Systems</strong><br />
Senior managers use executive support systems (ESS) to make decisions. ESS serve <strong>the</strong><br />
strategic level of <strong>the</strong> organization. They address nonrout<strong>in</strong>e decisions requir<strong>in</strong>g judgment,<br />
evaluation, and <strong>in</strong>sight because <strong>the</strong>re is no agreed-on procedure for arriv<strong>in</strong>g at a solution.<br />
ESS create a generalized comput<strong>in</strong>g and communications environment ra<strong>the</strong>r than provid<strong>in</strong>g<br />
any fixed application or specific capability. ESS are designed to <strong>in</strong>corporate data about<br />
external events such as new tax laws or competitors, but <strong>the</strong>y also draw summarized <strong>in</strong>formation<br />
from <strong>in</strong>ternal MIS and DSS. They filter, compress, and track critical data, emphasiz<strong>in</strong>g<br />
<strong>the</strong> reduction of time and effort required to obta<strong>in</strong> <strong>in</strong>formation useful to executives. ESS<br />
employ <strong>the</strong> most advanced graphics software and can deliver graphs and data from many<br />
sources immediately to a senior executive’s office or to a boardroom.<br />
Unlike <strong>the</strong> o<strong>the</strong>r types of <strong>in</strong>formation systems, ESS are not designed primarily to solve<br />
specific problems. Instead, ESS provide a generalized comput<strong>in</strong>g and telecommunications<br />
capacity that can be applied to a chang<strong>in</strong>g array of problems. Whereas many DSS are<br />
designed to be highly analytical, ESS tend to make less use of analytical models.<br />
Questions ESS assist <strong>in</strong> answer<strong>in</strong>g <strong>in</strong>clude <strong>the</strong> follow<strong>in</strong>g: In what bus<strong>in</strong>ess should we be?<br />
What are <strong>the</strong> competitors do<strong>in</strong>g? What new acquisitions would protect us from cyclical bus<strong>in</strong>ess<br />
sw<strong>in</strong>gs? Which units should we sell to raise cash for acquisitions (Rockart and Treacy,<br />
1982)? Figure 2-8 illustrates a model of an ESS. It consists of workstations with menus,<br />
<strong>in</strong>teractive graphics, and communications capabilities that can access historical and competitive<br />
data from <strong>in</strong>ternal corporate systems and external databases such as Dow Jones<br />
News/Retrieval or <strong>the</strong> Gallup Poll. Because ESS are designed to be used by senior managers<br />
who often have little, if any, direct contact or experience with computer-based <strong>in</strong>formation<br />
systems, <strong>the</strong>y <strong>in</strong>corporate easy-to-use graphic <strong>in</strong>terfaces. More details on lead<strong>in</strong>g-edge applications<br />
of DSS and ESS can be found <strong>in</strong> Chapter 13.<br />
Relationship of <strong>Systems</strong> to One Ano<strong>the</strong>r<br />
Figure 2-9 illustrates how <strong>the</strong> systems serv<strong>in</strong>g different levels <strong>in</strong> <strong>the</strong> organization are related to<br />
one ano<strong>the</strong>r. TPS are typically a major source of data for o<strong>the</strong>r systems, whereas ESS are primarily<br />
a recipient of data from lower-level systems. The o<strong>the</strong>r types of systems may exchange<br />
data with each o<strong>the</strong>r as well. Data may also be exchanged among systems serv<strong>in</strong>g different functional<br />
areas. For example, an order captured by a sales system may be transmitted to a manufactur<strong>in</strong>g<br />
system as a transaction for produc<strong>in</strong>g or deliver<strong>in</strong>g <strong>the</strong> product specified <strong>in</strong> <strong>the</strong> order.<br />
It is def<strong>in</strong>itely advantageous to have some measure of <strong>in</strong>tegration among <strong>the</strong>se systems so<br />
that <strong>in</strong>formation can flow easily between different parts of <strong>the</strong> organization. But <strong>in</strong>tegration<br />
Figure 2-7 Voyage estimat<strong>in</strong>g<br />
decision-support system. This<br />
DSS operates on a powerful PC.<br />
It is used daily by managers who<br />
must develop bids on shipp<strong>in</strong>g<br />
contracts.<br />
executive support systems<br />
(ESS)<br />
<strong>Information</strong> systems at <strong>the</strong> organization’s<br />
strategic level designed<br />
to address unstructured decision<br />
mak<strong>in</strong>g through advanced graphics<br />
and communications.
12 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Figure 2-8 Model of a typical<br />
executive support system. This<br />
system pools data from diverse<br />
<strong>in</strong>ternal and external sources and<br />
makes <strong>the</strong>m available to executives<br />
<strong>in</strong> an easy-to-use form.<br />
Figure 2-9 Interrelationships<br />
among systems. The various<br />
types of systems <strong>in</strong> <strong>the</strong> organization<br />
have <strong>in</strong>terdependencies.TPS<br />
are a major producer of <strong>in</strong>formation<br />
that is required by <strong>the</strong> o<strong>the</strong>r<br />
systems which, <strong>in</strong> turn, produce<br />
<strong>in</strong>formation for o<strong>the</strong>r systems.<br />
These different types of systems<br />
are only loosely coupled <strong>in</strong> most<br />
organizations.<br />
ESS<br />
workstation<br />
• Menus<br />
• Graphics<br />
• Communications<br />
• Local process<strong>in</strong>g<br />
Management<br />
systems<br />
(MIS)<br />
Knowledge<br />
systems<br />
(KWS and<br />
Office<br />
<strong>Systems</strong>)<br />
Internal data<br />
• TPS/MIS data<br />
• F<strong>in</strong>ancial data<br />
• Office systems<br />
• Model<strong>in</strong>g/<br />
analysis<br />
• Menus<br />
• Graphics<br />
• Communications<br />
• Local process<strong>in</strong>g<br />
Executive<br />
support<br />
systems<br />
(ESS)<br />
ESS<br />
workstation<br />
External data<br />
• Dow Jones<br />
• Internet News<br />
Feeds<br />
• Standard &<br />
Poor’s<br />
Management<br />
systems<br />
(DSS)<br />
Transaction<br />
process<strong>in</strong>g<br />
systems<br />
(TPS)<br />
ESS<br />
workstation<br />
• Menus<br />
• Graphics<br />
• Communications<br />
• Local process<strong>in</strong>g<br />
costs money, and <strong>in</strong>tegrat<strong>in</strong>g many different systems is extremely time consum<strong>in</strong>g and complex.<br />
Each organization must weigh its needs for <strong>in</strong>tegrat<strong>in</strong>g systems aga<strong>in</strong>st <strong>the</strong> difficulties<br />
of mount<strong>in</strong>g a large-scale systems <strong>in</strong>tegration effort. The discussion of enterprise systems <strong>in</strong><br />
Section 2.3 treats this issue <strong>in</strong> greater detail.<br />
2.2 <strong>Systems</strong> from a Functional<br />
Perspective<br />
<strong>Information</strong> systems can be classified by <strong>the</strong> specific organizational function <strong>the</strong>y serve as<br />
well as by organizational level. We now describe typical <strong>in</strong>formation systems that support<br />
each of <strong>the</strong> major bus<strong>in</strong>ess functions and provide examples of functional applications for<br />
each organizational level.<br />
Sales and Market<strong>in</strong>g <strong>Systems</strong><br />
The sales and market<strong>in</strong>g function is responsible for sell<strong>in</strong>g <strong>the</strong> organization’s product or service.<br />
Market<strong>in</strong>g is concerned with identify<strong>in</strong>g <strong>the</strong> customers for <strong>the</strong> firm’s products or services,<br />
determ<strong>in</strong><strong>in</strong>g what <strong>the</strong>y need or want, plann<strong>in</strong>g and develop<strong>in</strong>g products and services to
TABLE 2-2<br />
Examples of Sales and<br />
Market<strong>in</strong>g <strong>Information</strong> <strong>Systems</strong><br />
System Description Organizational Level<br />
Order process<strong>in</strong>g Enter, process, and track orders Operational<br />
Market analysis Identify customers and markets us<strong>in</strong>g<br />
data on demographics, markets,<br />
consumer behavior, and trends<br />
Knowledge<br />
Pric<strong>in</strong>g analysis Determ<strong>in</strong>e prices for products<br />
and services<br />
Management<br />
Sales trend forecast<strong>in</strong>g Prepare 5-year sales forecasts Strategic<br />
meet <strong>the</strong>ir needs, and advertis<strong>in</strong>g and promot<strong>in</strong>g <strong>the</strong>se products and services. Sales is concerned<br />
with contact<strong>in</strong>g customers, sell<strong>in</strong>g <strong>the</strong> products and services, tak<strong>in</strong>g orders, and follow<strong>in</strong>g<br />
up on sales. Sales and market<strong>in</strong>g <strong>in</strong>formation systems support <strong>the</strong>se activities.<br />
Table 2-2 shows that <strong>in</strong>formation systems are used <strong>in</strong> sales and market<strong>in</strong>g <strong>in</strong> a number<br />
of ways. At <strong>the</strong> strategic level, sales and market<strong>in</strong>g systems monitor trends affect<strong>in</strong>g new<br />
products and sales opportunities, support plann<strong>in</strong>g for new products and services, and monitor<br />
<strong>the</strong> performance of competitors. At <strong>the</strong> management level, sales and market<strong>in</strong>g systems<br />
support market research, advertis<strong>in</strong>g and promotional campaigns, and pric<strong>in</strong>g decisions.<br />
They analyze sales performance and <strong>the</strong> performance of <strong>the</strong> sales staff. Knowledge-level sales<br />
and market<strong>in</strong>g systems support market<strong>in</strong>g analysis workstations. At <strong>the</strong> operational level,<br />
sales and market<strong>in</strong>g systems assist <strong>in</strong> locat<strong>in</strong>g and contact<strong>in</strong>g prospective customers, track<strong>in</strong>g<br />
sales, process<strong>in</strong>g orders, and provid<strong>in</strong>g customer service support.<br />
Review Figure 2-6. It shows <strong>the</strong> output of a typical sales <strong>in</strong>formation system at <strong>the</strong> management<br />
level. The system consolidates data about each item sold (such as <strong>the</strong> product code,<br />
product description, and price) for fur<strong>the</strong>r management analysis. Company managers exam<strong>in</strong>e<br />
<strong>the</strong>se sales data to monitor sales activity and buy<strong>in</strong>g trends. The W<strong>in</strong>dow on<br />
Management describes some typical sales and market<strong>in</strong>g systems that might be found <strong>in</strong> a<br />
small bus<strong>in</strong>ess.<br />
Manufactur<strong>in</strong>g and Production <strong>Systems</strong><br />
The manufactur<strong>in</strong>g and production function is responsible for actually produc<strong>in</strong>g <strong>the</strong> firm’s<br />
goods and services. Manufactur<strong>in</strong>g and production systems deal with <strong>the</strong> plann<strong>in</strong>g, development,<br />
and ma<strong>in</strong>tenance of production facilities; <strong>the</strong> establishment of production goals; <strong>the</strong><br />
acquisition, storage, and availability of production materials; and <strong>the</strong> schedul<strong>in</strong>g of equipment,<br />
facilities, materials, and labor required to fashion f<strong>in</strong>ished products. Manufactur<strong>in</strong>g<br />
and production <strong>in</strong>formation systems support <strong>the</strong>se activities.<br />
Table 2-3 shows some typical manufactur<strong>in</strong>g and production <strong>in</strong>formation systems<br />
arranged by organizational level. Strategic-level manufactur<strong>in</strong>g systems deal with <strong>the</strong> firm’s<br />
TABLE 2-3<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 13<br />
Examples of Manufactur<strong>in</strong>g and<br />
Production <strong>Information</strong> <strong>Systems</strong><br />
System Description Organizational Level<br />
Mach<strong>in</strong>e control Control <strong>the</strong> actions of mach<strong>in</strong>es<br />
and equipment<br />
Operational<br />
Computer-aided design (CAD) Design new products us<strong>in</strong>g<br />
<strong>the</strong> computer<br />
Knowledge<br />
Production plann<strong>in</strong>g Decide when and how many<br />
products should be produced<br />
Management<br />
Facilities location Decide where to locate new<br />
production facilities<br />
Strategic<br />
sales and market<strong>in</strong>g<br />
<strong>in</strong>formation systems<br />
<strong>Systems</strong> that help <strong>the</strong> firm identify<br />
customers for <strong>the</strong> firm’s<br />
products or services, develop<br />
products and services to meet<br />
customer’s needs, promote<br />
products and services, sell <strong>the</strong><br />
products and services, and provide<br />
ongo<strong>in</strong>g customer support.<br />
manufactur<strong>in</strong>g and production<br />
<strong>in</strong>formation systems<br />
<strong>Systems</strong> that deal with <strong>the</strong> plann<strong>in</strong>g,<br />
development, and production<br />
of products and services<br />
and with controll<strong>in</strong>g <strong>the</strong> flow of<br />
production.
14 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
How Southstream Seafoods<br />
Lands <strong>the</strong> Big Customers<br />
Accord<strong>in</strong>g to Mark Soderstrom,<br />
president of Southstream Seafoods,<br />
anyone can sell fish. He believes<br />
that his company does it better<br />
than anyone else, thanks to powerful<br />
customer contact and sales<br />
<strong>in</strong>formation systems. Southstream Seafoods is based <strong>in</strong> Warwick,<br />
Rhode Island, and is an importer and wholesaler of frozen<br />
seafood that sells primarily to food-service distributors and<br />
restaurant cha<strong>in</strong>s. The company has been <strong>in</strong> bus<strong>in</strong>ess for more<br />
than 10 years and has 20 employees.<br />
To stay ahead of competitors <strong>in</strong> a tough bus<strong>in</strong>ess,<br />
Southstream <strong>in</strong>stalled a customer relationship management<br />
(CRM) system with software from Sage Inc. The system keeps<br />
track of Southstream’s customers, phone calls, and sales transactions<br />
and helps management measure <strong>the</strong> efficiency and productivity<br />
of <strong>the</strong> sales force.<br />
Sell<strong>in</strong>g fish is challeng<strong>in</strong>g for both wholesalers and retailers<br />
because fish prices constantly go up and down, with factors<br />
such as wea<strong>the</strong>r or availability affect<strong>in</strong>g <strong>the</strong> bus<strong>in</strong>ess with<strong>in</strong> a<br />
few days. Soderstrom turned this problem <strong>in</strong>to an opportunity<br />
to serve his customers better than competitors by broadcast<strong>in</strong>g<br />
<strong>in</strong>formation about chang<strong>in</strong>g market prices to customers so <strong>the</strong>y<br />
can make better bus<strong>in</strong>ess decisions. Southstream configured <strong>the</strong><br />
contact management portion of <strong>the</strong> system so that with a click<br />
of a button, sales staff could send out <strong>in</strong>formation only to specified<br />
customers. The customer records <strong>in</strong> <strong>the</strong> system <strong>in</strong>clude<br />
check boxes <strong>in</strong>dicat<strong>in</strong>g which types of fish <strong>the</strong>y purchase. The<br />
check boxes enable Southstream to locate only those customers,<br />
for <strong>in</strong>stance, who purchase Alaskan cod. Southstream<br />
can <strong>the</strong>n send a fax about changes <strong>in</strong> Alaskan cod prices only to<br />
those customers who actually use <strong>the</strong> product. Southstream<br />
uses <strong>the</strong> system to fax market <strong>in</strong>formation to about half of its<br />
1,000 customers each week.<br />
management<br />
Sources: Angela R. Garber, “Hook, L<strong>in</strong>e, and S<strong>in</strong>ker,” Small Bus<strong>in</strong>ess Comput<strong>in</strong>g,<br />
New caption to come<br />
The average Southstream sales representative handles<br />
between 75 and 125 active accounts.When mak<strong>in</strong>g each call, <strong>the</strong><br />
salesperson enters sales <strong>in</strong>formation, <strong>in</strong>clud<strong>in</strong>g quantity, price,<br />
and shipp<strong>in</strong>g <strong>in</strong>formation <strong>in</strong>to <strong>the</strong> system. The salesperson can<br />
also use <strong>the</strong> system to set callback dates and rem<strong>in</strong>der alarms.<br />
The system records <strong>the</strong> duration of each call and makes all of<br />
<strong>the</strong> <strong>in</strong>formation available to a manager or Southstream’s shipp<strong>in</strong>g<br />
department. If <strong>the</strong> shipp<strong>in</strong>g department gets a call <strong>in</strong>dicat<strong>in</strong>g<br />
that a customer’s fish hasn’t arrived on time, <strong>the</strong> shipp<strong>in</strong>g<br />
department can enter <strong>the</strong> customer’s name and immediately<br />
see what that customer has just purchased and when delivery is<br />
expected.<br />
Soderstrom can generate reports from <strong>the</strong> system to analyze<br />
<strong>the</strong> efficiency of his sales staff and f<strong>in</strong>d ways of better servic<strong>in</strong>g<br />
customer accounts. The system can show him exactly<br />
what each salesperson has done, show<strong>in</strong>g all of his or her phone<br />
calls, sales, and <strong>the</strong> results of phone calls. Us<strong>in</strong>g this <strong>in</strong>formation,<br />
Soderstrom might f<strong>in</strong>d that one sales representative is spend<strong>in</strong>g<br />
too much time on a customer with a historically low volume of<br />
purchases and recommend that <strong>the</strong> salesperson allocate more<br />
time to a customer with more purchas<strong>in</strong>g potential. Us<strong>in</strong>g only<br />
10 sales representatives and 2 people <strong>in</strong> <strong>the</strong> shipp<strong>in</strong>g department,<br />
Southstream sells and ships about one million pounds of<br />
fish each week.Without <strong>the</strong> system, <strong>the</strong> company would need a<br />
staff twice as big to do <strong>the</strong> job.<br />
To Th<strong>in</strong>k About: What k<strong>in</strong>ds of systems for sales and market<strong>in</strong>g<br />
are described here? How do <strong>the</strong>se systems support <strong>the</strong><br />
sales function? What organizational levels are supported by<br />
<strong>the</strong>se systems?<br />
February 2000; and www.southstream.com.
Shipment and order data<br />
Inventory<br />
master<br />
file<br />
Data elements <strong>in</strong><br />
<strong>in</strong>ventory master file:<br />
Item code<br />
Description<br />
Units on hand<br />
Units on order<br />
Reorder po<strong>in</strong>t<br />
Inventory<br />
Control<br />
System<br />
On-l<strong>in</strong>e<br />
queries<br />
Item<br />
Code<br />
6361<br />
4466<br />
9313<br />
8808<br />
long-term manufactur<strong>in</strong>g goals, such as where to locate new plants or whe<strong>the</strong>r to <strong>in</strong>vest <strong>in</strong><br />
new manufactur<strong>in</strong>g technology. At <strong>the</strong> management level, manufactur<strong>in</strong>g and production<br />
systems analyze and monitor manufactur<strong>in</strong>g and production costs and resources. Knowledge<br />
manufactur<strong>in</strong>g and production systems create and distribute design knowledge or expertise<br />
to drive <strong>the</strong> production process, and operational manufactur<strong>in</strong>g and production systems deal<br />
with <strong>the</strong> status of production tasks.<br />
Most manufactur<strong>in</strong>g and production systems use some sort of <strong>in</strong>ventory system, illustrated<br />
<strong>in</strong> Figure 2-10. Data about each item <strong>in</strong> <strong>in</strong>ventory, such as <strong>the</strong> number of units<br />
depleted because of a shipment or purchase or <strong>the</strong> number of units replenished by reorder<strong>in</strong>g<br />
or returns, are ei<strong>the</strong>r scanned or keyed <strong>in</strong>to <strong>the</strong> system. The <strong>in</strong>ventory master file conta<strong>in</strong>s<br />
basic data about each item, <strong>in</strong>clud<strong>in</strong>g <strong>the</strong> unique identification code for each item, <strong>the</strong><br />
description of <strong>the</strong> item, <strong>the</strong> number of units on hand, <strong>the</strong> number of units on order, and <strong>the</strong><br />
reorder po<strong>in</strong>t (<strong>the</strong> number of units <strong>in</strong> <strong>in</strong>ventory that triggers a decision to reorder to prevent<br />
a stockout). Companies can estimate <strong>the</strong> number of items to reorder or <strong>the</strong>y can use a formula<br />
for calculat<strong>in</strong>g <strong>the</strong> least expensive quantity to reorder called <strong>the</strong> economic order quantity.<br />
The system produces reports such as <strong>the</strong> number of each item available <strong>in</strong> <strong>in</strong>ventory, <strong>the</strong><br />
number of units of each item to reorder, or items <strong>in</strong> <strong>in</strong>ventory that must be replenished.<br />
F<strong>in</strong>ance and Account<strong>in</strong>g <strong>Systems</strong><br />
The f<strong>in</strong>ance function is responsible for manag<strong>in</strong>g <strong>the</strong> firm’s f<strong>in</strong>ancial assets, such as cash,<br />
stocks, bonds, and o<strong>the</strong>r <strong>in</strong>vestments, <strong>in</strong> order to maximize <strong>the</strong> return on <strong>the</strong>se f<strong>in</strong>ancial<br />
assets. The f<strong>in</strong>ance function is also <strong>in</strong> charge of manag<strong>in</strong>g <strong>the</strong> capitalization of <strong>the</strong> firm (f<strong>in</strong>d<strong>in</strong>g<br />
new f<strong>in</strong>ancial assets <strong>in</strong> stocks, bonds, or o<strong>the</strong>r forms of debt). In order to determ<strong>in</strong>e<br />
whe<strong>the</strong>r <strong>the</strong> firm is gett<strong>in</strong>g <strong>the</strong> best return on its <strong>in</strong>vestments, <strong>the</strong> f<strong>in</strong>ance function must<br />
obta<strong>in</strong> a considerable amount of <strong>in</strong>formation from sources external to <strong>the</strong> firm.<br />
The account<strong>in</strong>g function is responsible for ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g and manag<strong>in</strong>g <strong>the</strong> firm’s f<strong>in</strong>ancial<br />
records–receipts, disbursements, depreciation, payroll–to account for <strong>the</strong> flow of funds<br />
<strong>in</strong> a firm. F<strong>in</strong>ance and account<strong>in</strong>g share related problems–how to keep track of a firm’s f<strong>in</strong>ancial<br />
assets and fund flows. They provide answers to questions such as <strong>the</strong>se: What is <strong>the</strong> current<br />
<strong>in</strong>ventory of f<strong>in</strong>ancial assets? What records exist for disbursements, receipts, payroll, and<br />
o<strong>the</strong>r fund flows?<br />
Table 2-4 shows some of <strong>the</strong> typical f<strong>in</strong>ance and account<strong>in</strong>g <strong>in</strong>formation systems<br />
found <strong>in</strong> large organizations. Strategic-level systems for <strong>the</strong> f<strong>in</strong>ance and account<strong>in</strong>g function<br />
establish long-term <strong>in</strong>vestment goals for <strong>the</strong> firm and provide long-range forecasts of <strong>the</strong><br />
firm’s f<strong>in</strong>ancial performance. At <strong>the</strong> management level, <strong>in</strong>formation systems help managers<br />
oversee and control <strong>the</strong> firm’s f<strong>in</strong>ancial resources. Knowledge systems support f<strong>in</strong>ance and<br />
account<strong>in</strong>g by provid<strong>in</strong>g analytical tools and workstations for design<strong>in</strong>g <strong>the</strong> right mix of<br />
<strong>in</strong>vestments to maximize returns for <strong>the</strong> firm. Operational systems <strong>in</strong> f<strong>in</strong>ance and account<strong>in</strong>g<br />
track <strong>the</strong> flow of funds <strong>in</strong> <strong>the</strong> firm through transactions such as paychecks, payments to vendors,<br />
securities reports, and receipts. Review Figure 2-3, which illustrates a payroll system, a<br />
typical account<strong>in</strong>g TPS found <strong>in</strong> all bus<strong>in</strong>esses with employees.<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 15<br />
Management<br />
reports<br />
Inventory Status Report<br />
Report Date: 1/14/2001<br />
Description<br />
Fan belt<br />
Power cord<br />
Condenser<br />
Pa<strong>in</strong>t sprayer<br />
Units on<br />
Hand<br />
10,211<br />
55,710<br />
663<br />
11,242<br />
Units on<br />
Order<br />
0<br />
88,660<br />
10,200<br />
0<br />
Figure 2-10 Overview of an<br />
<strong>in</strong>ventory system. This system<br />
provides <strong>in</strong>formation about <strong>the</strong><br />
number of items available <strong>in</strong><br />
<strong>in</strong>ventory to support manufactur<strong>in</strong>g<br />
and production activities.<br />
f<strong>in</strong>ance and account<strong>in</strong>g<br />
<strong>in</strong>formation systems<br />
<strong>Systems</strong> keep track of <strong>the</strong> firm’s<br />
f<strong>in</strong>ancial assets and fund flows.
16 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
human resources<br />
<strong>in</strong>formation systems<br />
<strong>Systems</strong> that ma<strong>in</strong>ta<strong>in</strong> employee<br />
records; track employee skills,<br />
job performance, and tra<strong>in</strong><strong>in</strong>g;<br />
and support plann<strong>in</strong>g for<br />
employee compensation and<br />
career development.<br />
TABLE 2-4<br />
Human Resources <strong>Systems</strong><br />
The human resources function is responsible for attract<strong>in</strong>g, develop<strong>in</strong>g, and ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g <strong>the</strong><br />
firm’s workforce. Human resources <strong>in</strong>formation systems support activities such as identify<strong>in</strong>g<br />
potential employees, ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g complete records on exist<strong>in</strong>g employees, and creat<strong>in</strong>g<br />
programs to develop employees’ talents and skills.<br />
Strategic-level human resources systems identify <strong>the</strong> support requirements (skills, educational<br />
level, types of positions, number of positions, and cost) for meet<strong>in</strong>g <strong>the</strong> firm’s longterm<br />
bus<strong>in</strong>ess plans. At <strong>the</strong> management level, human resources systems help managers monitor<br />
and analyze <strong>the</strong> recruitment, allocation, and compensation of employees. Knowledge<br />
systems for human resources support analysis activities related to job design, tra<strong>in</strong><strong>in</strong>g, and<br />
<strong>the</strong> model<strong>in</strong>g of employee career paths and report<strong>in</strong>g relationships. Human resources operational<br />
systems track <strong>the</strong> recruitment and placement of <strong>the</strong> firm’s employees (see Table 2-5).<br />
Figure 2-11 illustrates a typical human resources TPS for employee record keep<strong>in</strong>g. It<br />
ma<strong>in</strong>ta<strong>in</strong>s basic employee data, such as <strong>the</strong> employee’s name, age, sex, marital status, address,<br />
educational background, salary, job title, date of hire, and date of term<strong>in</strong>ation. The system<br />
can produce a variety of reports, such as lists of newly hired employees, employees who are<br />
term<strong>in</strong>ated or on leaves of absence, employees classified by job type or educational level, or<br />
employee job performance evaluations. Such systems are typically designed to provide data<br />
that can satisfy federal and state record keep<strong>in</strong>g requirements for Equal Employment<br />
Opportunity (EEO) and o<strong>the</strong>r purposes.<br />
2.3 Integrat<strong>in</strong>g Functions and<br />
Bus<strong>in</strong>ess Processes: <strong>Enterprise</strong><br />
<strong>Systems</strong> and Industrial Networks<br />
Organizations are us<strong>in</strong>g <strong>in</strong>formation systems to coord<strong>in</strong>ate activities and decisions across<br />
entire firms and even entire <strong>in</strong>dustries.<br />
Bus<strong>in</strong>ess Processes and <strong>Information</strong> <strong>Systems</strong><br />
The systems we have described support flows of work and activities called bus<strong>in</strong>ess processes<br />
which we <strong>in</strong>troduced <strong>in</strong> Chapter 1. Bus<strong>in</strong>ess processes refer to <strong>the</strong> manner <strong>in</strong> which work is<br />
organized, coord<strong>in</strong>ated, and focused to produce a valuable product or service. On <strong>the</strong> one<br />
TABLE 2-5<br />
Examples of F<strong>in</strong>ance and<br />
Account<strong>in</strong>g <strong>Information</strong> <strong>Systems</strong><br />
System Description Organizational Level<br />
Accounts receivable Track money owed <strong>the</strong> firm Operational<br />
Portfolio analysis Design <strong>the</strong> firm’s portfolio of <strong>in</strong>vestments Knowledge<br />
Budget<strong>in</strong>g Prepare short-term budgets Management<br />
Profit plann<strong>in</strong>g Plan long-term profits Strategic<br />
Examples of Human Resources<br />
<strong>Information</strong> <strong>Systems</strong><br />
System Description Organizational Level<br />
Tra<strong>in</strong><strong>in</strong>g and development Track employee tra<strong>in</strong><strong>in</strong>g, skills,<br />
and performance appraisals<br />
Operational<br />
Career path<strong>in</strong>g Design career paths for employees Knowledge<br />
Compensation analysis Monitor <strong>the</strong> range and distribution<br />
of employee wages, salaries, and benefits<br />
Management<br />
Human resources plann<strong>in</strong>g Plan <strong>the</strong> long-term labor force needs<br />
of <strong>the</strong> organization<br />
Strategic
Employee<br />
master<br />
file<br />
Employee data<br />
(various departments) To payroll<br />
Data elements <strong>in</strong><br />
employee master file:<br />
Employee: Number<br />
Name<br />
Address<br />
Department<br />
Age<br />
Marital status<br />
Sex<br />
Salary<br />
Educational background<br />
Job title<br />
Date of hire<br />
Date of term<strong>in</strong>ation<br />
Term<strong>in</strong>ation reason<br />
Human<br />
Resources<br />
System<br />
On-l<strong>in</strong>e<br />
queries<br />
Date<br />
11/12/2000<br />
12/1/2000<br />
1/12/2001<br />
Figure 2-11 An employee record keep<strong>in</strong>g system.This system ma<strong>in</strong>ta<strong>in</strong>s data on <strong>the</strong> firm’s employees<br />
to support <strong>the</strong> human resources function.<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 17<br />
Management<br />
reports<br />
Term<strong>in</strong>ation Report<br />
Name<br />
John Hansen<br />
Patricia Carlyle<br />
Ellen Quimby<br />
Number<br />
29433<br />
14327<br />
21224<br />
Reason<br />
Position<br />
elim<strong>in</strong>ated<br />
Retired<br />
Left<br />
company<br />
hand, bus<strong>in</strong>ess processes are concrete workflows of material, <strong>in</strong>formation, and<br />
knowledge–sets of activities. On <strong>the</strong> o<strong>the</strong>r hand, bus<strong>in</strong>ess processes represent unique ways <strong>in</strong><br />
which organizations coord<strong>in</strong>ate work, <strong>in</strong>formation, and knowledge, and <strong>the</strong> ways <strong>in</strong> which<br />
management chooses to coord<strong>in</strong>ate work. Table 2-6 describes typical bus<strong>in</strong>ess processes for<br />
each of <strong>the</strong> functional areas.<br />
Although each of <strong>the</strong> major bus<strong>in</strong>ess functions has its own set of bus<strong>in</strong>ess processes,<br />
many o<strong>the</strong>r bus<strong>in</strong>ess processes are cross-functional, transcend<strong>in</strong>g <strong>the</strong> boundaries between<br />
sales, market<strong>in</strong>g, manufactur<strong>in</strong>g, and research and development. These cross-functional<br />
processes cut across <strong>the</strong> traditional organizational structure, group<strong>in</strong>g employees from different<br />
functional specialties to complete a piece of work. For example, <strong>the</strong> order fulfillment<br />
process at many companies requires cooperation among <strong>the</strong> sales function (receiv<strong>in</strong>g <strong>the</strong><br />
order, enter<strong>in</strong>g <strong>the</strong> order), <strong>the</strong> account<strong>in</strong>g function (credit check<strong>in</strong>g and bill<strong>in</strong>g for <strong>the</strong><br />
order), and <strong>the</strong> manufactur<strong>in</strong>g function (assembl<strong>in</strong>g and shipp<strong>in</strong>g <strong>the</strong> order). Figure 2-12<br />
TABLE 2-6 Examples of Bus<strong>in</strong>ess Processes<br />
Functional Area Bus<strong>in</strong>ess Process<br />
Manufactur<strong>in</strong>g and production Assembl<strong>in</strong>g <strong>the</strong> product<br />
Check<strong>in</strong>g for quality<br />
Produc<strong>in</strong>g bills of materials<br />
Sales and market<strong>in</strong>g Identify<strong>in</strong>g customers<br />
Mak<strong>in</strong>g customers aware of <strong>the</strong> product<br />
Sell<strong>in</strong>g <strong>the</strong> product<br />
F<strong>in</strong>ance and account<strong>in</strong>g Pay<strong>in</strong>g creditors<br />
Creat<strong>in</strong>g f<strong>in</strong>ancial statements<br />
Manag<strong>in</strong>g cash accounts<br />
Human resources Hir<strong>in</strong>g employees<br />
Evaluat<strong>in</strong>g employees’ job performance<br />
Enroll<strong>in</strong>g employees <strong>in</strong> benefits plans
18 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Figure 2-12 The order fulfillment<br />
process. Generat<strong>in</strong>g and<br />
fulfill<strong>in</strong>g an order is a multistep<br />
process <strong>in</strong>volv<strong>in</strong>g activities performed<br />
by <strong>the</strong> sales, manufactur<strong>in</strong>g<br />
and production, and account<strong>in</strong>g<br />
functions.<br />
Key<strong>in</strong>g data from tax returns <strong>in</strong>to<br />
<strong>the</strong> Internal Revenue Service computer<br />
system is an important activity<br />
<strong>in</strong> <strong>the</strong> tax collection process.<br />
Bus<strong>in</strong>ess processes coord<strong>in</strong>ate work,<br />
<strong>in</strong>formation, and knowledge.<br />
Sales<br />
Account<strong>in</strong>g<br />
Manufactur<strong>in</strong>g<br />
and<br />
production<br />
Generate<br />
order<br />
Submit<br />
order<br />
Check<br />
credit<br />
Approve<br />
credit<br />
Assemble<br />
product<br />
Generate<br />
<strong>in</strong>voice<br />
Ship<br />
product<br />
illustrates how this cross-functional process might work. <strong>Information</strong> systems support <strong>the</strong>se<br />
cross-functional processes as well as processes for <strong>the</strong> separate bus<strong>in</strong>ess functions.<br />
<strong>Information</strong> systems can help organizations achieve great efficiencies by automat<strong>in</strong>g<br />
parts of <strong>the</strong>se processes or by help<strong>in</strong>g organizations reth<strong>in</strong>k and streaml<strong>in</strong>e <strong>the</strong>se processes.<br />
However, redesign<strong>in</strong>g bus<strong>in</strong>ess processes requires careful analysis and plann<strong>in</strong>g. When systems<br />
are used to streng<strong>the</strong>n <strong>the</strong> wrong bus<strong>in</strong>ess model or bus<strong>in</strong>ess processes, <strong>the</strong> bus<strong>in</strong>ess can<br />
become more efficient at do<strong>in</strong>g what it should not do. As a result, <strong>the</strong> firm becomes vulnerable<br />
to competitors who may have discovered <strong>the</strong> right bus<strong>in</strong>ess model. Therefore, one of <strong>the</strong><br />
most important strategic decisions that a firm can make is not decid<strong>in</strong>g how to use computers<br />
to improve bus<strong>in</strong>ess processes, but <strong>in</strong>stead to first understand what bus<strong>in</strong>ess processes<br />
need improvement (Keen, 1997). Chapter 10 treats this subject <strong>in</strong> greater detail, because it is<br />
fundamental to systems analysis and design.<br />
Customer Relationship Management and Supply<br />
Cha<strong>in</strong> Management<br />
Electronic commerce, global competition, and <strong>the</strong> rise of digital firms have made companies<br />
th<strong>in</strong>k strategically about <strong>the</strong>ir bus<strong>in</strong>ess processes for manag<strong>in</strong>g <strong>the</strong>ir relationships with customers<br />
and suppliers. Consumers can now use <strong>the</strong> <strong>Web</strong> to comparison shop and switch companies<br />
on a moment’s notice. To survive, bus<strong>in</strong>esses need to f<strong>in</strong>d ways of provid<strong>in</strong>g more<br />
value and service to customers at lower cost. Many believe <strong>the</strong> solution lies <strong>in</strong> improv<strong>in</strong>g<br />
<strong>the</strong>ir bus<strong>in</strong>ess processes for <strong>in</strong>teract<strong>in</strong>g with customers and for produc<strong>in</strong>g and deliver<strong>in</strong>g<br />
products or services.
Customer Relationship Management (CRM)<br />
Instead of treat<strong>in</strong>g customers as exploitable sources of <strong>in</strong>come, bus<strong>in</strong>esses are now view<strong>in</strong>g<br />
<strong>the</strong>m as long-term asserts to be nurtured through customer relationship management<br />
(CRM). Customer relationship management (CRM) focuses on manag<strong>in</strong>g all of <strong>the</strong> ways<br />
that a firm deals with its exist<strong>in</strong>g and potential new customers. CRM is both a bus<strong>in</strong>ess and<br />
technology discipl<strong>in</strong>e that uses <strong>in</strong>formation systems to coord<strong>in</strong>ate all of <strong>the</strong> bus<strong>in</strong>ess<br />
processes surround<strong>in</strong>g <strong>the</strong> firm’s <strong>in</strong>teractions with its customers <strong>in</strong> sales, market<strong>in</strong>g, and service.<br />
The ideal CRM system provides end-to-end customer care from receipt of an order<br />
acquisition through product delivery.<br />
In <strong>the</strong> past, a firm’s processes for sales, service, and market<strong>in</strong>g were highly compartmentalized<br />
and did not share much essential customer <strong>in</strong>formation. Some <strong>in</strong>formation on a specific<br />
customer might be stored and organized <strong>in</strong> terms of that person’s account with <strong>the</strong> company.<br />
O<strong>the</strong>r pieces of <strong>in</strong>formation about <strong>the</strong> same customer might be organized by products<br />
that were purchased. There was no way to consolidate all of this <strong>in</strong>formation to provide a<br />
unified view of a customer across <strong>the</strong> company. CRM tools try to solve this problem by <strong>in</strong>tegrat<strong>in</strong>g<br />
<strong>the</strong> firm’s customer-related processes and consolidat<strong>in</strong>g customer <strong>in</strong>formation from<br />
multiple communication channels–<strong>the</strong> telephone, e-mail, wireless devices, or <strong>the</strong> <strong>Web</strong> so<br />
that <strong>the</strong> firm can put one coherent face to <strong>the</strong> customer.<br />
Good CRM systems consolidate customer data from multiple sources and provide analytical<br />
tools for answer<strong>in</strong>g questions such as: What is <strong>the</strong> value of a particular customer to <strong>the</strong><br />
firm over his or her lifetime? Who are our most loyal customers? (It costs six times more to<br />
sell to a new customer than to an exist<strong>in</strong>g customer.) (Kalakota and Rob<strong>in</strong>son, 2001). Who<br />
are our most profitable customers? (Typically 80–90% of a firm’s profits are generated by<br />
10–20% of its customers.) What do <strong>the</strong>se profitable customers want to buy? Firms can <strong>the</strong>n<br />
use <strong>the</strong> answers to acquire new customers, provide better service and support, customize<br />
<strong>the</strong>ir offer<strong>in</strong>gs more precisely to customer preferences, and provide ongo<strong>in</strong>g value to reta<strong>in</strong><br />
profitable customers. Chapters 3, 4, 9, and 13 provide additional detail on customer relationship<br />
management applications and technologies.<br />
Supply Cha<strong>in</strong> Management<br />
To deliver <strong>the</strong> product more rapidly to <strong>the</strong> customer at lower cost, firms are also try<strong>in</strong>g to<br />
streaml<strong>in</strong>e <strong>the</strong>ir bus<strong>in</strong>ess processes for supply cha<strong>in</strong> management. Supply cha<strong>in</strong> management<br />
is <strong>the</strong> close l<strong>in</strong>kage of activities <strong>in</strong>volved <strong>in</strong> buy<strong>in</strong>g, mak<strong>in</strong>g, and mov<strong>in</strong>g a product. It<br />
<strong>in</strong>tegrates supplier, distributor, and customer logistics requirements <strong>in</strong>to one cohesive process<br />
to reduce time, redundant effort, and <strong>in</strong>ventory costs (see Figure 2-14). The supply cha<strong>in</strong> is<br />
a network of facilities for procur<strong>in</strong>g materials, transform<strong>in</strong>g raw materials <strong>in</strong>to <strong>in</strong>termediate<br />
Sales<br />
Telephone sales<br />
<strong>Web</strong> sales<br />
Field sales<br />
Retail sales<br />
Market<strong>in</strong>g<br />
Campaign data<br />
Content<br />
Data analysis<br />
Customer Service<br />
Call center data<br />
<strong>Web</strong> self service data<br />
Field service data<br />
Wireless data<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 19<br />
• Unified view of customers<br />
• Consistent message to customers<br />
• End-to-end customer care<br />
• Long-term customer relationships<br />
• Identification of best customers<br />
customer relationship<br />
management<br />
Bus<strong>in</strong>ess and technology discipl<strong>in</strong>e<br />
to coord<strong>in</strong>ate all of <strong>the</strong><br />
bus<strong>in</strong>ess processes for deal<strong>in</strong>g<br />
with customers.<br />
supply cha<strong>in</strong> management<br />
Integration of supplier, distributor,<br />
and customer logistics<br />
requirements <strong>in</strong>to one cohesive<br />
process.<br />
supply cha<strong>in</strong><br />
Network of facilities for procur<strong>in</strong>g<br />
materials, transform<strong>in</strong>g raw<br />
materials <strong>in</strong>to f<strong>in</strong>ished products,<br />
and distribut<strong>in</strong>g f<strong>in</strong>ished products<br />
to customers.<br />
Figure 2-13 Customer relationship<br />
management comb<strong>in</strong>es<br />
bus<strong>in</strong>ess processes us<strong>in</strong>g technology<br />
to look at customers<br />
from a multifaceted perspective.<br />
CRM uses a set of <strong>in</strong>tegrated<br />
applications to address all<br />
aspects of <strong>the</strong> customer relationship,<br />
<strong>in</strong>clud<strong>in</strong>g customer service,<br />
sales, and market<strong>in</strong>g.
20 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Figure 2-14 Supply cha<strong>in</strong><br />
management. The major entities<br />
<strong>in</strong> <strong>the</strong> supply cha<strong>in</strong> and <strong>the</strong> flow<br />
of <strong>in</strong>formation coord<strong>in</strong>ate <strong>the</strong><br />
activities <strong>in</strong>volved <strong>in</strong> buy<strong>in</strong>g, mak<strong>in</strong>g,<br />
and mov<strong>in</strong>g a product.<br />
and f<strong>in</strong>ished products, and distribut<strong>in</strong>g <strong>the</strong> f<strong>in</strong>ished products to customers. It l<strong>in</strong>ks manufactur<strong>in</strong>g<br />
plants, distribution centers, conveyances, retail outlets, people, and <strong>in</strong>formation<br />
through processes such as procurement or logistics to supply goods and services from source<br />
through consumption. Goods or services start out as raw materials and move through <strong>the</strong><br />
company’s logistics and production systems until <strong>the</strong>y reach customers. To manage <strong>the</strong> supply<br />
cha<strong>in</strong>, a company tries to elim<strong>in</strong>ate redundant steps, delays, and <strong>the</strong> amount of resources<br />
tied up along <strong>the</strong> way.<br />
Companies that skillfully manage <strong>the</strong>ir supply cha<strong>in</strong>s get <strong>the</strong> right amount of <strong>the</strong>ir products<br />
from <strong>the</strong>ir source to <strong>the</strong>ir po<strong>in</strong>t of consumption with <strong>the</strong> least amount of time and <strong>the</strong><br />
lowest cost. <strong>Information</strong> systems make supply cha<strong>in</strong> management more efficient by help<strong>in</strong>g<br />
companies coord<strong>in</strong>ate, schedule, and control procurement, production, <strong>in</strong>ventory management,<br />
and delivery of products and services to customers. <strong>Information</strong> systems can <strong>in</strong>tegrate<br />
demand plann<strong>in</strong>g, production forecast<strong>in</strong>g, materials requisition, order process<strong>in</strong>g, <strong>in</strong>ventory<br />
allocation, order fulfillment, transportation services, receiv<strong>in</strong>g, <strong>in</strong>voic<strong>in</strong>g, and payment.<br />
Table 2-7 describes how companies can benefit from us<strong>in</strong>g <strong>in</strong>formation systems for supply<br />
cha<strong>in</strong> management.<br />
Supply cha<strong>in</strong> management systems can be built us<strong>in</strong>g <strong>in</strong>tranets, extranets, or special supply<br />
cha<strong>in</strong> management software. The W<strong>in</strong>dow on Organizations shows how Hewlett-<br />
Packard benefited from a sophisticated supply cha<strong>in</strong> management system that used Internet<br />
technology.<br />
<strong>Enterprise</strong> <strong>Systems</strong><br />
A large organization typically has many different k<strong>in</strong>ds of <strong>in</strong>formation systems that support<br />
different functions, organizational levels, and bus<strong>in</strong>ess processes. Most of <strong>the</strong>se systems, built<br />
around different functions, bus<strong>in</strong>ess units, and bus<strong>in</strong>ess processes, do not “talk” to each o<strong>the</strong>r,<br />
and managers might have a hard time assembl<strong>in</strong>g <strong>the</strong> data <strong>the</strong>y would need for a comprehensive,<br />
overall picture of <strong>the</strong> organization’s operations. For <strong>in</strong>stance, sales personnel might not be<br />
able to tell at <strong>the</strong> time <strong>the</strong>y placed an order whe<strong>the</strong>r <strong>the</strong> items that were ordered were <strong>in</strong> <strong>in</strong>ventory;<br />
customers could not track <strong>the</strong>ir orders; and manufactur<strong>in</strong>g could not communicate eas-<br />
TABLE 2-7<br />
Capacity, <strong>in</strong>ventory level, delivery schedule, payment terms<br />
Retail<br />
Supplier Manufacturer Distributor<br />
Customer<br />
Outlet<br />
Orders, return requests, repair and service requests, payments<br />
How <strong>Information</strong> <strong>Systems</strong> Can<br />
Facilitate Supply Cha<strong>in</strong><br />
Management<br />
<strong>Information</strong> systems can help participants <strong>in</strong> <strong>the</strong> supply cha<strong>in</strong><br />
Decide when and what to produce, store, and move<br />
Rapidly communicate orders<br />
Track <strong>the</strong> status of orders<br />
Check <strong>in</strong>ventory availability and monitor <strong>in</strong>ventory levels<br />
Track shipments<br />
Plan production based on actual customer demand<br />
Rapidly communicate changes <strong>in</strong> product design<br />
Provide product specifications<br />
Share <strong>in</strong>formation about defect rates and returns
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 21<br />
Supply Cha<strong>in</strong> Management Keeps<br />
Inventory Fresh at HP<br />
Why is <strong>the</strong> PC bus<strong>in</strong>ess like <strong>the</strong><br />
fresh fruit bus<strong>in</strong>ess? Jean-Luc<br />
Meyer, a PC group market<strong>in</strong>g manager<br />
at Hewlett-Packard (HP),<br />
claims “Every day fresh fruit<br />
becomes less valuable because it<br />
gets a little rotten. In <strong>the</strong> PC bus<strong>in</strong>ess, every day prices go<br />
down.” New computer technology develops so quickly that<br />
computers sitt<strong>in</strong>g on <strong>the</strong> shelf become technically outdated.To<br />
help <strong>the</strong> company sell its computers at full price, HP created a<br />
sophisticated supply cha<strong>in</strong> management system that produces<br />
PCs to order and gets <strong>the</strong>m to customers with<strong>in</strong> 48 hours.<br />
The new system automates much of <strong>the</strong> process. Orders are<br />
placed via computer that <strong>in</strong> turn forwards <strong>the</strong> data to HP’s production<br />
and delivery computer systems. Some of <strong>the</strong>se systems<br />
are l<strong>in</strong>ked to <strong>the</strong> systems of HP’s suppliers. Synnex, located <strong>in</strong><br />
Fremont, California, is a contract manufacturer of PCs for a<br />
number of companies, <strong>in</strong>clud<strong>in</strong>g HP. When orders arrive at<br />
Synnex, computers immediately check <strong>the</strong> credit of <strong>the</strong> customer<br />
plac<strong>in</strong>g <strong>the</strong> order. Simultaneously <strong>the</strong>y validate <strong>the</strong> order<br />
configuration to make sure it works (so no one wastes time<br />
build<strong>in</strong>g a computer with <strong>in</strong>compatible, duplicate, or miss<strong>in</strong>g<br />
components). Assum<strong>in</strong>g everyth<strong>in</strong>g checks out, <strong>the</strong> order is<br />
automatically forwarded to a computer that controls production.<br />
That computer pr<strong>in</strong>ts out an <strong>in</strong>struction ticket for <strong>the</strong><br />
assembly technician while simultaneously forward<strong>in</strong>g a parts<br />
order to Synnex’s warehouse.The software to be <strong>in</strong>cluded with<br />
<strong>the</strong> purchased computer is loaded onto that computer and <strong>the</strong>n<br />
<strong>the</strong> whole parts order with <strong>the</strong> ticket are shipped to <strong>the</strong> technician’s<br />
workstation. One worker assembles <strong>the</strong> computer and<br />
<strong>the</strong>n connects it to a computer that tests it.The new computer<br />
is <strong>the</strong>n boxed, tagged, and shipped. Us<strong>in</strong>g <strong>the</strong> bar code on <strong>the</strong><br />
ticket, even <strong>the</strong> delivery is monitored by computer. Much of <strong>the</strong><br />
<strong>in</strong>formation <strong>in</strong> this process is communicated through <strong>the</strong><br />
Internet.<br />
HP’s supply cha<strong>in</strong> management system enables customers to<br />
receive its new computers very rapidly while HP reduces production<br />
errors.The system also reduces <strong>in</strong>ventory–parts, goods<br />
<strong>in</strong> process, and completed products. Know<strong>in</strong>g exactly what computers<br />
to build helps HP reduce its pipel<strong>in</strong>e of products await<strong>in</strong>g<br />
<strong>the</strong> arrival of orders.To keep <strong>in</strong>ventory low, HP makes <strong>the</strong> supply<br />
cha<strong>in</strong> data available to parts suppliers and to production contractors<br />
(many HP PCs are produced by outside manufacturers).<br />
For computers manufactured by contract producers, HP<br />
thus ma<strong>in</strong>ta<strong>in</strong>s virtually no <strong>in</strong>ventory. Prior to supply cha<strong>in</strong> management<br />
software, Synnex ma<strong>in</strong>ta<strong>in</strong>ed four weeks of parts<br />
<strong>in</strong>ventory. With <strong>the</strong> new automated system, <strong>the</strong>ir parts <strong>in</strong>ventory<br />
has been cut to two weeks.The supply cha<strong>in</strong> management<br />
software even monitors <strong>the</strong> parts <strong>in</strong>ventory and automatically<br />
orders more parts when <strong>in</strong>ventory gets low.<br />
To Th<strong>in</strong>k About: How has HP’s supply cha<strong>in</strong> management<br />
system changed <strong>the</strong> way <strong>the</strong> company runs its bus<strong>in</strong>ess? It has<br />
been said that build<strong>in</strong>g a world-class supply cha<strong>in</strong> management<br />
system is nei<strong>the</strong>r cheap nor easy.Why?<br />
organizations<br />
Sources: Rory J. O’Connor, “Keep<strong>in</strong>g Inventory Fresh,” Upside, June 2000; and<br />
eCompany Staff, “Supply-Cha<strong>in</strong> Software: Hewlett Packard,” eCompany,<br />
November 2000.<br />
ily with f<strong>in</strong>ance to plan for new production. This fragmentation of data <strong>in</strong> hundreds of separate<br />
systems could thus have a negative impact on organizational efficiency and bus<strong>in</strong>ess performance.<br />
Figure 2-15 illustrates <strong>the</strong> traditional arrangement of <strong>in</strong>formation systems.<br />
<strong>Systems</strong> for customer relationship management and supply cha<strong>in</strong> management are a step<br />
forward <strong>in</strong> solv<strong>in</strong>g this problem. Many organizations are now build<strong>in</strong>g enterprise systems,<br />
also known as enterprise resource plann<strong>in</strong>g (ERP) systems, to provide firmwide <strong>in</strong>tegration.<br />
<strong>Enterprise</strong> software models and automates many bus<strong>in</strong>ess processes, such as fill<strong>in</strong>g an order<br />
or schedul<strong>in</strong>g a shipment, with <strong>the</strong> goal of <strong>in</strong>tegrat<strong>in</strong>g <strong>in</strong>formation across <strong>the</strong> company and<br />
elim<strong>in</strong>at<strong>in</strong>g complex, expensive l<strong>in</strong>ks between computer systems <strong>in</strong> different areas of <strong>the</strong><br />
bus<strong>in</strong>ess. <strong>Information</strong> that was previously fragmented <strong>in</strong> different systems can seamlessly<br />
flow throughout <strong>the</strong> firm so that it can be shared by bus<strong>in</strong>ess processes <strong>in</strong> manufactur<strong>in</strong>g,<br />
HP is us<strong>in</strong>g supply cha<strong>in</strong> management software <strong>in</strong> o<strong>the</strong>r parts of its bus<strong>in</strong>ess,<br />
and can now efficiently manage its supply cha<strong>in</strong> for plastic parts.<br />
enterprise systems<br />
Firmwide <strong>in</strong>formation systems<br />
that <strong>in</strong>tegrate key bus<strong>in</strong>ess<br />
processes so that <strong>in</strong>formation<br />
can flow freely between different<br />
parts of <strong>the</strong> firm.
22 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
Vendors<br />
Vendors<br />
Vendors<br />
Organizational Boundaries<br />
Manufactur<strong>in</strong>g Account<strong>in</strong>g F<strong>in</strong>ance<br />
Bus<strong>in</strong>ess<br />
processes<br />
Manufactur<strong>in</strong>g<br />
<strong>Systems</strong><br />
Figure 2-16 <strong>Enterprise</strong> systems.<br />
<strong>Enterprise</strong> systems can<br />
<strong>in</strong>tegrate <strong>the</strong> key bus<strong>in</strong>ess<br />
processes of an entire firm <strong>in</strong>to a<br />
s<strong>in</strong>gle software system that<br />
allows <strong>in</strong>formation to flow seamlessly<br />
throughout <strong>the</strong> organization.<br />
These systems may <strong>in</strong>clude<br />
transactions with customers and<br />
vendors.<br />
Bus<strong>in</strong>ess<br />
processes<br />
Account<strong>in</strong>g<br />
<strong>Systems</strong><br />
Vendors<br />
Bus<strong>in</strong>ess Functions<br />
Bus<strong>in</strong>ess<br />
processes<br />
F<strong>in</strong>ance<br />
<strong>Systems</strong><br />
<strong>Information</strong> <strong>Systems</strong><br />
Figure 2-15 Traditional view of systems. In most organizations today, separate systems built over a<br />
long period of time support discrete bus<strong>in</strong>ess processes and discrete segments of <strong>the</strong> bus<strong>in</strong>ess value<br />
cha<strong>in</strong>.The organization’s systems rarely <strong>in</strong>clude vendors and customers.<br />
account<strong>in</strong>g, human resources, and o<strong>the</strong>r areas of <strong>the</strong> firm. Discrete bus<strong>in</strong>ess processes from<br />
sales, production, f<strong>in</strong>ance, and logistics can be <strong>in</strong>tegrated <strong>in</strong>to company-wide bus<strong>in</strong>ess<br />
processes that flow across organizational levels and functions. An enterprise-wide technical<br />
platform serves all processes and levels. Figure 2-16 illustrates how enterprise systems work<br />
The enterprise system collects data from various key bus<strong>in</strong>ess processes (see Table 2-8)<br />
and stores <strong>the</strong> data <strong>in</strong> a s<strong>in</strong>gle comprehensive data repository where <strong>the</strong>y can be used by o<strong>the</strong>r<br />
parts of <strong>the</strong> bus<strong>in</strong>ess. Managers emerge with more precise and timely <strong>in</strong>formation for coord<strong>in</strong>at<strong>in</strong>g<br />
<strong>the</strong> daily operations of <strong>the</strong> bus<strong>in</strong>ess and a firmwide view of bus<strong>in</strong>ess processes and<br />
<strong>in</strong>formation flows.<br />
For <strong>in</strong>stance, when a sales representative <strong>in</strong> Brussels enters a customer order, <strong>the</strong> data<br />
flows automatically to o<strong>the</strong>rs <strong>in</strong> <strong>the</strong> company who need to see it. The factory <strong>in</strong> Hong Kong<br />
receives <strong>the</strong> order and beg<strong>in</strong>s production. The warehouse checks its progress on-l<strong>in</strong>e and<br />
schedules <strong>the</strong> shipment date. The warehouse can check its stock of parts and replenish whatever<br />
<strong>the</strong> factory has depleted. The enterprise system stores production <strong>in</strong>formation, where it<br />
can be accessed by customer service representatives to track <strong>the</strong> progress of <strong>the</strong> order through<br />
every step of <strong>the</strong> manufactur<strong>in</strong>g process. Updated sales and production data automatically<br />
flow to <strong>the</strong> account<strong>in</strong>g department. The system transmits <strong>in</strong>formation for calculat<strong>in</strong>g <strong>the</strong><br />
salesperson’s commission to <strong>the</strong> payroll department. The system also automatically recalculates<br />
<strong>the</strong> company’s balance sheets, accounts receivable and payable ledgers, cost center<br />
accounts, and available cash. Corporate headquarters <strong>in</strong> London can view up-to-<strong>the</strong>-m<strong>in</strong>ute<br />
data on sales, <strong>in</strong>ventory, and production at every step of <strong>the</strong> process as well as updated sales<br />
and production forecasts and calculations of product cost and availability.<br />
Organizational boundaries<br />
Manufactur<strong>in</strong>g<br />
Human<br />
Resources<br />
Market<strong>in</strong>g<br />
and<br />
Sales<br />
Bus<strong>in</strong>ess<br />
processes<br />
Market<strong>in</strong>g<br />
and<br />
Sales<br />
<strong>Systems</strong><br />
<strong>Enterprise</strong> System<br />
Bus<strong>in</strong>ess process<br />
Bus<strong>in</strong>ess process<br />
Bus<strong>in</strong>ess process<br />
<strong>Enterprise</strong>-wide bus<strong>in</strong>ess<br />
processes<br />
Sales and<br />
Market<strong>in</strong>g<br />
Human<br />
Resources<br />
Bus<strong>in</strong>ess<br />
processes<br />
Human<br />
Resources<br />
<strong>Systems</strong><br />
Organizational Boundaries<br />
Account<strong>in</strong>g<br />
Customers<br />
Customers<br />
Customers<br />
F<strong>in</strong>ance<br />
Organizational boundaries<br />
Customers
TABLE 2-8<br />
Bus<strong>in</strong>ess Processes Supported<br />
by <strong>Enterprise</strong> <strong>Systems</strong><br />
Manufactur<strong>in</strong>g processes, <strong>in</strong>clud<strong>in</strong>g <strong>in</strong>ventory management, purchas<strong>in</strong>g, shipp<strong>in</strong>g, production<br />
plann<strong>in</strong>g, material requirements plann<strong>in</strong>g, and plant and equipment ma<strong>in</strong>tenance<br />
F<strong>in</strong>ancial and account<strong>in</strong>g processes, <strong>in</strong>clud<strong>in</strong>g accounts payable, accounts receivable, cash management<br />
and forecast<strong>in</strong>g, product-cost account<strong>in</strong>g, cost-center account<strong>in</strong>g, asset account<strong>in</strong>g,<br />
general ledger, and f<strong>in</strong>ancial report<strong>in</strong>g<br />
Sales and market<strong>in</strong>g processes, <strong>in</strong>clud<strong>in</strong>g order process<strong>in</strong>g, pric<strong>in</strong>g, shipp<strong>in</strong>g, bill<strong>in</strong>g, sales management,<br />
and sales plann<strong>in</strong>g<br />
Human resource processes, <strong>in</strong>clud<strong>in</strong>g personnel adm<strong>in</strong>istration, time account<strong>in</strong>g, payroll, personnel<br />
plann<strong>in</strong>g and development, benefits account<strong>in</strong>g, applicant track<strong>in</strong>g, and travel expense<br />
report<strong>in</strong>g,<br />
Benefits and Challenges of <strong>Enterprise</strong> <strong>Systems</strong><br />
<strong>Enterprise</strong> systems promise to <strong>in</strong>tegrate <strong>the</strong> diverse bus<strong>in</strong>ess processes of a firm <strong>in</strong>to a s<strong>in</strong>gle<br />
<strong>in</strong>tegrated <strong>in</strong>formation architecture.<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 23<br />
Benefits of <strong>Enterprise</strong> <strong>Systems</strong><br />
<strong>Enterprise</strong> systems promise to greatly change four dimensions of bus<strong>in</strong>ess: firm structure,<br />
management process, technology platform, and bus<strong>in</strong>ess capability.<br />
Firm Structure and Organization: One Organization Companies can use enterprise<br />
systems to support organizational structures that were not previously possible or to create a<br />
more discipl<strong>in</strong>ed organizational culture. For example, <strong>the</strong>y might use enterprise systems to<br />
<strong>in</strong>tegrate <strong>the</strong> corporation across geographic or bus<strong>in</strong>ess unit boundaries or to create a more<br />
uniform organizational culture <strong>in</strong> which everyone uses similar processes and <strong>in</strong>formation. An<br />
enterprise-enabled organization does bus<strong>in</strong>ess <strong>the</strong> same way worldwide, with functional<br />
boundaries deemphasized <strong>in</strong> favor of cross-functional coord<strong>in</strong>ation and <strong>in</strong>formation flow<strong>in</strong>g<br />
freely across bus<strong>in</strong>ess functions.<br />
Management: Firmwide Knowledge-based Management Processes In addition to<br />
automat<strong>in</strong>g many essential bus<strong>in</strong>ess transactions, such as tak<strong>in</strong>g orders, pay<strong>in</strong>g suppliers, or<br />
chang<strong>in</strong>g employee benefits status, enterprise systems can also improve management report<strong>in</strong>g<br />
and decision mak<strong>in</strong>g. <strong>Information</strong> supplied by an enterprise system is structured around<br />
Management Decision Problem<br />
ANALYZING ENTERPRISE PROCESS INTEGRATION<br />
Management at your agricultural chemicals corporation has been dissatisfied<br />
with production plann<strong>in</strong>g. Production plans are created us<strong>in</strong>g<br />
best guesses of demand for each product which are based on how<br />
much of each product has been ordered <strong>in</strong> <strong>the</strong> past. If a customer<br />
places an unexpected order or requests a change to an exist<strong>in</strong>g order<br />
after it has been placed, <strong>the</strong>re is no way to adjust <strong>the</strong> production plans.<br />
The company may have to tell customers it can’t fill <strong>the</strong>ir orders or<br />
may run up extra costs ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g additional <strong>in</strong>ventory to prevent<br />
stock-outs.<br />
At <strong>the</strong> end of each month, orders are totaled and manually keyed<br />
<strong>in</strong>to <strong>the</strong> company’s production plann<strong>in</strong>g system. Data from <strong>the</strong> past<br />
month’s production and <strong>in</strong>ventory systems are manually entered <strong>in</strong>to<br />
<strong>the</strong> firm’s order management system. Analysts from <strong>the</strong> sales department<br />
and from <strong>the</strong> production department analyze <strong>the</strong> data from <strong>the</strong>ir<br />
respective systems to determ<strong>in</strong>e what <strong>the</strong> sales targets and what <strong>the</strong> pro-<br />
duction targets should be for <strong>the</strong> next month. These estimates are usually<br />
different. The analysts <strong>the</strong>n get toge<strong>the</strong>r at a high-level plann<strong>in</strong>g<br />
meet<strong>in</strong>g, to revise <strong>the</strong> production and sales targets to take <strong>in</strong>to account<br />
senior management’s goals for market share, revenues, and profits. The<br />
outcome of <strong>the</strong> meet<strong>in</strong>g is a f<strong>in</strong>alized production master schedule.<br />
The entire production plann<strong>in</strong>g process takes 17 bus<strong>in</strong>ess days to<br />
complete. N<strong>in</strong>e of <strong>the</strong>se days are required to enter and validate <strong>the</strong><br />
data. The rema<strong>in</strong><strong>in</strong>g days are spent develop<strong>in</strong>g and reconcil<strong>in</strong>g <strong>the</strong><br />
production and sales targets and f<strong>in</strong>aliz<strong>in</strong>g <strong>the</strong> production master<br />
schedule.<br />
1. Draw a diagram of <strong>the</strong> production plann<strong>in</strong>g process.<br />
2. Analyze <strong>the</strong> problems this process creates for <strong>the</strong> company.<br />
3. How could an enterprise system solve <strong>the</strong>se problems? Diagram<br />
what this process might look like if <strong>the</strong> company implemented<br />
enterprise software.
24 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
cross-functional bus<strong>in</strong>ess processes and it can be obta<strong>in</strong>ed rapidly. For example, an enterprise<br />
system might help management more easily determ<strong>in</strong>e which products are most or least profitable.<br />
No longer would general managers be stuck without any hard data on firm performance,<br />
or data that applies only to <strong>the</strong>ir own immediate department. An enterprise system<br />
could supply management with better data about bus<strong>in</strong>ess processes and overall organizational<br />
performance.<br />
Technology: Unified Platform <strong>Enterprise</strong> systems promise to provide firms with a s<strong>in</strong>gle,<br />
unified, and all-encompass<strong>in</strong>g <strong>in</strong>formation system technology platform and environment.<br />
<strong>Enterprise</strong> systems promise to create a s<strong>in</strong>gle, <strong>in</strong>tegrated repository that ga<strong>the</strong>rs data on all<br />
<strong>the</strong> key bus<strong>in</strong>ess processes. The data have common, standardized def<strong>in</strong>itions and formats<br />
that are accepted by <strong>the</strong> entire organization. You will learn more about <strong>the</strong> importance of<br />
standardiz<strong>in</strong>g organizational data <strong>in</strong> Chapter 7.<br />
Bus<strong>in</strong>ess: More Efficient Operations and Customer-driven Bus<strong>in</strong>ess Processes<br />
<strong>Enterprise</strong> systems can help create <strong>the</strong> foundation for a customer-driven or demand organization.<br />
By <strong>in</strong>tegrat<strong>in</strong>g discrete bus<strong>in</strong>ess processes such as sales, production, f<strong>in</strong>ance, and<br />
logistics, <strong>the</strong> entire organization can efficiently respond to customer requests for products or<br />
<strong>in</strong>formation, forecast new products, and build and deliver <strong>the</strong>m as demand requires.<br />
Manufactur<strong>in</strong>g has better <strong>in</strong>formation to produce only what customers have ordered, to procure<br />
exactly <strong>the</strong> right amount of components or raw materials to fill actual orders, to stage<br />
production, and to m<strong>in</strong>imize <strong>the</strong> time that components or f<strong>in</strong>ished products are <strong>in</strong> <strong>in</strong>ventory.<br />
Us<strong>in</strong>g enterprise systems to capture unit cost and quality data, firms can improve <strong>the</strong><br />
quality of <strong>the</strong>ir products and services.<br />
The Challenge of <strong>Enterprise</strong> <strong>Systems</strong><br />
Although enterprise systems can improve organizational coord<strong>in</strong>ation, efficiency, and decision<br />
mak<strong>in</strong>g, <strong>the</strong>y have proven very difficult to build. They require not only large technology<br />
<strong>in</strong>vestments but also fundamental changes <strong>in</strong> <strong>the</strong> way <strong>the</strong> bus<strong>in</strong>ess operates. Companies need<br />
to rework <strong>the</strong>ir bus<strong>in</strong>ess processes to make <strong>in</strong>formation flow smoothly between <strong>the</strong>m.<br />
Employees must take on new job functions and responsibilities. <strong>Enterprise</strong> systems require<br />
complex pieces of software and large <strong>in</strong>vestments of time, money, and expertise. <strong>Enterprise</strong><br />
systems raise serious challenges for firms: a daunt<strong>in</strong>g implementation process, surviv<strong>in</strong>g a<br />
cost/benefit analysis, <strong>in</strong>flexibility, and realiz<strong>in</strong>g strategic value.<br />
Daunt<strong>in</strong>g Implementation <strong>Enterprise</strong> systems br<strong>in</strong>g dramatic changes to bus<strong>in</strong>ess. They<br />
require not only deep-seated technological changes but also fundamental changes <strong>in</strong> <strong>the</strong> way<br />
<strong>the</strong> bus<strong>in</strong>ess operates. Bus<strong>in</strong>ess processes change dramatically, as do organizational structure<br />
and culture. Firms implement<strong>in</strong>g enterprise systems have to come up with organization-wide<br />
def<strong>in</strong>itions of data, retra<strong>in</strong> thousands of workers, and redesign <strong>the</strong>ir fundamental bus<strong>in</strong>ess<br />
processes, all at once, while carry<strong>in</strong>g on bus<strong>in</strong>ess as usual. It might take a large company three<br />
to five years to fully implement all of <strong>the</strong> organizational and technology changes required by<br />
an enterprise system. Organizations that do not understand that such changes will be<br />
required or are unable to make <strong>the</strong>m will have problems implement<strong>in</strong>g enterprise systems, or<br />
<strong>the</strong>y may not be able to achieve a higher level of functional and bus<strong>in</strong>ess process <strong>in</strong>tegration.<br />
High Up-front Costs and Future Benefits The costs of enterprise systems are large, upfront,<br />
highly visible, and often politically charged. Although <strong>the</strong> costs to build <strong>the</strong> system are<br />
obvious, <strong>the</strong> benefits often cannot be precisely quantified at <strong>the</strong> beg<strong>in</strong>n<strong>in</strong>g of an enterprise<br />
project. One reason is that <strong>the</strong> benefits often accrue from employees us<strong>in</strong>g <strong>the</strong> system after it<br />
is completed and ga<strong>in</strong><strong>in</strong>g <strong>the</strong> knowledge of bus<strong>in</strong>ess operations heretofore impossible to learn.<br />
Inflexibility <strong>Enterprise</strong> system software tends to be complex, difficult to master, with a<br />
worldwide shortage <strong>in</strong> people with <strong>the</strong> expertise to <strong>in</strong>stall and ma<strong>in</strong>ta<strong>in</strong> it. The software is<br />
deeply <strong>in</strong>tertw<strong>in</strong>ed with corporate bus<strong>in</strong>ess processes. If companies need to make major<br />
changes, <strong>the</strong> system will have to be changed. And because enterprise systems are <strong>in</strong>tegrated,<br />
it is difficult to make a change <strong>in</strong> only one part of <strong>the</strong> bus<strong>in</strong>ess without affect<strong>in</strong>g o<strong>the</strong>r parts<br />
as well. There is <strong>the</strong> prospect that <strong>the</strong> new enterprise systems could eventually prove as brittle<br />
and hard to change as <strong>the</strong> old systems <strong>the</strong>y replaced–a new k<strong>in</strong>d of “digital concrete” that<br />
could, over time, b<strong>in</strong>d firms to outdated bus<strong>in</strong>ess processes and systems.
Firms<br />
<strong>in</strong> a s<strong>in</strong>gle<br />
<strong>in</strong>dustry<br />
Firms <strong>in</strong><br />
complementary<br />
bus<strong>in</strong>esses<br />
Firm<br />
1<br />
Firm<br />
1<br />
Horizontal <strong>in</strong>dustrial network<br />
Firm<br />
2<br />
Firm<br />
3<br />
Firm value cha<strong>in</strong>s and enterprise systems<br />
Industrial networks<br />
Supplier<br />
1<br />
Supplier<br />
2<br />
Vertical <strong>in</strong>dustrial network<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 25<br />
Firm<br />
4<br />
Supplier<br />
3<br />
Industry<br />
value<br />
cha<strong>in</strong><br />
Realiz<strong>in</strong>g Strategic Value Companies may also fail to achieve strategic benefits from<br />
enterprise systems if <strong>in</strong>tegrat<strong>in</strong>g bus<strong>in</strong>ess processes us<strong>in</strong>g <strong>the</strong> generic models provided by<br />
standard ERP software prevents <strong>the</strong> firm from us<strong>in</strong>g unique bus<strong>in</strong>ess processes that had been<br />
sources of advantage over competitors. If an enterprise system is not compatible with <strong>the</strong> way<br />
<strong>the</strong> company does bus<strong>in</strong>ess, <strong>the</strong> company may lose a better way of perform<strong>in</strong>g a key bus<strong>in</strong>ess<br />
process that may be related to its competitive advantage. <strong>Enterprise</strong> systems promote centralized<br />
organizational coord<strong>in</strong>ation and decision mak<strong>in</strong>g, which may not be <strong>the</strong> best way for<br />
some firms to operate. There are companies that clearly do not need <strong>the</strong> level of <strong>in</strong>tegration<br />
provided by enterprise systems (Davenport, 2000, 1998). Chapter 11 provides more detail<br />
on <strong>the</strong> organizational and technical challenges to enterprise system implementation.<br />
Extended <strong>Enterprise</strong>s and Industrial Networks<br />
In some <strong>in</strong>dustries, companies are extend<strong>in</strong>g <strong>the</strong>ir enterprise systems beyond <strong>the</strong> boundaries<br />
of <strong>the</strong> firm to share <strong>in</strong>formation and coord<strong>in</strong>ate bus<strong>in</strong>ess processes with o<strong>the</strong>r firms <strong>in</strong> <strong>the</strong>ir<br />
<strong>in</strong>dustry. Industrial networks, which are sometimes called extended enterprises, l<strong>in</strong>k toge<strong>the</strong>r<br />
<strong>the</strong> enterprise systems of firms <strong>in</strong> an entire <strong>in</strong>dustry (see Figure 2-17). For <strong>in</strong>stance, Procter<br />
& Gamble (P&G), <strong>the</strong> world’s largest consumer goods company, developed an <strong>in</strong>tegrated<br />
<strong>in</strong>dustry-wide system that coord<strong>in</strong>ated <strong>the</strong> grocery store po<strong>in</strong>t-of-sale systems with grocery<br />
store warehouses, shippers, its own manufactur<strong>in</strong>g facilities, and its suppliers of raw materials.<br />
This s<strong>in</strong>gle <strong>in</strong>dustry spann<strong>in</strong>g system effectively allows P&G to monitor <strong>the</strong> movement<br />
of all its products from raw materials to customer purchase. P&G uses data collected from<br />
po<strong>in</strong>t-of-sale term<strong>in</strong>als to trigger shipments to retailers of items that customers have purchased<br />
and that need restock<strong>in</strong>g. Electronic l<strong>in</strong>ks to suppliers enable P&G to order materials<br />
from its own suppliers when its <strong>in</strong>ventories are low. The system helps P&G reduce its <strong>in</strong>ventory<br />
by allow<strong>in</strong>g <strong>the</strong> company to produce products as <strong>the</strong>y are demanded by retailers. P&G<br />
is implement<strong>in</strong>g an Ultimate Supply System that uses Internet technology to l<strong>in</strong>k retailers<br />
and suppliers to its private corporate <strong>in</strong>tranet (see <strong>the</strong> Chapter 1 open<strong>in</strong>g vignette). By hav<strong>in</strong>g<br />
retailers and suppliers <strong>in</strong>tegrate <strong>the</strong>ir systems with P&G’s systems, P&G hopes to reduce<br />
product cycle time by half, <strong>in</strong>ventory costs by $4.5 billion, and systems costs by $5 billion.<br />
There are two k<strong>in</strong>ds of <strong>in</strong>dustrial networks. Vertical <strong>in</strong>dustrial networks <strong>in</strong>tegrate <strong>the</strong><br />
operations of <strong>the</strong> firm with its suppliers and can be used for supply cha<strong>in</strong> management.<br />
Horizontal <strong>in</strong>dustrial networks l<strong>in</strong>k firms across an entire <strong>in</strong>dustry. An example would be<br />
<strong>the</strong> OASIS network of utility <strong>in</strong>dustry firms, which uses <strong>the</strong> <strong>Web</strong> to help members sell surplus<br />
electrical power. A few <strong>in</strong>dustry networks coord<strong>in</strong>ate <strong>the</strong> activities of competitors. For<br />
example, Yamaha Europe, Honda, Aprilia, and Piaggio, compet<strong>in</strong>g manufacturers of motor<br />
scooters, are now work<strong>in</strong>g toge<strong>the</strong>r to share suppliers. They hope to ultimately reduce <strong>the</strong><br />
number of suppliers, which will boost <strong>the</strong> production efficiency <strong>in</strong> <strong>the</strong> rema<strong>in</strong><strong>in</strong>g group, and<br />
<strong>the</strong>y all expect to realize sav<strong>in</strong>gs from <strong>the</strong>ir cooperation (Abramson, 1999). Table 2-9 provides<br />
examples of both types of <strong>in</strong>dustrial networks. Most <strong>in</strong>dustrial networks today are vertical<br />
and do not l<strong>in</strong>k toge<strong>the</strong>r competitors <strong>in</strong> <strong>the</strong> same <strong>in</strong>dustry.<br />
Figure 2-17 Industrial networks.<br />
Industrial networks l<strong>in</strong>k<br />
<strong>the</strong> enterprise systems of firms<br />
<strong>in</strong> an entire <strong>in</strong>dustry <strong>in</strong>to an<br />
<strong>in</strong>dustry-wide system. Horizontal<br />
<strong>in</strong>dustrial networks l<strong>in</strong>k firms <strong>in</strong><br />
<strong>the</strong> same <strong>in</strong>dustry, <strong>in</strong>clud<strong>in</strong>g competitors,<br />
whereas vertical <strong>in</strong>dustrial<br />
networks l<strong>in</strong>k a firm with<br />
suppliers <strong>in</strong> <strong>the</strong> same <strong>in</strong>dustry.<br />
<strong>in</strong>dustrial networks<br />
Networks l<strong>in</strong>k<strong>in</strong>g systems of<br />
multiple firms <strong>in</strong> an <strong>in</strong>dustry.<br />
Also called extended enterprises.<br />
vertical <strong>in</strong>dustrial networks<br />
Networks for <strong>in</strong>tegrat<strong>in</strong>g <strong>the</strong><br />
operations of a firm with its<br />
suppliers.<br />
horizontal <strong>in</strong>dustrial<br />
networks<br />
Networks for l<strong>in</strong>k<strong>in</strong>g firms<br />
across an entire <strong>in</strong>dustry.
26 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE<br />
TABLE 2-9 Examples of Industrial Networks<br />
Type of Industrial<br />
Organization(s) Network Description<br />
Coca-Cola Vertical Installed an enterprise system us<strong>in</strong>g SAP software and extended <strong>the</strong> system to its<br />
bottl<strong>in</strong>g partners. Coke and its partners can pool resources, share sales <strong>in</strong>formation,<br />
and leverage <strong>the</strong>ir comb<strong>in</strong>ed size to obta<strong>in</strong> lower raw material costs. The<br />
extended enterprise system enables <strong>the</strong>m to react rapidly to market changes and<br />
deploy products efficiently to <strong>the</strong> places where <strong>the</strong>y are most likely to sell.<br />
OASIS Horizontal <strong>Web</strong> sites l<strong>in</strong>k U.S. electrical utility companies <strong>in</strong> regional power pool groups to<br />
sell <strong>the</strong>ir surplus power to wholesalers and locate <strong>the</strong> transmission facilities for<br />
mov<strong>in</strong>g <strong>the</strong> power between its source and <strong>the</strong> customer.<br />
Ford, General Motors, Horizontal Shared Internet purchas<strong>in</strong>g system enables <strong>the</strong>m to obta<strong>in</strong> parts onl<strong>in</strong>e from<br />
and DaimlerChrysler suppliers, reduc<strong>in</strong>g costs and sav<strong>in</strong>g time.<br />
Safeway UK Vertical Has electronic l<strong>in</strong>ks to suppliers where it can share <strong>in</strong>formation about forecasts,<br />
shelf space, and <strong>in</strong>ventory, so <strong>the</strong>y can track demand for <strong>the</strong>ir products, adjust<br />
production, and adjust <strong>the</strong> tim<strong>in</strong>g and size of deliveries. The suppliers can download<br />
Safeway’s <strong>in</strong>formation <strong>in</strong>to <strong>the</strong>ir enterprise systems or production plann<strong>in</strong>g<br />
systems. Suppliers send Safeway <strong>in</strong>formation about product availability, production<br />
capacity, and <strong>in</strong>ventory levels.<br />
Many of <strong>the</strong>se <strong>in</strong>dustrial networks are currently dedicated to supply cha<strong>in</strong> management.<br />
<strong>Enterprise</strong> systems have primarily focused on help<strong>in</strong>g companies manage <strong>the</strong>ir <strong>in</strong>ternal manufactur<strong>in</strong>g,<br />
f<strong>in</strong>ancial, and human resource processes and were not orig<strong>in</strong>ally designed to support<br />
supply cha<strong>in</strong> management processes <strong>in</strong>volv<strong>in</strong>g entities outside <strong>the</strong> firm. However, enterprise<br />
software vendors are start<strong>in</strong>g to enhance <strong>the</strong>ir products so that firms can l<strong>in</strong>k <strong>the</strong>ir<br />
enterprise systems with external vendors, suppliers, manufacturers, distributors, and retailers.<br />
<strong>Enterprise</strong> systems can produce <strong>the</strong> <strong>in</strong>tegration among <strong>in</strong>ternal supply cha<strong>in</strong> processes,<br />
such as sales, <strong>in</strong>ventory, and production, that makes it easy for <strong>the</strong> firm to coord<strong>in</strong>ate its<br />
activities with manufactur<strong>in</strong>g partners and customers. Manufactur<strong>in</strong>g can be <strong>in</strong>formed of<br />
exactly what to produce, based on sales orders, and reduce <strong>the</strong> need to keep excess stock <strong>in</strong><br />
<strong>in</strong>ventory. If participants <strong>in</strong> <strong>the</strong> supply cha<strong>in</strong> use <strong>the</strong> same enterprise software systems, <strong>the</strong>ir<br />
systems can exchange data without manual <strong>in</strong>tervention. Companies can also use Internet<br />
technology to create <strong>in</strong>dustrial networks, because it provides a platform where systems from<br />
different companies can seamlessly exchange <strong>in</strong>formation.<br />
Application Software Exercise<br />
Database Exercise: Track<strong>in</strong>g Reservations at Monroe’s<br />
Midnight Inn<br />
Monroe’s Midnight Inn is a family-owned and operated bed and breakfast. After <strong>in</strong>herit<strong>in</strong>g<br />
<strong>the</strong> Monroe mansion eight years ago, James and Peggy Monroe decided to renovate <strong>the</strong> mansion<br />
and establish a bed and breakfast. The bed and breakfast has 14 rooms: 5 overlook a private<br />
lake, 5 overlook <strong>the</strong> woods, and <strong>the</strong> rema<strong>in</strong><strong>in</strong>g 4 rooms overlook <strong>the</strong> gardens. Room<br />
rates are based on room choice, length of stay, and number of guests per room. Guests stay<strong>in</strong>g<br />
for 7 days or more are given a 15 percent discount on <strong>the</strong>ir daily room rates. A maximum<br />
of four guests are permitted <strong>in</strong> each room, with each additional guest charged $20 per day.<br />
Bus<strong>in</strong>ess has grown steadily dur<strong>in</strong>g <strong>the</strong> past eight years. In <strong>the</strong> early years, <strong>the</strong> establishment<br />
was frequented primarily by couples; however, <strong>the</strong> bed and breakfast now caters to a<br />
variety of clientele, <strong>in</strong>clud<strong>in</strong>g families, executives, and locals. The bed and breakfast’s grow<strong>in</strong>g<br />
popularity is because, <strong>in</strong> part, of its location, <strong>the</strong> activities available to its visitors, and its<br />
affordability.
Currently, all records are manually kept. This manual record keep<strong>in</strong>g system has caused<br />
many problems for James and Peggy. For <strong>in</strong>stance, only last week Peggy had two families<br />
booked <strong>in</strong> <strong>the</strong> Wash<strong>in</strong>gton room. Luckily, she was able to reassign one of <strong>the</strong> families to <strong>the</strong><br />
L<strong>in</strong>coln room and avoid upsett<strong>in</strong>g a valuable customer. Similarly, James does not have immediate<br />
access to management <strong>in</strong>formation about <strong>the</strong> bed and breakfast’s operations. He would<br />
like to have <strong>in</strong>formation about current room occupancy, average length of stay, and weekly<br />
<strong>in</strong>come by room.<br />
Us<strong>in</strong>g <strong>the</strong> <strong>in</strong>formation provided <strong>in</strong> <strong>the</strong> scenario and <strong>in</strong> <strong>the</strong> accompany<strong>in</strong>g tables on <strong>the</strong><br />
Laudon <strong>Web</strong> site, prepare a simple database to track reservations and generate management<br />
reports. In addition to <strong>the</strong> 10 transactions provided <strong>in</strong> <strong>the</strong> table, add at least 10 more transactions<br />
to <strong>the</strong> database. You may make any assumptions you believe are necessary; however,<br />
please document <strong>the</strong>se assumptions <strong>in</strong> writ<strong>in</strong>g and provide <strong>the</strong>m to your professor.<br />
In addition to <strong>the</strong> data already provided, what additional data should be captured and<br />
stored <strong>in</strong> <strong>the</strong> database? As mentioned previously, James requires managerial <strong>in</strong>formation<br />
about <strong>the</strong> bed and breakfast’s operations. What reports would provide <strong>the</strong> necessary <strong>in</strong>formation?<br />
Identify at least two o<strong>the</strong>r reports that would be beneficial for James. Prepare <strong>the</strong>se<br />
reports.<br />
<strong>Enterprise</strong> systems and <strong>in</strong>dustrial networks require management to take a firmwide view of<br />
bus<strong>in</strong>ess processes and <strong>in</strong>formation flows. Managers need to determ<strong>in</strong>e which bus<strong>in</strong>ess<br />
processes should be <strong>in</strong>tegrated, <strong>the</strong> short- and long-term benefits of this <strong>in</strong>tegration, and <strong>the</strong><br />
appropriate level of f<strong>in</strong>ancial and organizational resources to support this <strong>in</strong>tegration.<br />
There are many types of <strong>in</strong>formation systems <strong>in</strong> an organization that support different organizational<br />
levels, functions, and bus<strong>in</strong>ess processes. Some of <strong>the</strong>se systems, such as those for<br />
customer relationship management and supply cha<strong>in</strong> management, span more than one<br />
function or bus<strong>in</strong>ess process. <strong>Enterprise</strong> systems <strong>in</strong>tegrat<strong>in</strong>g <strong>in</strong>formation from different organizational<br />
functions and bus<strong>in</strong>ess processes often require extensive organizational change.<br />
<strong>Information</strong> systems that create firm- or <strong>in</strong>dustry-wide <strong>in</strong>formation flows and bus<strong>in</strong>ess<br />
processes require major technology <strong>in</strong>vestments and plann<strong>in</strong>g. Firms must have an <strong>in</strong>formation<br />
technology (IT) <strong>in</strong>frastructure that can support organization-wide or <strong>in</strong>dustry-wide<br />
comput<strong>in</strong>g.<br />
For Discussion<br />
1. Review <strong>the</strong> payroll TPS illustrated <strong>in</strong> Figure 2-3. How could it provide <strong>in</strong>formation for<br />
o<strong>the</strong>r types of systems <strong>in</strong> <strong>the</strong> firm?<br />
2. Adopt<strong>in</strong>g an enterprise system is a key bus<strong>in</strong>ess decision as well as a technology decision.<br />
Do you agree? Why or why not? Who should make this decision?<br />
Summary<br />
1. Analyze <strong>the</strong> role played by <strong>the</strong> six major types of <strong>in</strong>formation<br />
systems <strong>in</strong> organizations and <strong>the</strong>ir relationship to each o<strong>the</strong>r.<br />
There are six major types of <strong>in</strong>formation systems <strong>in</strong> contemporary<br />
organizations that are designed for different purposes<br />
and different audiences. Operational-level systems are<br />
transaction process<strong>in</strong>g systems (TPS), such as payroll or<br />
order process<strong>in</strong>g, that track <strong>the</strong> flow of <strong>the</strong> daily rout<strong>in</strong>e<br />
transactions that are necessary to conduct bus<strong>in</strong>ess.<br />
Knowledge-level systems support clerical, managerial, and<br />
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 27<br />
Management<br />
Wrap-Up<br />
professional workers. They consist of office systems for<br />
<strong>in</strong>creas<strong>in</strong>g data workers’ productivity and knowledge work<br />
systems for enhanc<strong>in</strong>g knowledge workers’ productivity.<br />
Management-level systems (MIS and DSS) provide <strong>the</strong><br />
management control level with reports and access to <strong>the</strong><br />
organization’s current performance and historical records.<br />
Most MIS reports condense <strong>in</strong>formation from TPS and are<br />
not highly analytical. Decision-support systems (DSS) support<br />
management decisions when <strong>the</strong>se decisions are
28 Part II ❙ INFORMATION TECHNOLOGY INFRASTRUCTURE<br />
unique, rapidly chang<strong>in</strong>g, and not specified easily <strong>in</strong><br />
advance. They have more advanced analytical models and<br />
data analysis capabilities than MIS and often draw on <strong>in</strong>formation<br />
from external as well as <strong>in</strong>ternal sources.<br />
Executive support systems (ESS) support <strong>the</strong> strategic level<br />
by provid<strong>in</strong>g a generalized comput<strong>in</strong>g and communications<br />
environment to assist senior management’s decision mak<strong>in</strong>g.<br />
They have limited analytical capabilities but can draw<br />
on sophisticated graphics software and many sources of<br />
<strong>in</strong>ternal and external <strong>in</strong>formation.<br />
The various types of systems <strong>in</strong> <strong>the</strong> organization exchange<br />
data with one ano<strong>the</strong>r. TPS are a major source of data for<br />
o<strong>the</strong>r systems, especially MIS and DSS. ESS primarily<br />
receive data from lower-level systems. The different systems<br />
<strong>in</strong> an organization have traditionally been loosely <strong>in</strong>tegrated.<br />
2. Describe <strong>the</strong> types of <strong>in</strong>formation systems support<strong>in</strong>g <strong>the</strong> major<br />
functional areas of <strong>the</strong> bus<strong>in</strong>ess. At each level of <strong>the</strong> organization<br />
<strong>the</strong>re are <strong>in</strong>formation systems support<strong>in</strong>g <strong>the</strong> major<br />
functional areas of <strong>the</strong> bus<strong>in</strong>ess. Sales and market<strong>in</strong>g systems<br />
help <strong>the</strong> firm identify customers for <strong>the</strong> firm’s products<br />
or services, develop products and services to meet customer’s<br />
needs, promote products and services, sell <strong>the</strong><br />
products and services, and provide ongo<strong>in</strong>g customer support.<br />
Manufactur<strong>in</strong>g and production systems deal with <strong>the</strong><br />
plann<strong>in</strong>g, development, and production of products and<br />
services, and control <strong>the</strong> flow of production. F<strong>in</strong>ance and<br />
account<strong>in</strong>g systems keep track of <strong>the</strong> firm’s f<strong>in</strong>ancial assets<br />
and fund flows. Human resources systems ma<strong>in</strong>ta<strong>in</strong><br />
employee records, track employee skills, job performance,<br />
and tra<strong>in</strong><strong>in</strong>g; and support plann<strong>in</strong>g for employee compensation<br />
and career development.<br />
3. Assess <strong>the</strong> relationship between organizations, <strong>in</strong>formation systems<br />
and bus<strong>in</strong>ess processes, <strong>in</strong>clud<strong>in</strong>g <strong>the</strong> processes for customer<br />
relationship management and supply cha<strong>in</strong> management.<br />
Bus<strong>in</strong>ess processes refer to <strong>the</strong> manner <strong>in</strong> which work is<br />
organized, coord<strong>in</strong>ated, and focused to produce a valuable<br />
product or service. Bus<strong>in</strong>ess processes are concrete workflows<br />
of material, <strong>in</strong>formation, and knowledge, and <strong>the</strong>y<br />
also represent unique ways <strong>in</strong> which organizations coord<strong>in</strong>ate<br />
work, <strong>in</strong>formation, and knowledge, and <strong>the</strong> ways <strong>in</strong><br />
which management chooses to coord<strong>in</strong>ate work. Although<br />
each of <strong>the</strong> major bus<strong>in</strong>ess functions has its own set of bus<strong>in</strong>ess<br />
processes, many o<strong>the</strong>r bus<strong>in</strong>ess processes are crossfunctional,<br />
such as fulfill<strong>in</strong>g an order. <strong>Information</strong> systems<br />
can help organizations achieve great efficiencies by<br />
Key Terms<br />
Customer relationship<br />
management, 00<br />
Decision-support systems<br />
(DSS), 00<br />
Desktop publish<strong>in</strong>g, 00<br />
Document imag<strong>in</strong>g systems, 00<br />
<strong>Enterprise</strong> systems, 00<br />
Executive support systems<br />
(ESS), 00<br />
F<strong>in</strong>ance and account<strong>in</strong>g<br />
<strong>in</strong>formation systems, 00<br />
automat<strong>in</strong>g parts of <strong>the</strong>se processes or by help<strong>in</strong>g organizations<br />
reth<strong>in</strong>k and streaml<strong>in</strong>e <strong>the</strong>se processes, especially<br />
those for customer relationship management and supply<br />
cha<strong>in</strong> management. Customer relationship management<br />
uses <strong>in</strong>formation systems to coord<strong>in</strong>ate all of <strong>the</strong> bus<strong>in</strong>ess<br />
processes surround<strong>in</strong>g a firm’s <strong>in</strong>teractions with its customers.<br />
Supply cha<strong>in</strong> management is <strong>the</strong> close l<strong>in</strong>kage of<br />
activities <strong>in</strong>volved <strong>in</strong> buy<strong>in</strong>g, mak<strong>in</strong>g, and mov<strong>in</strong>g a product.<br />
<strong>Information</strong> systems make supply cha<strong>in</strong> management<br />
more efficient by help<strong>in</strong>g companies coord<strong>in</strong>ate, schedule,<br />
and control procurement, production, <strong>in</strong>ventory management,<br />
and delivery of products and services to customers.<br />
4. Expla<strong>in</strong> how enterprise systems and <strong>in</strong>dustrial networks create<br />
new efficiencies for bus<strong>in</strong>esses. <strong>Enterprise</strong> systems <strong>in</strong>tegrate<br />
<strong>the</strong> key bus<strong>in</strong>ess processes of a firm <strong>in</strong>to a s<strong>in</strong>gle software<br />
system so that <strong>in</strong>formation can flow throughout <strong>the</strong> organization,<br />
improv<strong>in</strong>g coord<strong>in</strong>ation, efficiency, and decision<br />
mak<strong>in</strong>g. Industrial networks l<strong>in</strong>k o<strong>the</strong>r organizations <strong>in</strong> <strong>the</strong><br />
same <strong>in</strong>dustry <strong>in</strong> a s<strong>in</strong>gle <strong>in</strong>dustry-wide system. Vertical<br />
<strong>in</strong>dustrial networks consist of an organization and its suppliers,<br />
whereas horizontal <strong>in</strong>dustrial networks consist of<br />
competitors <strong>in</strong> <strong>the</strong> same <strong>in</strong>dustry.<br />
5. Evaluate <strong>the</strong> benefits and limitations of enterprise systems and<br />
<strong>in</strong>dustrial networks. <strong>Enterprise</strong> systems and <strong>in</strong>dustrial networks<br />
promise efficiencies from better coord<strong>in</strong>ation of both<br />
<strong>in</strong>ternal and external bus<strong>in</strong>ess processes. <strong>Enterprise</strong> systems<br />
can help create a uniform organization <strong>in</strong> which everyone<br />
uses similar processes and <strong>in</strong>formation, and measures <strong>the</strong>ir<br />
work <strong>in</strong> terms of organization-wide performance standards.<br />
An enterprise system could supply management with better<br />
data about bus<strong>in</strong>ess processes and overall organizational<br />
performance. <strong>Enterprise</strong> systems feature a s<strong>in</strong>gle <strong>in</strong>formation<br />
technology platform where data def<strong>in</strong>itions are standardized<br />
across <strong>the</strong> organization. The coord<strong>in</strong>ation of sales,<br />
production, f<strong>in</strong>ance, and logistics processes provided by<br />
enterprise systems helps organizations respond rapidly to<br />
customer demands.<br />
The reality is that firm- and <strong>in</strong>dustry-wide systems are very<br />
difficult to implement successfully. They require extensive<br />
organizational change, use complicated technologies, and<br />
require large up-front costs for long-term benefits that are<br />
difficult to quantify. Once implemented, enterprise systems<br />
are very difficult to change. Management vision and foresight<br />
is required to take a firm- and <strong>in</strong>dustry-wide view of<br />
problems and to f<strong>in</strong>d solutions that realize strategic value<br />
from <strong>the</strong> <strong>in</strong>vestment.<br />
Horizontal <strong>in</strong>dustrial<br />
networks, 00<br />
Human resources <strong>in</strong>formation<br />
systems, 00<br />
Industrial networks, 00<br />
Knowledge-level systems, 00<br />
Knowledge work systems<br />
(KWS), 00<br />
Management <strong>in</strong>formation<br />
systems (MIS), 00<br />
Management-level systems, 00
Manufactur<strong>in</strong>g and production<br />
<strong>in</strong>formation systems, 00<br />
Office systems, 00<br />
Operational-level systems, 00<br />
Review Questions<br />
Sales and market<strong>in</strong>g<br />
<strong>in</strong>formation systems, 00<br />
Strategic-level systems, 00<br />
Supply cha<strong>in</strong>, 00<br />
1. Identify and describe <strong>the</strong> four levels of <strong>the</strong> organizational<br />
hierarchy. What types of <strong>in</strong>formation systems<br />
serve each level?<br />
2. List and briefly describe <strong>the</strong> major types of systems <strong>in</strong><br />
organizations.<br />
3. What are <strong>the</strong> five types of TPS <strong>in</strong> bus<strong>in</strong>ess organizations?<br />
What functions do <strong>the</strong>y perform? Give examples<br />
of each.<br />
4. Describe <strong>the</strong> functions performed by knowledge work<br />
and office systems and some typical applications of<br />
each.<br />
5. What are <strong>the</strong> characteristics of MIS? How do MIS differ<br />
from TPS? From DSS?<br />
6. What are <strong>the</strong> characteristics of DSS? How do <strong>the</strong>y differ<br />
from those of ESS?<br />
7. Describe <strong>the</strong> relationship between TPS, office systems,<br />
KWS, MIS, DSS, and ESS.<br />
8. List and describe <strong>the</strong> <strong>in</strong>formation systems serv<strong>in</strong>g each<br />
of <strong>the</strong> major functional areas of a bus<strong>in</strong>ess.<br />
Group Project<br />
With a group of three or four o<strong>the</strong>r students, select a bus<strong>in</strong>ess<br />
us<strong>in</strong>g an <strong>in</strong>dustrial network for supply cha<strong>in</strong> management. Use<br />
<strong>the</strong> <strong>Web</strong>, newspapers, journals, and computer or bus<strong>in</strong>ess magaz<strong>in</strong>es<br />
to f<strong>in</strong>d out more about that organization and its use of<br />
Tools for Interactive Learn<strong>in</strong>g<br />
■ Internet<br />
The Internet Connection for this chapter will take you to a series<br />
of <strong>Web</strong> sites used <strong>in</strong> bus<strong>in</strong>ess-to-bus<strong>in</strong>ess electronic commerce<br />
where you can complete an exercise to evaluate <strong>the</strong> use of <strong>the</strong> <strong>Web</strong><br />
<strong>in</strong> supply cha<strong>in</strong> management. You can also use <strong>the</strong> Interactive<br />
Study Guide to test your knowledge of <strong>the</strong> topics <strong>in</strong> this chapter<br />
and get <strong>in</strong>stant feedback when you need more practice.<br />
■ Electronic Commerce Project<br />
At <strong>the</strong> Laudon <strong>Web</strong> site for Chapter 2 you will f<strong>in</strong>d an electronic<br />
commerce project where you can use a series of <strong>Web</strong> sites to help<br />
a company plan and budget for a sales conference.<br />
Chapter 8 ❙ TELECOMMUNICATIONS AND NETWORKS 29<br />
Supply cha<strong>in</strong> management, 00<br />
Transaction process<strong>in</strong>g systems<br />
(TPS), 00<br />
Vertical <strong>in</strong>dustrial networks, 00<br />
Word process<strong>in</strong>g, 00<br />
9. What is a bus<strong>in</strong>ess process? Give two examples of<br />
processes for functional areas of <strong>the</strong> bus<strong>in</strong>ess and one<br />
example of a cross-functional process.<br />
10. What is customer relationship management? Why is it<br />
so important to bus<strong>in</strong>esses? How do <strong>in</strong>formation systems<br />
facilitate customer relationship management?<br />
11. What is supply cha<strong>in</strong> management? What activities<br />
does it comprise? Why is it so important to bus<strong>in</strong>esses?<br />
12. How do <strong>in</strong>formation systems facilitate supply cha<strong>in</strong><br />
management?<br />
13. What are enterprise systems? How do <strong>the</strong>y change <strong>the</strong><br />
way an organization works?<br />
14. What are <strong>the</strong> benefits and challenges of implement<strong>in</strong>g<br />
enterprise systems?<br />
15. What are <strong>in</strong>dustrial networks? Def<strong>in</strong>e and describe <strong>the</strong><br />
two types of <strong>in</strong>dustrial networks.<br />
16. How can organizations benefit from participat<strong>in</strong>g <strong>in</strong><br />
<strong>in</strong>dustrial networks?<br />
<strong>in</strong>formation technology to provide l<strong>in</strong>ks to o<strong>the</strong>r organizations.<br />
If possible, use presentation software to present your f<strong>in</strong>d<strong>in</strong>gs to<br />
<strong>the</strong> class.<br />
■ CD-ROM<br />
If you purchase and use <strong>the</strong> Multimedia Edition CD-<br />
ROM with this chapter, you can complete an <strong>in</strong>teractive exercise<br />
to analyze an enterprise system implementation. You can also<br />
f<strong>in</strong>d an audio overview of <strong>the</strong> major <strong>the</strong>mes of this chapter and<br />
bullet text summariz<strong>in</strong>g <strong>the</strong> key po<strong>in</strong>ts of <strong>the</strong> chapter.
30 Part II ❙ INFORMATION TECHNOLOGY INFRASTRUCTURE<br />
Case Study Owens-Corn<strong>in</strong>g’s <strong>Enterprise</strong> System Struggle<br />
In <strong>the</strong> early 1990s Owens-Corn<strong>in</strong>g was a U.S. leader <strong>in</strong> <strong>the</strong> production<br />
and sale of such build<strong>in</strong>g materials as <strong>in</strong>sulation, sid<strong>in</strong>g,<br />
and roof<strong>in</strong>g, but management wanted <strong>the</strong> company to grow.<br />
The company had only two possible paths to growth: offer<strong>in</strong>g a<br />
fuller range of build<strong>in</strong>g materials, or becom<strong>in</strong>g a global force. To<br />
<strong>in</strong>crease its range of products Owens-Corn<strong>in</strong>g decided to<br />
acquire o<strong>the</strong>r companies. To become a global force, management<br />
realized <strong>the</strong> company would need to become a global<br />
enterprise that could coord<strong>in</strong>ate <strong>the</strong> activities of all of its units <strong>in</strong><br />
many different countries.<br />
Headquartered <strong>in</strong> Toledo, Ohio, Owens-Corn<strong>in</strong>g had been<br />
divided along product l<strong>in</strong>es, such as fiberglass <strong>in</strong>sulation, exterior<br />
sid<strong>in</strong>g, and roof<strong>in</strong>g materials. Each unit operated as a dist<strong>in</strong>ct<br />
entity with its own set of <strong>in</strong>formation systems. (The company<br />
had more than 200 archaic, <strong>in</strong>flexible, and isolated<br />
systems.) Each plant had its own product l<strong>in</strong>es, pric<strong>in</strong>g schedules,<br />
and truck<strong>in</strong>g carriers. Owens-Corn<strong>in</strong>g customers had to<br />
place separate telephone calls for each product ordered–one each<br />
for sid<strong>in</strong>g, roof<strong>in</strong>g, and <strong>in</strong>sulation. The company operated like a<br />
collection of autonomous fiefdoms.<br />
Owens-Corn<strong>in</strong>g management believed that <strong>the</strong>se problems<br />
could be solved by implement<strong>in</strong>g an enterprise system. The<br />
company selected enterprise software from SAP AG to serve as<br />
<strong>the</strong> foundation for a broad company overhaul. “The primary<br />
<strong>in</strong>tent with SAP was to totally <strong>in</strong>tegrate our bus<strong>in</strong>ess systems on<br />
a global basis so everyone was operat<strong>in</strong>g on <strong>the</strong> same platform<br />
with <strong>the</strong> same <strong>in</strong>formation,” said Dennis Sheets, sourc<strong>in</strong>g manager<br />
for <strong>the</strong> <strong>in</strong>sulation and roof<strong>in</strong>g bus<strong>in</strong>ess. Sheets wanted to<br />
centralize purchas<strong>in</strong>g. “Prior to SAP,” he said, “we were buy<strong>in</strong>g<br />
widgets all over <strong>the</strong> world without any consolidated knowledge<br />
of how much we were buy<strong>in</strong>g and from whom. Now [us<strong>in</strong>g<br />
SAP’s R/3 software] we can f<strong>in</strong>d out how many widgets we’re<br />
us<strong>in</strong>g, where <strong>the</strong>y’re be<strong>in</strong>g purchased, and how much we paid<br />
for <strong>the</strong>m, [allow<strong>in</strong>g] us to consolidate <strong>the</strong> overall acquisition<br />
process.” Now, he added, “we can . . . make better bus<strong>in</strong>ess decisions<br />
and better buys.” Sheets expected <strong>the</strong> company’s material<br />
and supply <strong>in</strong>ventories to drop by 25 percent as a result.<br />
However, <strong>the</strong> project to <strong>in</strong>stall SAP’s enterprise system would<br />
ultimately cost Owens-Corn<strong>in</strong>g about $100 million and take<br />
several years, too expensive and time consum<strong>in</strong>g to be justified<br />
only by <strong>the</strong> reasons given by Sheets. The company hoped that<br />
<strong>the</strong> new system would also enable it to digest acquisitions more<br />
easily. Owens-Corn<strong>in</strong>g wanted to acquire o<strong>the</strong>r companies to<br />
expand its product l<strong>in</strong>e so it could <strong>in</strong>crease sales from $2.9 billion<br />
<strong>in</strong> 1992 to $5 billion with<strong>in</strong> a few years. That meant that<br />
Owens-Corn<strong>in</strong>g would have to digest <strong>the</strong> archaic, <strong>in</strong>flexible systems<br />
from <strong>the</strong> companies it purchased. If Owens-Corn<strong>in</strong>g were<br />
to become a global enterprise, it would need a flexible system<br />
that would enable <strong>the</strong> company to access all of its data <strong>in</strong> an<br />
open and consolidated way.<br />
ERP experts po<strong>in</strong>t out that simply convert<strong>in</strong>g to ERP systems<br />
does not solve companies’ problems. “Unless a company<br />
does a lot of th<strong>in</strong>k<strong>in</strong>g about what its supply cha<strong>in</strong> strategy is and<br />
articulat<strong>in</strong>g what its bus<strong>in</strong>ess processes are, <strong>the</strong>se tools are go<strong>in</strong>g<br />
to be of little use,” expla<strong>in</strong>ed Mark Orton, of <strong>the</strong> New England<br />
Supplier Institute <strong>in</strong> Boston.<br />
Owens-Corn<strong>in</strong>g’s project began with its <strong>in</strong>sulation group,<br />
and those on <strong>the</strong> project team understood this. They undertook<br />
a redesign process before implement<strong>in</strong>g SAP’s R/3. They set up<br />
cross-functional teams to identify <strong>the</strong> handoffs and touch po<strong>in</strong>ts<br />
between <strong>the</strong> various functions. For example, <strong>the</strong> process that<br />
runs from <strong>the</strong> time <strong>the</strong> firm needs to buy someth<strong>in</strong>g through <strong>the</strong><br />
payment issuance to <strong>the</strong> supplier touches logistics and account<strong>in</strong>g.<br />
The teams also kept <strong>in</strong> close contact with suppliers who<br />
needed to know what Owens-Corn<strong>in</strong>g would require of <strong>the</strong>m.<br />
As a result of <strong>the</strong> redesign, purchas<strong>in</strong>g decisions were moved<br />
from <strong>the</strong> plants up to a regional level, enabl<strong>in</strong>g commodity specialists<br />
to use <strong>the</strong>ir expertise and <strong>the</strong> leverage of buy<strong>in</strong>g for a<br />
larger base to improve Owens-Corn<strong>in</strong>g’s purchas<strong>in</strong>g position.<br />
How did <strong>the</strong> first ERP project go? Dur<strong>in</strong>g a weekend <strong>in</strong><br />
March 1997 a team of about 60 people transferred legacy data<br />
<strong>in</strong>to <strong>the</strong> SAP system, and on Monday morn<strong>in</strong>g <strong>the</strong> company<br />
went live. When Owens-Corn<strong>in</strong>g first went live with SAP, overall<br />
productivity and customer service dropped sharply dur<strong>in</strong>g<br />
<strong>the</strong> first six months. “When you put <strong>in</strong> someth<strong>in</strong>g like SAP, it’s<br />
not a mere systems change,” said David Johns, Owens-Corn<strong>in</strong>g’s<br />
director of global development. “You’re chang<strong>in</strong>g <strong>the</strong> way people<br />
have done <strong>the</strong>ir jobs for <strong>the</strong> past 20 years.”<br />
The first problems that surfaced were technical. Accord<strong>in</strong>g to<br />
Johns, application response time had <strong>in</strong>creased from seconds<br />
before ERP to m<strong>in</strong>utes under <strong>the</strong> new system. O<strong>the</strong>r technical<br />
problems also emerged. For example, Johns said <strong>the</strong> system wasn’t<br />
work<strong>in</strong>g <strong>the</strong> way it was supposed to. Johns believes <strong>the</strong> source<br />
of <strong>the</strong>se problems was <strong>in</strong>adequate test<strong>in</strong>g. The team fur<strong>the</strong>r<br />
tuned <strong>the</strong> software, and dur<strong>in</strong>g <strong>the</strong> next weeks response time<br />
reduced to an acceptable level, and slowly <strong>the</strong> software began<br />
operat<strong>in</strong>g smoothly.<br />
However, after Owens-Corn<strong>in</strong>g fixed some of <strong>the</strong> technical<br />
problems, it saw that this was much bigger than a technology<br />
problem. There were problems <strong>in</strong> <strong>the</strong> bus<strong>in</strong>ess, problems with<br />
<strong>the</strong> way people’s new roles had been def<strong>in</strong>ed, communication<br />
and change management issues, and bus<strong>in</strong>ess process issues. For<br />
example, <strong>the</strong> SAP system demanded that <strong>the</strong> entire corporation<br />
adopt a s<strong>in</strong>gle product list and a s<strong>in</strong>gle price list. Staff members<br />
<strong>in</strong>itially resisted. Owens-Corn<strong>in</strong>g employees had not been properly<br />
tra<strong>in</strong>ed and <strong>the</strong>y were overwhelmed, result<strong>in</strong>g <strong>in</strong> a lot of<br />
errors. Johns expla<strong>in</strong>ed that at Owens-Corn<strong>in</strong>g “we underestimated<br />
<strong>the</strong> impact that swapp<strong>in</strong>g out all our old systems would<br />
have on our people.” Users had <strong>in</strong>deed been properly tra<strong>in</strong>ed on<br />
<strong>the</strong>ir own functions, but ERP systems are <strong>in</strong>tegrated, and <strong>the</strong><br />
users did not understand <strong>the</strong> impact <strong>the</strong>ir work was hav<strong>in</strong>g on<br />
o<strong>the</strong>r departments.<br />
ERP systems are complex and errors ripple throughout <strong>the</strong><br />
system. When us<strong>in</strong>g <strong>the</strong> old systems, employees had time to correct<br />
data entry mistakes, and if <strong>the</strong>y were not caught, <strong>the</strong>y only<br />
affected <strong>the</strong> local function. However, now that <strong>the</strong>y were us<strong>in</strong>g<br />
R/3, <strong>the</strong> databases are immediately updated. Thus, for example,<br />
<strong>the</strong> data flows <strong>in</strong>stantly from sales to purchas<strong>in</strong>g, production,
and logistics systems. Johns offered ano<strong>the</strong>r example. “If you’re<br />
at a warehouse, and you don’t tell <strong>the</strong> system when a truck is<br />
leav<strong>in</strong>g <strong>the</strong> dock, <strong>the</strong> truck can still leave, but <strong>the</strong> customer will<br />
never get an <strong>in</strong>voice for <strong>the</strong> goods. Account<strong>in</strong>g won’t f<strong>in</strong>d out<br />
later because <strong>the</strong> transaction will never get to <strong>the</strong>m.” Such errors<br />
can be costly. To motivate users to work with more care, <strong>the</strong>y<br />
needed to know how <strong>the</strong>ir errors would affect o<strong>the</strong>r workers and<br />
even company profitability.<br />
To address this problem <strong>the</strong> company quickly <strong>in</strong>stituted a<br />
new tra<strong>in</strong><strong>in</strong>g approach. Tra<strong>in</strong><strong>in</strong>g now would <strong>in</strong>clude <strong>in</strong>formation<br />
on <strong>the</strong> larger system and its complexities, so users would<br />
understand <strong>the</strong> impact of <strong>the</strong>ir work. Under <strong>the</strong> new tra<strong>in</strong><strong>in</strong>g<br />
regimen, all employees were denied access to <strong>the</strong> system until<br />
<strong>the</strong>y had passed a test and so became certified. Those who failed<br />
<strong>the</strong> test had to return to tra<strong>in</strong><strong>in</strong>g until <strong>the</strong>y could pass it. About<br />
20 percent of Owens-Corn<strong>in</strong>g employees never passed <strong>the</strong> test<br />
and had to change jobs. This job shift<strong>in</strong>g was massive and time<br />
consum<strong>in</strong>g, caus<strong>in</strong>g organizational disruption. Whereas <strong>the</strong><br />
orig<strong>in</strong>al project tra<strong>in</strong><strong>in</strong>g was budgeted for 7 percent of overall<br />
costs, tra<strong>in</strong><strong>in</strong>g eventually consumed 13 percent of <strong>the</strong> budget.<br />
Customers also suffered. Owens-Corn<strong>in</strong>g had been known<br />
for its excellent customer service, but <strong>the</strong> quality of that service<br />
decl<strong>in</strong>ed sharply after <strong>the</strong> SAP system went live. Many customers<br />
were shocked, and some began turn<strong>in</strong>g to o<strong>the</strong>r suppliers.<br />
Owens-Corn<strong>in</strong>g began los<strong>in</strong>g important customers. The<br />
company was forced to devote a great deal of personnel time<br />
rebuild<strong>in</strong>g relations with its customers while simultaneously<br />
repair<strong>in</strong>g both its organization and <strong>the</strong> software <strong>in</strong>stallation.<br />
ERP implementation problems of this type are common.<br />
Accord<strong>in</strong>g to Barry Wilderman of <strong>the</strong> Meta Group, ERP projects<br />
often result <strong>in</strong> a negative return on <strong>in</strong>vestment (ROI) for<br />
five or more years. Why? Because ERP systems are so complex.<br />
The company may not understand all that needs to be done <strong>in</strong><br />
preparation. Moreover, <strong>the</strong>se systems are expensive, and test<strong>in</strong>g<br />
and tra<strong>in</strong><strong>in</strong>g often get cut for budgetary reasons. Not only do<br />
employees need to become accustomed to new ways of do<strong>in</strong>g<br />
bus<strong>in</strong>ess, but customers and suppliers may need to change <strong>the</strong>ir<br />
bus<strong>in</strong>ess processes as well.<br />
How successful was <strong>the</strong> whole project? Management believes<br />
it has been a success. Johns said, “We made each mistake only<br />
once. Each deployment [<strong>in</strong> <strong>the</strong> rollout] got better.” For <strong>in</strong>stance,<br />
“We do a lot more test<strong>in</strong>g now before we go live,” he said, “to<br />
make sure that all <strong>the</strong> different pieces of <strong>the</strong> system work<br />
toge<strong>the</strong>r.” Customers now have a s<strong>in</strong>gle po<strong>in</strong>t of contact for all<br />
orders. With Owens-Corn<strong>in</strong>g’s old system, it didn’t know what<br />
<strong>in</strong>ventory was <strong>in</strong> stock. Employees would have to check around<br />
and get back to <strong>the</strong> customer. The firm can see what <strong>in</strong>ventory is<br />
available, when it will be produced, and who is <strong>the</strong> lowest cost<br />
carrier. It can commit to <strong>the</strong> customer before hang<strong>in</strong>g up <strong>the</strong><br />
phone. The changes have been massive, with about 10,000 people<br />
<strong>in</strong>volved with <strong>the</strong> reeng<strong>in</strong>eer<strong>in</strong>g effort.<br />
Chapter 8 ❙ TELECOMMUNICATIONS AND NETWORKS 31<br />
The ERP system’s rollout was completed <strong>in</strong> 2000. Dur<strong>in</strong>g<br />
those years, Owens-Corn<strong>in</strong>g acquired and <strong>in</strong>tegrated 17 companies,<br />
successfully expand<strong>in</strong>g <strong>the</strong>ir product offer<strong>in</strong>gs. Company<br />
sales have reached $5 billion annually. Because of <strong>the</strong> new system,<br />
Owens-Corn<strong>in</strong>g has been able to reduce its <strong>in</strong>ventory significantly,<br />
while centraliz<strong>in</strong>g coord<strong>in</strong>ation of various functions<br />
and divisions. Lot size and mach<strong>in</strong>e allocations have become<br />
more efficient. The company can perform production plann<strong>in</strong>g<br />
and control globally because it has one uniform system with<br />
which to work. The <strong>in</strong>tegrated system lets <strong>the</strong> company leverage<br />
common carriers and take advantage of overlapp<strong>in</strong>g transportation<br />
routes. Managers can use <strong>the</strong> system to identify its biggest<br />
suppliers across <strong>the</strong> entire company and use that <strong>in</strong>formation to<br />
negotiate bulk discounts. A customer needs to call only one<br />
location to place an order. Factory production managers no<br />
longer have to concern <strong>the</strong>mselves with tak<strong>in</strong>g customer orders,<br />
track<strong>in</strong>g logistics or after-sales service. Because centralization<br />
applied not only to U.S. operations but also to foreign activities,<br />
<strong>the</strong> corporation has been transformed <strong>in</strong>to a truly globalized<br />
enterprise.<br />
Sources: Rajagopal Palaniswamy and Tyler Frank, “Enhanc<strong>in</strong>g<br />
Manufactur<strong>in</strong>g Performance with ERP <strong>Systems</strong>,” <strong>Information</strong> <strong>Systems</strong><br />
Management, Summer 2000; SAP, “Owens Corn<strong>in</strong>g Builds Its Internet<br />
Future with mySAP.com,” September 14, 2000, www.sap.com;<br />
Christopher Koch, “From Team Techie to <strong>Enterprise</strong> Leader,” CIO<br />
Magaz<strong>in</strong>e, October 15, 1999; Tom Ste<strong>in</strong>, “Mak<strong>in</strong>g ERP Add Up,”<br />
<strong>Information</strong> Week, May 24, 1999, and “Key Work: Integration,”<br />
<strong>Information</strong> Week, September 22, 1997; Tim M<strong>in</strong>ahan, “<strong>Enterprise</strong><br />
Resource Plann<strong>in</strong>g: Strategies Not Included,” Purchas<strong>in</strong>g, July 16,<br />
1998; Janice Fioravante, “ERP Orchestrates Change,” Beyond<br />
Comput<strong>in</strong>g, October 1998; Bruce Caldwell and Tom Ste<strong>in</strong>, “Beyond<br />
ERP,” <strong>Information</strong> Week, October 12, 1998; John E. Ettlie, “The ERP<br />
Challenge,” Automotive Manufactur<strong>in</strong>g & Production, June 1998; and<br />
Joseph B. White, Don Clark, and Silvio Ascarelli, “Program of Pa<strong>in</strong>,”<br />
Wall Street Journal, March 14, 1997.<br />
CASE STUDY QUESTIONS<br />
1. Describe <strong>the</strong> problems Owens-Corn<strong>in</strong>g had with its <strong>in</strong>formation<br />
systems prior to <strong>in</strong>stall<strong>in</strong>g its enterprise system. What<br />
management, organization, and technology factors were<br />
responsible for those problems?<br />
2. What management, organization, and technology problems<br />
did Owens-Corn<strong>in</strong>g face <strong>in</strong> putt<strong>in</strong>g <strong>the</strong>ir enterprise system<br />
<strong>in</strong>to effect?<br />
3. How did implement<strong>in</strong>g an enterprise system change <strong>the</strong> way<br />
Owens-Corn<strong>in</strong>g ran its bus<strong>in</strong>ess?<br />
4. Was <strong>in</strong>stall<strong>in</strong>g an enterprise system <strong>the</strong> right solution for<br />
Owens-Corn<strong>in</strong>g? Expla<strong>in</strong>.