2 Information Systems in the Enterprise - Main Web

2
2 Information
Systems in the
Enterprise
objectives
2
After completing this chapter, you will be able to:
1. Analyze the role played by the six major types of information systems in
organizations and their relationship to each other.
2. Describe the types of information systems supporting the major functional
areas of the business.
3. Assess the relationship between organizations, information systems and
business processes, including the processes for customer relationship
management and supply chain management.
4. Explain how enterprise systems and industrial networks create new efficiencies
for businesses.
5. Evaluate the benefits and limitations of enterprise systems and industrial
networks.
Alpina Mooves Faster
with Enterprise Systems
Alpina Productos Alimenticios is a privately owned dairy products company headquartered in
Bogota, Colombia. It produces more than 400,000 liters of milk daily and sells more than 200
products in Colombia, Central America, and North America, including a wide array of cheeses,
yogurts, milk-based beverages, fruit juices, and chilled desserts. Alpina has 21 sales agencies,
plants in Venezuela and Ecuador, and 3,400 employees, which process 72 million orders and
400,000 invoices per year. The diversity of its products, the delivery volume, and the size of
Alpina’s market creates enormous supply chain management tasks. Dairy products require constant
refrigeration and have an average shelf life of only 21 days. The company must deliver products
directly to stores or distributors within 24 hours after an order has been placed.
The company wants to expand into new regional and export markets by maintaining an
exceptionally high level of product quality, service, and production efficiency. It must cope with
a regional economic downturn, consumer demand for lower prices, and new global and local
competitors. Although Alpina was doubling sales every two years, its information systems could
not support its pace of growth. Alpina had built a series of systems itself that were not integrated

and the systems operated in isolation from each other. The firm had no way of
communicating or consolidating company-wide information.
To increase productivity and competitiveness, Alpina decided to install enterprise
resource planning software, embarking in 1995 on an ambitious project to
create integrated systems for industrial processes, logistics management, administrative
and financial functions, and commercial functions. Alpina started its enterprise
project with pieces of software from a number of different vendors but eventually
used Oracle Consumer Packaged Goods (CPG) software to integrate these
functions. By December 1998 Alpina had installed the Oracle CPG software in its
production plants and sales agencies.
Monitor market
changes
Monitor service
and costs
Oracle Consumer
Packaged Goods
software
Sales agencies
Plants
Distributors
Integrate production
logistics, sales, and
financial data
Improve inventory
planning
Consolidate delivery
loads
Calculate consumer
demand
Short shelf life of products
Rapid growth
New global and local
competitors
The new system has enabled Alpina to reduce its inventory through better
planning and stocking of raw materials and finished products. Alpina has reduced
turnaround in raw materials from 35 days to 25 days and has reduced turnaround
in finished products from 8 days to 5 days. Through better supply chain management,
Alpina is saving $2.7 million each year. Alpina has also reduced costs by
using the information from its system to consolidate delivery loads and create more
efficient delivery routes. The system’s transportation planning capabilities have
helped the company reduce the number of trucks at each of its major distribution
centers by 15 percent, saving $200,000 annually in transport costs.
With information about past order history, Alpina’s system helps customers
plan and stock their shelf space, providing them with information about which
products, flavors, and sizes are most in demand in their stores. Alpina is using this
information as well to help calculate customer demand as it introduces new products
in the sub-Andes region, Central America, and the United States.
Sources: Michael Miley, “Fast Mooving,” Profit Magazine, February 2000 and www.alpina.com.co.
Increase service
Reduce costs
Alpina Mooves Faster with
Enterprise Systems
Management
Challenges
2.1 Key System Applications in
the Organization
Different Kinds of Systems
Six Major Types of Systems
Relationship of Systems to One
Another
2.2 Systems from a Functional
Perspective
Sales and Marketing Systems
Window on Management:
How Southstream Seafoods
Lands the Big Customers
Manufacturing and Production
Systems
Finance and Accounting
Systems
Human Resources Systems
2.3 Integrating Functions and
Business Processes:
Enterprise Systems and
Industrial Networks
Business Processes and
Information Systems
Customer Relationship
Management and Supply
Chain Management
Window on Organizations:
Supply Chain Management
Keeps Inventory Fresh at HP
Enterprise Systems
Management Decision Problem
Analyzing Enterprise Process
Integration
Benefits and Challenges of
Enterprise Systems
Extended Enterprises and
Industrial Networks
Application Software Exercise:
Database Exercise
Management Wrap-Up •
Summary • Key Terms • Review
Questions • Group Project • Tools
for Interactive Learning • Case
Study
3

4 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Management
Challenges
operational-level systems
Information systems that monitor
the elementary activities and
transactions of the organization.
Businesses need different types of information systems to support decision making and
work activities for various organizational levels and functions.To respond to new competitive
pressures, many are implementing enterprise-wide systems that integrate information
and business processes from different functional areas. Alpina, for instance, needed information
systems that would allow it to move its products more efficiently through its supply
chain. It found a solution in building systems that could link important business
processes for sales, production, and logistics.The opening vignette presents the potential
rewards to firms with well-conceived systems linking the entire enterprise. Such systems
typically require a significant amount of organizational and management change and raise
the following management challenges:
1. Integration. Although it is necessary to design different systems serving different
levels, functions, and business processes in the firm, more and more firms are finding
advantages in integrating systems. However, integrating systems for different organizational
levels, functions, and business processes to freely exchange information can
be technologically difficult and costly. Managers need to determine what level of system
integration is required and how much it is worth in dollars.
2. Enlarging the scope of management thinking. Most managers are trained to
manage a product line, a division, or an office.They are rarely trained to optimize the
performance of the organization as a whole, and often are not given the means to
do so. But enterprise systems and industrial networks require managers to take a
much larger view of their own behavior to include other products, divisions, departments,
and even outside business firms. Investments in enterprise systems are huge,
they must be developed over long periods of time, and they must be guided by a
shared vision of the objectives.
In this chapter we examine the role of the various types of information systems in organizations.
First we look at ways of classifying information systems based on the organizational
level they support. Next we look at systems in terms of the organizational function they
serve. We then show how systems can support business processes, including processes spanning
more than one function, such as customer relationship management and supply chain
management. Finally, we examine enterprise systems and industrial networks, which enable
organizations to integrate information and business processes across entire firms and even
entire industries.
2.1 Key System Applications in the
Organization
Because there are different interests, specialties, and levels in an organization, there are different
kinds of systems. No single system can provide all the information an organization
needs. Figure 2-1 illustrates one way to depict the kinds of systems found in an organization.
In the illustration, the organization is divided into strategic, management, knowledge, and
operational levels and then is further divided into functional areas such as sales and marketing,
manufacturing, finance, accounting, and human resources. Systems are built to serve
these different organizational interests (Anthony, 1965).
Different Kinds of Systems
Four main types of information systems serve different organizational levels: operationallevel
systems, knowledge-level systems, management-level systems, and strategic-level systems.
Operational-level systems support operational managers by keeping track of the elementary
activities and transactions of the organization, such as sales, receipts, cash deposits,
payroll, credit decisions, and the flow of materials in a factory. The principal purpose of systems
at this level is to answer routine questions and to track the flow of transactions through
the organization. How many parts are in inventory? What happened to Mr. Williams’s pay

Operational
Level
FUNCTIONAL
AREAS
KIND OF
INFORMATION SYSTEM
Knowledge
Level
Sales and
Marketing
Management
Level
Strategic
Level
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 5
GROUPS
SERVED
Senior
Managers
Middle
Managers
Knowledge and
Data Workers
Manufacturing Finance Accounting Human
Resources
Operational
Managers
ment? To answer these kinds of questions, information generally must be easily available,
current, and accurate. Examples of operational-level systems include a system to record bank
deposits from automatic teller machines or one that tracks the number of hours worked each
day by employees on a factory floor.
Knowledge-level systems support the organization’s knowledge and data workers. The
purpose of knowledge-level systems is to help the business firm integrate new knowledge into
the business and to help the organization control the flow of paperwork. Knowledge-level
systems, especially in the form of workstations and office systems, are the fastest-growing
applications in business today.
Management-level systems serve the monitoring, controlling, decision-making, and
administrative activities of middle managers. The principal question addressed by such systems
is: Are things working well? Management-level systems typically provide periodic
reports rather than instant information on operations. An example is a relocation control system
that reports on the total moving, house-hunting, and home financing costs for employees
in all company divisions, noting wherever actual costs exceed budgets.
Some management-level systems support nonroutine decision making (Keen and
Morton, 1978). They tend to focus on less-structured decisions for which information
requirements are not always clear. These systems often answer “what if” questions: What
would be the impact on production schedules if we were to double sales in the month of
December? What would happen to our return on investment if a factory schedule were
delayed for six months? Answers to these questions frequently require new data from outside
the organization, as well as data from inside that cannot be easily drawn from existing
operational-level systems.
Strategic-level systems help senior management tackle and address strategic issues and
long-term trends, both in the firm and in the external environment. Their principal concern
is matching changes in the external environment with existing organizational capability.
What will employment levels be in five years? What are the long-term industry cost trends,
and where does our firm fit in? What products should we be making in five years?
Information systems also serve the major business functions, such as sales and marketing,
manufacturing, finance, accounting, and human resources. A typical organization has
operational-, management-, knowledge-, and strategic-level systems for each functional area.
For example, the sales function generally has a sales system on the operational level to record
daily sales figures and to process orders. A knowledge-level system designs promotional displays
for the firm’s products. A management-level system tracks monthly sales figures by sales
territory and reports on territories where sales exceed or fall below anticipated levels. A system
to forecast sales trends over a five-year period serves the strategic level.
Figure 2-1 Types of information
systems. Organizations can
be divided into strategic, management,
knowledge, and operational
levels and into five major
functional areas: sales and marketing,
manufacturing, finance,
accounting, and human
resources. Information systems
serve each of these levels and
functions.
knowledge-level systems
Information systems that support
knowledge and data workers
in an organization.
management-level systems
Information systems that support
the monitoring, controlling,
decision-making, and administrative
activities of middle managers.
strategic-level systems
Information systems that support
the long-range planning
activities of senior management.

6 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Figure 2-2 The six major
types of information systems:
TPS, office systems, KWS, DSS,
MIS, and ESS, showing the level of
the organization and business
function that each supports.
transaction processing
systems (TPS)
Computerized systems that perform
and record the daily routine
transactions necessary to conduct
the business; they serve the
organization’s operational level.
TYPES OF SYSTEMS Strategic-Level Systems
Executive Support
Systems (ESS)
Management
Information
Systems (MIS)
Decision-Support
Systems (DSS)
Knowledge Work
Systems (KWS)
Office
Systems
Transaction
Processing
Systems
(TPS)
Sales
management
Sales region
analysis
Engineering
workstations
Word
processing
Order tracking
Order processing
Sales and
Marketing
5-year
sales trend
forecasting
Inventory
control
Production
scheduling
5-year 5-year
operating budget
plan forecasting
Profit
planning
Management-Level Systems
Annual
budgeting
Cost
analysis
Knowledge-Level Systems
Graphics
workstations
Document
imaging
Operational-Level Systems
Personnel
planning
Managerial
workstations
Electronic
calendars
Machine control Securities Payroll Compensation
trading
Plant scheduling Accounts Training &
payable development
Material
Cash
movement control management
Capital
investment
analysis
Pricing/profitability
analysis
Accounts
receivable
Relocation
analysis
Contract cost
analysis
Employee
record keeping
Manufacturing Finance Accounting Human
Resources
We first describe the specific categories of systems serving each organizational level and
their value to the organization. Then we show how organizations use these systems for each
major business function.
Six Major Types of Systems
Figure 2-2 shows the specific types of information systems that correspond to each organizational
level. The organization has executive support systems (ESS) at the strategic level; management
information systems (MIS) and decision-support systems (DSS) at the management
level; knowledge work systems (KWS) and office automation systems (OAS) at the knowledge
level; and transaction processing systems (TPS) at the operational level. Systems at each
level in turn are specialized to serve each of the major functional areas. Thus, the typical systems
found in organizations are designed to assist workers or managers at each level and in
the functions of sales and marketing, manufacturing, finance, accounting, and human
resources.
Table 2-1 summarizes the features of the six types of information systems. It should be
noted that each of the different kinds of systems may have components that are used by organizational
levels and groups other than their main constituencies. A secretary may find information
on an MIS, or a middle manager may need to extract data from a TPS.
Transaction Processing Systems
Transaction processing systems (TPS) are the basic business systems that serve the operational
level of the organization. A transaction processing system is a computerized system
that performs and records the daily routine transactions necessary to conduct the business.
Examples are sales order entry, hotel reservation systems, payroll, employee record keeping,
and shipping.
At the operational level, tasks, resources, and goals are predefined and highly structured.
The decision to grant credit to a customer, for instance, is made by a lower-level supervisor

TABLE 2-1
according to predefined criteria. All that must be determined is whether the customer meets
the criteria.
Figure 2-3 depicts a payroll TPS, which is a typical accounting transaction processing
system found in most firms. A payroll system keeps track of the money paid to employees.
The master file is composed of discrete pieces of information (such as a name, address, or
employee number) called data elements. Data are keyed into the system, updating the data
elements. The elements on the master file are combined in different ways to create reports of
interest to management and government agencies and to send paychecks to employees. These
TPS can generate other report combinations of existing data elements.
Other typical TPS applications are identified in Figure 2-4. The figure shows that there
are five functional categories of TPS: sales/marketing, manufacturing/production, finance/
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 7
Characteristics of Information Processing
Systems
Type of System Information Inputs Processing Information Outputs Users
ESS
DSS
MIS
KWS
Office systems
TPS
Aggregate data; external, internal
Low-volume data or massive
databases optimized for data
analysis; analytic models and
data analysis tools
Summary transaction data; highvolume
data; simple models
Design specifications; knowledge
base
Documents; schedules
Transactions; events
Employee data (various departments)
Payroll
master
file
Data elements in
payroll master file
Employee Number
Name
Address
Department
Occupation
Pay rate
Vacation time
Gross pay
Earnings
(year to date)
WithholdingsFederal income tax
State tax
FICA
Other
Payroll
system
On-line
queries:
earnings
Figure 2-3 A symbolic representation for a payroll TPS.
Graphics; simulations;
interactive
Interactive; simulations;
analysis
Routine reports; simple
models; low-level
analysis
Modeling; simulations
Document management;
scheduling;
communication
Sorting; listing; merging;
updating
Projections; responses
to queries
Special reports; decision
analyses; responses
to queries
Summary and exception
reports
Models; graphics
Documents; schedules;
mail
Detailed reports; lists;
summaries
To general ledger: wages and salaries
Management
reports
Government documents
Employee checks
Employee Employee Gross
Payroll
Federal State FICA
number name pay tax tax
46848 Stoker, K. 2000.00 400.00 50.00 140.00
Senior managers
Professionals; staff managers
Middle managers
Professionals; technical staff
Clerical workers
Operations personnel;
supervisors
Earnings
(year to date)
6000.00

8 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Major functions
of system
Major
application
systems
Sales/
marketing
systems
Manufacturing/
production
systems
Sales management Scheduling
Market research Purchasing
Promotion Shipping/receiving
Pricing Engineering
New products Operations
Sales order
information system
Market research
system
Sales commission
system
TYPE OF TPS SYSTEM
Finance/
accounting
systems
Human
resources
systems
Figure 2-4 Typical applications of TPS. There are five functional categories of TPS: sales/marketing,
manufacturing/production, finance/accounting, human resources, and other types of systems specific to
a particular industry.Within each of these major functions are subfunctions. For each of these subfunctions
(e.g., sales management) there is a major application system.
knowledge work systems
(KWS)
Information systems that aid
knowledge workers in the creation
and integration of new
knowledge in the organization.
office systems
Computer systems, such as
word processing, electronic mail
systems, and scheduling systems,
that are designed to increase the
productivity of data workers in
the office.
Machine control
systems
Purchase order
systems
Quality control
systems
Other types
(e.g., university)
Budgeting Personnel records Admissions
General ledger Benefits Grade records
Billing Compensation Course records
Cost accounting Labor relations
Training
Alumni
General ledger Payroll Registration system
Accounts
receivable/payable
Funds management
systems
Employee records Student transcript
system
Benefit systems Curriculum class
control systems
Career path
systems
Alumni benefactor
system
accounting, human resources, and other types of TPS that are unique to a particular industry.
The UPS package tracking system described in Chapter 1 is an example of a manufacturing
TPS. UPS sells package delivery services; the system keeps track of all of its package
shipment transactions.
Transaction processing systems are often so central to a business that TPS failure for a
few hours can spell a firm’s demise and perhaps other firms linked to it. Imagine what would
happen to UPS if its package tracking system were not working! What would the airlines do
without their computerized reservation systems?
Managers need TPS to monitor the status of internal operations and the firm’s relations
with the external environment. TPS are also major producers of information for the other
types of systems. (For example, the payroll system illustrated in Figure 2-4, along with other
accounting TPS, supplies data to the company’s general ledger system, which is responsible
for maintaining records of the firm’s income and expenses and for producing reports such as
income statements and balance sheets.)
Knowledge Work and Office Systems
Knowledge work systems (KWS) and office systems serve the information needs at the
knowledge level of the organization. Knowledge work systems aid knowledge workers,
whereas office automation systems primarily aid data workers (although they are also used
extensively by knowledge workers).
In general, knowledge workers are people who hold formal university degrees and who are
often members of a recognized profession, such as engineers, doctors, lawyers, and scientists.
Their jobs consist primarily of creating new information and knowledge. Knowledge work
systems (KWS), such as scientific or engineering design workstations, promote the creation
of new knowledge and ensure that new knowledge and technical expertise are properly integrated
into the business. Data workers typically have less formal, advanced educational
degrees and tend to process rather than create information. They consist primarily of secretaries,
accountants, filing clerks, or managers whose jobs are principally to use, manipulate,
or disseminate information. Office systems are information technology applications
designed to increase data workers’ productivity by supporting the coordinating and commu-

nicating activities of the typical office. Office systems
coordinate diverse information workers, geographic
units, and functional areas: The systems communicate
with customers, suppliers, and other organizations
outside the firm and serve as a clearinghouse for
information and knowledge flows.
Typical office systems handle and manage documents
(through word processing, desktop publishing,
document imaging, and digital filing), scheduling
(through electronic calendars), and communication
(through electronic mail, voice mail, or videoconferencing).
Word processing refers to the software and
hardware that creates, edits, formats, stores, and
prints documents (see Chapter 6). Word processing
systems represent the single most common application
of information technology to office work, in part
because producing documents is what offices are all
about. Desktop publishing produces professional,
publishing-quality documents by combining output
from word processing software with design elements, graphics, and special layout features.
Companies are now starting to publish documents in the form of Web pages for easy access
and distribution. We describe Web publishing in more detail in Chapter 12.
Document imaging systems are another widely used knowledge application.
Document imaging systems convert documents and images into digital form so that they can
be stored and accessed by the computer.
Management Information Systems
In Chapter 1, we defined management information systems as the study of information systems
in business and management. The term management information systems (MIS) also designates
a specific category of information systems serving management-level functions.
Management information systems (MIS) serve the management level of the organization,
providing managers with reports and, in some cases, with on-line access to the organization’s
current performance and historical records. Typically, they are oriented almost exclusively to
internal, not environmental or external, events. MIS primarily serve the functions of planning,
controlling, and decision making at the management level. Generally, they depend on
underlying transaction processing systems for their data.
MIS summarize and report on the company’s basic operations. The basic transaction
data from TPS are compressed and are usually presented in long reports that are produced on
a regular schedule. Figure 2-5 shows how a typical MIS transforms transaction-level data
from inventory, production, and accounting into MIS files that are used to provide managers
with reports. Figure 2-6 shows a sample report from this system.
MIS usually serve managers interested in weekly, monthly, and yearly results–not dayto-day
activities. MIS generally provide answers to routine questions that have been specified
in advance and have a predefined procedure for answering them. For instance, MIS reports
might list the total pounds of lettuce used this quarter by a fast-food chain or, as illustrated
in Figure 2-6, compare total annual sales figures for specific products to planned targets.
These systems are generally not flexible and have little analytical capability. Most MIS use
simple routines such as summaries and comparisons, as opposed to sophisticated mathematical
models or statistical techniques.
Decision-Support Systems
Decision-support systems (DSS) also serve the management level of the organization. DSS
help managers make decisions that are unique, rapidly changing, and not easily specified in
advance. They address problems where the procedure for arriving at a solution may not be
fully predefined in advance. Although DSS use internal information from TPS and MIS,
they often bring in information from external sources, such as current stock prices or product
prices of competitors.
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 9
Graphics designers use desktop
publishing software to design a
page for “La Opinion.” Desktop publishing
software enables users to
control all aspects of the design and
layout process for professionallooking
publications.
word processing
Office automation technology
that facilitates the creation of
documents through computerized
text editing, formatting,
storing, and printing.
desktop publishing
Technology that produces
professional-quality documents
combining output from word
processors with design, graphics,
and special layout features.
document imaging systems
Systems that convert documents
and images into digital form so
that they can be stored and
accessed by the computer.
management information
systems (MIS)
Information systems at the management
level of an organization
that serve the functions of planning,
controlling, and decision
making by providing routine
summary and exception reports.
decision-support systems
(DSS)
Information systems at the organization’s
management level that
combine data and sophisticated
analytical models or data analysis
tools to support semistructured
and unstructured decision making.

10 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Order
file
Production
master
file
Accounting
files
Transaction Processing Systems Management Information Systems
Order
processing
system
Materials
resource
planning
system
General
ledger
system
Figure 2-6 A sample report
that might be produced by the
MIS in Figure 2-5.
Consolidated Consumer Products Corporation
Sales by Product and Sales Region: 2001
PRODUCT
CODE
4469
MIS FILES
Figure 2-5 How management information systems obtain their data from the organization’s TPS. In
the system illustrated by this diagram, three TPS supply summarized transaction data at the end of the
time period to the MIS reporting system. Managers gain access to the organizational data through the
MIS, which provides them with the appropriate reports.
Sales
data
Unit
product
cost data
Product
change
data
Expense
data
Clearly, by design, DSS have more analytical power than other systems. They are built
explicitly with a variety of models to analyze data, or they condense large amounts of data
into a form where they can be analyzed by decision makers. DSS are designed so that users
can work with them directly; these systems explicitly include user-friendly software. DSS are
interactive; the user can change assumptions, ask new questions, and include new data.
An interesting, small, but powerful DSS is the voyage-estimating system of a subsidiary
of a large American metals company that exists primarily to carry bulk cargoes of coal, oil,
ores, and finished products for its parent company. The firm owns some vessels, charters others,
and bids for shipping contracts in the open market to carry general cargo. A voyageestimating
system calculates financial and technical voyage details. Financial calculations
include ship/time costs (fuel, labor, capital), freight rates for various types of cargo, and port
expenses. Technical details include a myriad of factors such as ship cargo capacity, speed, port
distances, fuel and water consumption, and loading patterns (location of cargo for different
ports). The system can answer questions such as the following: Given a customer delivery
schedule and an offered freight rate, which vessel should be assigned at what rate to maximize
PRODUCT
DESCRIPTION
Carpet Cleaner
TOTAL
SALES
REGION
Northeast
South
Midwest
West
ACTUAL
SALES
4,066,700
3,778,112
4,867,001
4,003,440
16,715,253
5674 Room Freshener Northeast 3,676,700
TOTAL
MIS
South
Midwest
West
Reports Managers
5,608,112
4,711,001
4,563,440
18,559,253
PLANNED
4,800,000
3,750,000
4,600,000
4,400,000
17,550,000
3,900,000
4,700,000
4,200,000
4,900,000
17,700,000
ACTUAL VS.
PLANNED
0.85
1.01
1.06
0.91
0.95
0.94
1.19
1.12
0.93
1.05

PC
Graphics
Reports
Analytical
models
database
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 11
Ship file (e.g.,
speed capacity)
Port distance
restrictions file
Fuel consumption
cost file
Ship charter hire
history cost file
Port
expense file
profits? What is the optimum speed at which a particular vessel can optimize its profit and
still meet its delivery schedule? What is the optimal loading pattern for a ship bound for the
U.S. West Coast from Malaysia? Figure 2-7 illustrates the DSS built for this company. The
system operates on a powerful desktop personal computer, providing a system of menus that
makes it easy for users to enter data or obtain information. We describe other types of DSS
in Chapter 13.
Executive Support Systems
Senior managers use executive support systems (ESS) to make decisions. ESS serve the
strategic level of the organization. They address nonroutine decisions requiring judgment,
evaluation, and insight because there is no agreed-on procedure for arriving at a solution.
ESS create a generalized computing and communications environment rather than providing
any fixed application or specific capability. ESS are designed to incorporate data about
external events such as new tax laws or competitors, but they also draw summarized information
from internal MIS and DSS. They filter, compress, and track critical data, emphasizing
the reduction of time and effort required to obtain information useful to executives. ESS
employ the most advanced graphics software and can deliver graphs and data from many
sources immediately to a senior executive’s office or to a boardroom.
Unlike the other types of information systems, ESS are not designed primarily to solve
specific problems. Instead, ESS provide a generalized computing and telecommunications
capacity that can be applied to a changing array of problems. Whereas many DSS are
designed to be highly analytical, ESS tend to make less use of analytical models.
Questions ESS assist in answering include the following: In what business should we be?
What are the competitors doing? What new acquisitions would protect us from cyclical business
swings? Which units should we sell to raise cash for acquisitions (Rockart and Treacy,
1982)? Figure 2-8 illustrates a model of an ESS. It consists of workstations with menus,
interactive graphics, and communications capabilities that can access historical and competitive
data from internal corporate systems and external databases such as Dow Jones
News/Retrieval or the Gallup Poll. Because ESS are designed to be used by senior managers
who often have little, if any, direct contact or experience with computer-based information
systems, they incorporate easy-to-use graphic interfaces. More details on leading-edge applications
of DSS and ESS can be found in Chapter 13.
Relationship of Systems to One Another
Figure 2-9 illustrates how the systems serving different levels in the organization are related to
one another. TPS are typically a major source of data for other systems, whereas ESS are primarily
a recipient of data from lower-level systems. The other types of systems may exchange
data with each other as well. Data may also be exchanged among systems serving different functional
areas. For example, an order captured by a sales system may be transmitted to a manufacturing
system as a transaction for producing or delivering the product specified in the order.
It is definitely advantageous to have some measure of integration among these systems so
that information can flow easily between different parts of the organization. But integration
Figure 2-7 Voyage estimating
decision-support system. This
DSS operates on a powerful PC.
It is used daily by managers who
must develop bids on shipping
contracts.
executive support systems
(ESS)
Information systems at the organization’s
strategic level designed
to address unstructured decision
making through advanced graphics
and communications.

12 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Figure 2-8 Model of a typical
executive support system. This
system pools data from diverse
internal and external sources and
makes them available to executives
in an easy-to-use form.
Figure 2-9 Interrelationships
among systems. The various
types of systems in the organization
have interdependencies.TPS
are a major producer of information
that is required by the other
systems which, in turn, produce
information for other systems.
These different types of systems
are only loosely coupled in most
organizations.
ESS
workstation
• Menus
• Graphics
• Communications
• Local processing
Management
systems
(MIS)
Knowledge
systems
(KWS and
Office
Systems)
Internal data
• TPS/MIS data
• Financial data
• Office systems
• Modeling/
analysis
• Menus
• Graphics
• Communications
• Local processing
Executive
support
systems
(ESS)
ESS
workstation
External data
• Dow Jones
• Internet News
Feeds
• Standard &
Poor’s
Management
systems
(DSS)
Transaction
processing
systems
(TPS)
ESS
workstation
• Menus
• Graphics
• Communications
• Local processing
costs money, and integrating many different systems is extremely time consuming and complex.
Each organization must weigh its needs for integrating systems against the difficulties
of mounting a large-scale systems integration effort. The discussion of enterprise systems in
Section 2.3 treats this issue in greater detail.
2.2 Systems from a Functional
Perspective
Information systems can be classified by the specific organizational function they serve as
well as by organizational level. We now describe typical information systems that support
each of the major business functions and provide examples of functional applications for
each organizational level.
Sales and Marketing Systems
The sales and marketing function is responsible for selling the organization’s product or service.
Marketing is concerned with identifying the customers for the firm’s products or services,
determining what they need or want, planning and developing products and services to

TABLE 2-2
Examples of Sales and
Marketing Information Systems
System Description Organizational Level
Order processing Enter, process, and track orders Operational
Market analysis Identify customers and markets using
data on demographics, markets,
consumer behavior, and trends
Knowledge
Pricing analysis Determine prices for products
and services
Management
Sales trend forecasting Prepare 5-year sales forecasts Strategic
meet their needs, and advertising and promoting these products and services. Sales is concerned
with contacting customers, selling the products and services, taking orders, and following
up on sales. Sales and marketing information systems support these activities.
Table 2-2 shows that information systems are used in sales and marketing in a number
of ways. At the strategic level, sales and marketing systems monitor trends affecting new
products and sales opportunities, support planning for new products and services, and monitor
the performance of competitors. At the management level, sales and marketing systems
support market research, advertising and promotional campaigns, and pricing decisions.
They analyze sales performance and the performance of the sales staff. Knowledge-level sales
and marketing systems support marketing analysis workstations. At the operational level,
sales and marketing systems assist in locating and contacting prospective customers, tracking
sales, processing orders, and providing customer service support.
Review Figure 2-6. It shows the output of a typical sales information system at the management
level. The system consolidates data about each item sold (such as the product code,
product description, and price) for further management analysis. Company managers examine
these sales data to monitor sales activity and buying trends. The Window on
Management describes some typical sales and marketing systems that might be found in a
small business.
Manufacturing and Production Systems
The manufacturing and production function is responsible for actually producing the firm’s
goods and services. Manufacturing and production systems deal with the planning, development,
and maintenance of production facilities; the establishment of production goals; the
acquisition, storage, and availability of production materials; and the scheduling of equipment,
facilities, materials, and labor required to fashion finished products. Manufacturing
and production information systems support these activities.
Table 2-3 shows some typical manufacturing and production information systems
arranged by organizational level. Strategic-level manufacturing systems deal with the firm’s
TABLE 2-3
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 13
Examples of Manufacturing and
Production Information Systems
System Description Organizational Level
Machine control Control the actions of machines
and equipment
Operational
Computer-aided design (CAD) Design new products using
the computer
Knowledge
Production planning Decide when and how many
products should be produced
Management
Facilities location Decide where to locate new
production facilities
Strategic
sales and marketing
information systems
Systems that help the firm identify
customers for the firm’s
products or services, develop
products and services to meet
customer’s needs, promote
products and services, sell the
products and services, and provide
ongoing customer support.
manufacturing and production
information systems
Systems that deal with the planning,
development, and production
of products and services
and with controlling the flow of
production.

14 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
How Southstream Seafoods
Lands the Big Customers
According to Mark Soderstrom,
president of Southstream Seafoods,
anyone can sell fish. He believes
that his company does it better
than anyone else, thanks to powerful
customer contact and sales
information systems. Southstream Seafoods is based in Warwick,
Rhode Island, and is an importer and wholesaler of frozen
seafood that sells primarily to food-service distributors and
restaurant chains. The company has been in business for more
than 10 years and has 20 employees.
To stay ahead of competitors in a tough business,
Southstream installed a customer relationship management
(CRM) system with software from Sage Inc. The system keeps
track of Southstream’s customers, phone calls, and sales transactions
and helps management measure the efficiency and productivity
of the sales force.
Selling fish is challenging for both wholesalers and retailers
because fish prices constantly go up and down, with factors
such as weather or availability affecting the business within a
few days. Soderstrom turned this problem into an opportunity
to serve his customers better than competitors by broadcasting
information about changing market prices to customers so they
can make better business decisions. Southstream configured the
contact management portion of the system so that with a click
of a button, sales staff could send out information only to specified
customers. The customer records in the system include
check boxes indicating which types of fish they purchase. The
check boxes enable Southstream to locate only those customers,
for instance, who purchase Alaskan cod. Southstream
can then send a fax about changes in Alaskan cod prices only to
those customers who actually use the product. Southstream
uses the system to fax market information to about half of its
1,000 customers each week.
management
Sources: Angela R. Garber, “Hook, Line, and Sinker,” Small Business Computing,
New caption to come
The average Southstream sales representative handles
between 75 and 125 active accounts.When making each call, the
salesperson enters sales information, including quantity, price,
and shipping information into the system. The salesperson can
also use the system to set callback dates and reminder alarms.
The system records the duration of each call and makes all of
the information available to a manager or Southstream’s shipping
department. If the shipping department gets a call indicating
that a customer’s fish hasn’t arrived on time, the shipping
department can enter the customer’s name and immediately
see what that customer has just purchased and when delivery is
expected.
Soderstrom can generate reports from the system to analyze
the efficiency of his sales staff and find ways of better servicing
customer accounts. The system can show him exactly
what each salesperson has done, showing all of his or her phone
calls, sales, and the results of phone calls. Using this information,
Soderstrom might find that one sales representative is spending
too much time on a customer with a historically low volume of
purchases and recommend that the salesperson allocate more
time to a customer with more purchasing potential. Using only
10 sales representatives and 2 people in the shipping department,
Southstream sells and ships about one million pounds of
fish each week.Without the system, the company would need a
staff twice as big to do the job.
To Think About: What kinds of systems for sales and marketing
are described here? How do these systems support the
sales function? What organizational levels are supported by
these systems?
February 2000; and www.southstream.com.

Shipment and order data
Inventory
master
file
Data elements in
inventory master file:
Item code
Description
Units on hand
Units on order
Reorder point
Inventory
Control
System
On-line
queries
Item
Code
6361
4466
9313
8808
long-term manufacturing goals, such as where to locate new plants or whether to invest in
new manufacturing technology. At the management level, manufacturing and production
systems analyze and monitor manufacturing and production costs and resources. Knowledge
manufacturing and production systems create and distribute design knowledge or expertise
to drive the production process, and operational manufacturing and production systems deal
with the status of production tasks.
Most manufacturing and production systems use some sort of inventory system, illustrated
in Figure 2-10. Data about each item in inventory, such as the number of units
depleted because of a shipment or purchase or the number of units replenished by reordering
or returns, are either scanned or keyed into the system. The inventory master file contains
basic data about each item, including the unique identification code for each item, the
description of the item, the number of units on hand, the number of units on order, and the
reorder point (the number of units in inventory that triggers a decision to reorder to prevent
a stockout). Companies can estimate the number of items to reorder or they can use a formula
for calculating the least expensive quantity to reorder called the economic order quantity.
The system produces reports such as the number of each item available in inventory, the
number of units of each item to reorder, or items in inventory that must be replenished.
Finance and Accounting Systems
The finance function is responsible for managing the firm’s financial assets, such as cash,
stocks, bonds, and other investments, in order to maximize the return on these financial
assets. The finance function is also in charge of managing the capitalization of the firm (finding
new financial assets in stocks, bonds, or other forms of debt). In order to determine
whether the firm is getting the best return on its investments, the finance function must
obtain a considerable amount of information from sources external to the firm.
The accounting function is responsible for maintaining and managing the firm’s financial
records–receipts, disbursements, depreciation, payroll–to account for the flow of funds
in a firm. Finance and accounting share related problems–how to keep track of a firm’s financial
assets and fund flows. They provide answers to questions such as these: What is the current
inventory of financial assets? What records exist for disbursements, receipts, payroll, and
other fund flows?
Table 2-4 shows some of the typical finance and accounting information systems
found in large organizations. Strategic-level systems for the finance and accounting function
establish long-term investment goals for the firm and provide long-range forecasts of the
firm’s financial performance. At the management level, information systems help managers
oversee and control the firm’s financial resources. Knowledge systems support finance and
accounting by providing analytical tools and workstations for designing the right mix of
investments to maximize returns for the firm. Operational systems in finance and accounting
track the flow of funds in the firm through transactions such as paychecks, payments to vendors,
securities reports, and receipts. Review Figure 2-3, which illustrates a payroll system, a
typical accounting TPS found in all businesses with employees.
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 15
Management
reports
Inventory Status Report
Report Date: 1/14/2001
Description
Fan belt
Power cord
Condenser
Paint sprayer
Units on
Hand
10,211
55,710
663
11,242
Units on
Order
0
88,660
10,200
0
Figure 2-10 Overview of an
inventory system. This system
provides information about the
number of items available in
inventory to support manufacturing
and production activities.
finance and accounting
information systems
Systems keep track of the firm’s
financial assets and fund flows.

16 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
human resources
information systems
Systems that maintain employee
records; track employee skills,
job performance, and training;
and support planning for
employee compensation and
career development.
TABLE 2-4
Human Resources Systems
The human resources function is responsible for attracting, developing, and maintaining the
firm’s workforce. Human resources information systems support activities such as identifying
potential employees, maintaining complete records on existing employees, and creating
programs to develop employees’ talents and skills.
Strategic-level human resources systems identify the support requirements (skills, educational
level, types of positions, number of positions, and cost) for meeting the firm’s longterm
business plans. At the management level, human resources systems help managers monitor
and analyze the recruitment, allocation, and compensation of employees. Knowledge
systems for human resources support analysis activities related to job design, training, and
the modeling of employee career paths and reporting relationships. Human resources operational
systems track the recruitment and placement of the firm’s employees (see Table 2-5).
Figure 2-11 illustrates a typical human resources TPS for employee record keeping. It
maintains basic employee data, such as the employee’s name, age, sex, marital status, address,
educational background, salary, job title, date of hire, and date of termination. The system
can produce a variety of reports, such as lists of newly hired employees, employees who are
terminated or on leaves of absence, employees classified by job type or educational level, or
employee job performance evaluations. Such systems are typically designed to provide data
that can satisfy federal and state record keeping requirements for Equal Employment
Opportunity (EEO) and other purposes.
2.3 Integrating Functions and
Business Processes: Enterprise
Systems and Industrial Networks
Organizations are using information systems to coordinate activities and decisions across
entire firms and even entire industries.
Business Processes and Information Systems
The systems we have described support flows of work and activities called business processes
which we introduced in Chapter 1. Business processes refer to the manner in which work is
organized, coordinated, and focused to produce a valuable product or service. On the one
TABLE 2-5
Examples of Finance and
Accounting Information Systems
System Description Organizational Level
Accounts receivable Track money owed the firm Operational
Portfolio analysis Design the firm’s portfolio of investments Knowledge
Budgeting Prepare short-term budgets Management
Profit planning Plan long-term profits Strategic
Examples of Human Resources
Information Systems
System Description Organizational Level
Training and development Track employee training, skills,
and performance appraisals
Operational
Career pathing Design career paths for employees Knowledge
Compensation analysis Monitor the range and distribution
of employee wages, salaries, and benefits
Management
Human resources planning Plan the long-term labor force needs
of the organization
Strategic

Employee
master
file
Employee data
(various departments) To payroll
Data elements in
employee master file:
Employee: Number
Name
Address
Department
Age
Marital status
Sex
Salary
Educational background
Job title
Date of hire
Date of termination
Termination reason
Human
Resources
System
On-line
queries
Date
11/12/2000
12/1/2000
1/12/2001
Figure 2-11 An employee record keeping system.This system maintains data on the firm’s employees
to support the human resources function.
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 17
Management
reports
Termination Report
Name
John Hansen
Patricia Carlyle
Ellen Quimby
Number
29433
14327
21224
Reason
Position
eliminated
Retired
Left
company
hand, business processes are concrete workflows of material, information, and
knowledge–sets of activities. On the other hand, business processes represent unique ways in
which organizations coordinate work, information, and knowledge, and the ways in which
management chooses to coordinate work. Table 2-6 describes typical business processes for
each of the functional areas.
Although each of the major business functions has its own set of business processes,
many other business processes are cross-functional, transcending the boundaries between
sales, marketing, manufacturing, and research and development. These cross-functional
processes cut across the traditional organizational structure, grouping employees from different
functional specialties to complete a piece of work. For example, the order fulfillment
process at many companies requires cooperation among the sales function (receiving the
order, entering the order), the accounting function (credit checking and billing for the
order), and the manufacturing function (assembling and shipping the order). Figure 2-12
TABLE 2-6 Examples of Business Processes
Functional Area Business Process
Manufacturing and production Assembling the product
Checking for quality
Producing bills of materials
Sales and marketing Identifying customers
Making customers aware of the product
Selling the product
Finance and accounting Paying creditors
Creating financial statements
Managing cash accounts
Human resources Hiring employees
Evaluating employees’ job performance
Enrolling employees in benefits plans

18 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Figure 2-12 The order fulfillment
process. Generating and
fulfilling an order is a multistep
process involving activities performed
by the sales, manufacturing
and production, and accounting
functions.
Keying data from tax returns into
the Internal Revenue Service computer
system is an important activity
in the tax collection process.
Business processes coordinate work,
information, and knowledge.
Sales
Accounting
Manufacturing
and
production
Generate
order
Submit
order
Check
credit
Approve
credit
Assemble
product
Generate
invoice
Ship
product
illustrates how this cross-functional process might work. Information systems support these
cross-functional processes as well as processes for the separate business functions.
Information systems can help organizations achieve great efficiencies by automating
parts of these processes or by helping organizations rethink and streamline these processes.
However, redesigning business processes requires careful analysis and planning. When systems
are used to strengthen the wrong business model or business processes, the business can
become more efficient at doing what it should not do. As a result, the firm becomes vulnerable
to competitors who may have discovered the right business model. Therefore, one of the
most important strategic decisions that a firm can make is not deciding how to use computers
to improve business processes, but instead to first understand what business processes
need improvement (Keen, 1997). Chapter 10 treats this subject in greater detail, because it is
fundamental to systems analysis and design.
Customer Relationship Management and Supply
Chain Management
Electronic commerce, global competition, and the rise of digital firms have made companies
think strategically about their business processes for managing their relationships with customers
and suppliers. Consumers can now use the Web to comparison shop and switch companies
on a moment’s notice. To survive, businesses need to find ways of providing more
value and service to customers at lower cost. Many believe the solution lies in improving
their business processes for interacting with customers and for producing and delivering
products or services.

Customer Relationship Management (CRM)
Instead of treating customers as exploitable sources of income, businesses are now viewing
them as long-term asserts to be nurtured through customer relationship management
(CRM). Customer relationship management (CRM) focuses on managing all of the ways
that a firm deals with its existing and potential new customers. CRM is both a business and
technology discipline that uses information systems to coordinate all of the business
processes surrounding the firm’s interactions with its customers in sales, marketing, and service.
The ideal CRM system provides end-to-end customer care from receipt of an order
acquisition through product delivery.
In the past, a firm’s processes for sales, service, and marketing were highly compartmentalized
and did not share much essential customer information. Some information on a specific
customer might be stored and organized in terms of that person’s account with the company.
Other pieces of information about the same customer might be organized by products
that were purchased. There was no way to consolidate all of this information to provide a
unified view of a customer across the company. CRM tools try to solve this problem by integrating
the firm’s customer-related processes and consolidating customer information from
multiple communication channels–the telephone, e-mail, wireless devices, or the Web so
that the firm can put one coherent face to the customer.
Good CRM systems consolidate customer data from multiple sources and provide analytical
tools for answering questions such as: What is the value of a particular customer to the
firm over his or her lifetime? Who are our most loyal customers? (It costs six times more to
sell to a new customer than to an existing customer.) (Kalakota and Robinson, 2001). Who
are our most profitable customers? (Typically 80–90% of a firm’s profits are generated by
10–20% of its customers.) What do these profitable customers want to buy? Firms can then
use the answers to acquire new customers, provide better service and support, customize
their offerings more precisely to customer preferences, and provide ongoing value to retain
profitable customers. Chapters 3, 4, 9, and 13 provide additional detail on customer relationship
management applications and technologies.
Supply Chain Management
To deliver the product more rapidly to the customer at lower cost, firms are also trying to
streamline their business processes for supply chain management. Supply chain management
is the close linkage of activities involved in buying, making, and moving a product. It
integrates supplier, distributor, and customer logistics requirements into one cohesive process
to reduce time, redundant effort, and inventory costs (see Figure 2-14). The supply chain is
a network of facilities for procuring materials, transforming raw materials into intermediate
Sales
Telephone sales
Web sales
Field sales
Retail sales
Marketing
Campaign data
Content
Data analysis
Customer Service
Call center data
Web self service data
Field service data
Wireless data
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 19
• Unified view of customers
• Consistent message to customers
• End-to-end customer care
• Long-term customer relationships
• Identification of best customers
customer relationship
management
Business and technology discipline
to coordinate all of the
business processes for dealing
with customers.
supply chain management
Integration of supplier, distributor,
and customer logistics
requirements into one cohesive
process.
supply chain
Network of facilities for procuring
materials, transforming raw
materials into finished products,
and distributing finished products
to customers.
Figure 2-13 Customer relationship
management combines
business processes using technology
to look at customers
from a multifaceted perspective.
CRM uses a set of integrated
applications to address all
aspects of the customer relationship,
including customer service,
sales, and marketing.

20 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Figure 2-14 Supply chain
management. The major entities
in the supply chain and the flow
of information coordinate the
activities involved in buying, making,
and moving a product.
and finished products, and distributing the finished products to customers. It links manufacturing
plants, distribution centers, conveyances, retail outlets, people, and information
through processes such as procurement or logistics to supply goods and services from source
through consumption. Goods or services start out as raw materials and move through the
company’s logistics and production systems until they reach customers. To manage the supply
chain, a company tries to eliminate redundant steps, delays, and the amount of resources
tied up along the way.
Companies that skillfully manage their supply chains get the right amount of their products
from their source to their point of consumption with the least amount of time and the
lowest cost. Information systems make supply chain management more efficient by helping
companies coordinate, schedule, and control procurement, production, inventory management,
and delivery of products and services to customers. Information systems can integrate
demand planning, production forecasting, materials requisition, order processing, inventory
allocation, order fulfillment, transportation services, receiving, invoicing, and payment.
Table 2-7 describes how companies can benefit from using information systems for supply
chain management.
Supply chain management systems can be built using intranets, extranets, or special supply
chain management software. The Window on Organizations shows how Hewlett-
Packard benefited from a sophisticated supply chain management system that used Internet
technology.
Enterprise Systems
A large organization typically has many different kinds of information systems that support
different functions, organizational levels, and business processes. Most of these systems, built
around different functions, business units, and business processes, do not “talk” to each other,
and managers might have a hard time assembling the data they would need for a comprehensive,
overall picture of the organization’s operations. For instance, sales personnel might not be
able to tell at the time they placed an order whether the items that were ordered were in inventory;
customers could not track their orders; and manufacturing could not communicate eas-
TABLE 2-7
Capacity, inventory level, delivery schedule, payment terms
Retail
Supplier Manufacturer Distributor
Customer
Outlet
Orders, return requests, repair and service requests, payments
How Information Systems Can
Facilitate Supply Chain
Management
Information systems can help participants in the supply chain
Decide when and what to produce, store, and move
Rapidly communicate orders
Track the status of orders
Check inventory availability and monitor inventory levels
Track shipments
Plan production based on actual customer demand
Rapidly communicate changes in product design
Provide product specifications
Share information about defect rates and returns

Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 21
Supply Chain Management Keeps
Inventory Fresh at HP
Why is the PC business like the
fresh fruit business? Jean-Luc
Meyer, a PC group marketing manager
at Hewlett-Packard (HP),
claims “Every day fresh fruit
becomes less valuable because it
gets a little rotten. In the PC business, every day prices go
down.” New computer technology develops so quickly that
computers sitting on the shelf become technically outdated.To
help the company sell its computers at full price, HP created a
sophisticated supply chain management system that produces
PCs to order and gets them to customers within 48 hours.
The new system automates much of the process. Orders are
placed via computer that in turn forwards the data to HP’s production
and delivery computer systems. Some of these systems
are linked to the systems of HP’s suppliers. Synnex, located in
Fremont, California, is a contract manufacturer of PCs for a
number of companies, including HP. When orders arrive at
Synnex, computers immediately check the credit of the customer
placing the order. Simultaneously they validate the order
configuration to make sure it works (so no one wastes time
building a computer with incompatible, duplicate, or missing
components). Assuming everything checks out, the order is
automatically forwarded to a computer that controls production.
That computer prints out an instruction ticket for the
assembly technician while simultaneously forwarding a parts
order to Synnex’s warehouse.The software to be included with
the purchased computer is loaded onto that computer and then
the whole parts order with the ticket are shipped to the technician’s
workstation. One worker assembles the computer and
then connects it to a computer that tests it.The new computer
is then boxed, tagged, and shipped. Using the bar code on the
ticket, even the delivery is monitored by computer. Much of the
information in this process is communicated through the
Internet.
HP’s supply chain management system enables customers to
receive its new computers very rapidly while HP reduces production
errors.The system also reduces inventory–parts, goods
in process, and completed products. Knowing exactly what computers
to build helps HP reduce its pipeline of products awaiting
the arrival of orders.To keep inventory low, HP makes the supply
chain data available to parts suppliers and to production contractors
(many HP PCs are produced by outside manufacturers).
For computers manufactured by contract producers, HP
thus maintains virtually no inventory. Prior to supply chain management
software, Synnex maintained four weeks of parts
inventory. With the new automated system, their parts inventory
has been cut to two weeks.The supply chain management
software even monitors the parts inventory and automatically
orders more parts when inventory gets low.
To Think About: How has HP’s supply chain management
system changed the way the company runs its business? It has
been said that building a world-class supply chain management
system is neither cheap nor easy.Why?
organizations
Sources: Rory J. O’Connor, “Keeping Inventory Fresh,” Upside, June 2000; and
eCompany Staff, “Supply-Chain Software: Hewlett Packard,” eCompany,
November 2000.
ily with finance to plan for new production. This fragmentation of data in hundreds of separate
systems could thus have a negative impact on organizational efficiency and business performance.
Figure 2-15 illustrates the traditional arrangement of information systems.
Systems for customer relationship management and supply chain management are a step
forward in solving this problem. Many organizations are now building enterprise systems,
also known as enterprise resource planning (ERP) systems, to provide firmwide integration.
Enterprise software models and automates many business processes, such as filling an order
or scheduling a shipment, with the goal of integrating information across the company and
eliminating complex, expensive links between computer systems in different areas of the
business. Information that was previously fragmented in different systems can seamlessly
flow throughout the firm so that it can be shared by business processes in manufacturing,
HP is using supply chain management software in other parts of its business,
and can now efficiently manage its supply chain for plastic parts.
enterprise systems
Firmwide information systems
that integrate key business
processes so that information
can flow freely between different
parts of the firm.

22 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
Vendors
Vendors
Vendors
Organizational Boundaries
Manufacturing Accounting Finance
Business
processes
Manufacturing
Systems
Figure 2-16 Enterprise systems.
Enterprise systems can
integrate the key business
processes of an entire firm into a
single software system that
allows information to flow seamlessly
throughout the organization.
These systems may include
transactions with customers and
vendors.
Business
processes
Accounting
Systems
Vendors
Business Functions
Business
processes
Finance
Systems
Information Systems
Figure 2-15 Traditional view of systems. In most organizations today, separate systems built over a
long period of time support discrete business processes and discrete segments of the business value
chain.The organization’s systems rarely include vendors and customers.
accounting, human resources, and other areas of the firm. Discrete business processes from
sales, production, finance, and logistics can be integrated into company-wide business
processes that flow across organizational levels and functions. An enterprise-wide technical
platform serves all processes and levels. Figure 2-16 illustrates how enterprise systems work
The enterprise system collects data from various key business processes (see Table 2-8)
and stores the data in a single comprehensive data repository where they can be used by other
parts of the business. Managers emerge with more precise and timely information for coordinating
the daily operations of the business and a firmwide view of business processes and
information flows.
For instance, when a sales representative in Brussels enters a customer order, the data
flows automatically to others in the company who need to see it. The factory in Hong Kong
receives the order and begins production. The warehouse checks its progress on-line and
schedules the shipment date. The warehouse can check its stock of parts and replenish whatever
the factory has depleted. The enterprise system stores production information, where it
can be accessed by customer service representatives to track the progress of the order through
every step of the manufacturing process. Updated sales and production data automatically
flow to the accounting department. The system transmits information for calculating the
salesperson’s commission to the payroll department. The system also automatically recalculates
the company’s balance sheets, accounts receivable and payable ledgers, cost center
accounts, and available cash. Corporate headquarters in London can view up-to-the-minute
data on sales, inventory, and production at every step of the process as well as updated sales
and production forecasts and calculations of product cost and availability.
Organizational boundaries
Manufacturing
Human
Resources
Marketing
and
Sales
Business
processes
Marketing
and
Sales
Systems
Enterprise System
Business process
Business process
Business process
Enterprise-wide business
processes
Sales and
Marketing
Human
Resources
Business
processes
Human
Resources
Systems
Organizational Boundaries
Accounting
Customers
Customers
Customers
Finance
Organizational boundaries
Customers

TABLE 2-8
Business Processes Supported
by Enterprise Systems
Manufacturing processes, including inventory management, purchasing, shipping, production
planning, material requirements planning, and plant and equipment maintenance
Financial and accounting processes, including accounts payable, accounts receivable, cash management
and forecasting, product-cost accounting, cost-center accounting, asset accounting,
general ledger, and financial reporting
Sales and marketing processes, including order processing, pricing, shipping, billing, sales management,
and sales planning
Human resource processes, including personnel administration, time accounting, payroll, personnel
planning and development, benefits accounting, applicant tracking, and travel expense
reporting,
Benefits and Challenges of Enterprise Systems
Enterprise systems promise to integrate the diverse business processes of a firm into a single
integrated information architecture.
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 23
Benefits of Enterprise Systems
Enterprise systems promise to greatly change four dimensions of business: firm structure,
management process, technology platform, and business capability.
Firm Structure and Organization: One Organization Companies can use enterprise
systems to support organizational structures that were not previously possible or to create a
more disciplined organizational culture. For example, they might use enterprise systems to
integrate the corporation across geographic or business unit boundaries or to create a more
uniform organizational culture in which everyone uses similar processes and information. An
enterprise-enabled organization does business the same way worldwide, with functional
boundaries deemphasized in favor of cross-functional coordination and information flowing
freely across business functions.
Management: Firmwide Knowledge-based Management Processes In addition to
automating many essential business transactions, such as taking orders, paying suppliers, or
changing employee benefits status, enterprise systems can also improve management reporting
and decision making. Information supplied by an enterprise system is structured around
Management Decision Problem
ANALYZING ENTERPRISE PROCESS INTEGRATION
Management at your agricultural chemicals corporation has been dissatisfied
with production planning. Production plans are created using
best guesses of demand for each product which are based on how
much of each product has been ordered in the past. If a customer
places an unexpected order or requests a change to an existing order
after it has been placed, there is no way to adjust the production plans.
The company may have to tell customers it can’t fill their orders or
may run up extra costs maintaining additional inventory to prevent
stock-outs.
At the end of each month, orders are totaled and manually keyed
into the company’s production planning system. Data from the past
month’s production and inventory systems are manually entered into
the firm’s order management system. Analysts from the sales department
and from the production department analyze the data from their
respective systems to determine what the sales targets and what the pro-
duction targets should be for the next month. These estimates are usually
different. The analysts then get together at a high-level planning
meeting, to revise the production and sales targets to take into account
senior management’s goals for market share, revenues, and profits. The
outcome of the meeting is a finalized production master schedule.
The entire production planning process takes 17 business days to
complete. Nine of these days are required to enter and validate the
data. The remaining days are spent developing and reconciling the
production and sales targets and finalizing the production master
schedule.
1. Draw a diagram of the production planning process.
2. Analyze the problems this process creates for the company.
3. How could an enterprise system solve these problems? Diagram
what this process might look like if the company implemented
enterprise software.

24 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
cross-functional business processes and it can be obtained rapidly. For example, an enterprise
system might help management more easily determine which products are most or least profitable.
No longer would general managers be stuck without any hard data on firm performance,
or data that applies only to their own immediate department. An enterprise system
could supply management with better data about business processes and overall organizational
performance.
Technology: Unified Platform Enterprise systems promise to provide firms with a single,
unified, and all-encompassing information system technology platform and environment.
Enterprise systems promise to create a single, integrated repository that gathers data on all
the key business processes. The data have common, standardized definitions and formats
that are accepted by the entire organization. You will learn more about the importance of
standardizing organizational data in Chapter 7.
Business: More Efficient Operations and Customer-driven Business Processes
Enterprise systems can help create the foundation for a customer-driven or demand organization.
By integrating discrete business processes such as sales, production, finance, and
logistics, the entire organization can efficiently respond to customer requests for products or
information, forecast new products, and build and deliver them as demand requires.
Manufacturing has better information to produce only what customers have ordered, to procure
exactly the right amount of components or raw materials to fill actual orders, to stage
production, and to minimize the time that components or finished products are in inventory.
Using enterprise systems to capture unit cost and quality data, firms can improve the
quality of their products and services.
The Challenge of Enterprise Systems
Although enterprise systems can improve organizational coordination, efficiency, and decision
making, they have proven very difficult to build. They require not only large technology
investments but also fundamental changes in the way the business operates. Companies need
to rework their business processes to make information flow smoothly between them.
Employees must take on new job functions and responsibilities. Enterprise systems require
complex pieces of software and large investments of time, money, and expertise. Enterprise
systems raise serious challenges for firms: a daunting implementation process, surviving a
cost/benefit analysis, inflexibility, and realizing strategic value.
Daunting Implementation Enterprise systems bring dramatic changes to business. They
require not only deep-seated technological changes but also fundamental changes in the way
the business operates. Business processes change dramatically, as do organizational structure
and culture. Firms implementing enterprise systems have to come up with organization-wide
definitions of data, retrain thousands of workers, and redesign their fundamental business
processes, all at once, while carrying on business as usual. It might take a large company three
to five years to fully implement all of the organizational and technology changes required by
an enterprise system. Organizations that do not understand that such changes will be
required or are unable to make them will have problems implementing enterprise systems, or
they may not be able to achieve a higher level of functional and business process integration.
High Up-front Costs and Future Benefits The costs of enterprise systems are large, upfront,
highly visible, and often politically charged. Although the costs to build the system are
obvious, the benefits often cannot be precisely quantified at the beginning of an enterprise
project. One reason is that the benefits often accrue from employees using the system after it
is completed and gaining the knowledge of business operations heretofore impossible to learn.
Inflexibility Enterprise system software tends to be complex, difficult to master, with a
worldwide shortage in people with the expertise to install and maintain it. The software is
deeply intertwined with corporate business processes. If companies need to make major
changes, the system will have to be changed. And because enterprise systems are integrated,
it is difficult to make a change in only one part of the business without affecting other parts
as well. There is the prospect that the new enterprise systems could eventually prove as brittle
and hard to change as the old systems they replaced–a new kind of “digital concrete” that
could, over time, bind firms to outdated business processes and systems.

Firms
in a single
industry
Firms in
complementary
businesses
Firm
1
Firm
1
Horizontal industrial network
Firm
2
Firm
3
Firm value chains and enterprise systems
Industrial networks
Supplier
1
Supplier
2
Vertical industrial network
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 25
Firm
4
Supplier
3
Industry
value
chain
Realizing Strategic Value Companies may also fail to achieve strategic benefits from
enterprise systems if integrating business processes using the generic models provided by
standard ERP software prevents the firm from using unique business processes that had been
sources of advantage over competitors. If an enterprise system is not compatible with the way
the company does business, the company may lose a better way of performing a key business
process that may be related to its competitive advantage. Enterprise systems promote centralized
organizational coordination and decision making, which may not be the best way for
some firms to operate. There are companies that clearly do not need the level of integration
provided by enterprise systems (Davenport, 2000, 1998). Chapter 11 provides more detail
on the organizational and technical challenges to enterprise system implementation.
Extended Enterprises and Industrial Networks
In some industries, companies are extending their enterprise systems beyond the boundaries
of the firm to share information and coordinate business processes with other firms in their
industry. Industrial networks, which are sometimes called extended enterprises, link together
the enterprise systems of firms in an entire industry (see Figure 2-17). For instance, Procter
& Gamble (P&G), the world’s largest consumer goods company, developed an integrated
industry-wide system that coordinated the grocery store point-of-sale systems with grocery
store warehouses, shippers, its own manufacturing facilities, and its suppliers of raw materials.
This single industry spanning system effectively allows P&G to monitor the movement
of all its products from raw materials to customer purchase. P&G uses data collected from
point-of-sale terminals to trigger shipments to retailers of items that customers have purchased
and that need restocking. Electronic links to suppliers enable P&G to order materials
from its own suppliers when its inventories are low. The system helps P&G reduce its inventory
by allowing the company to produce products as they are demanded by retailers. P&G
is implementing an Ultimate Supply System that uses Internet technology to link retailers
and suppliers to its private corporate intranet (see the Chapter 1 opening vignette). By having
retailers and suppliers integrate their systems with P&G’s systems, P&G hopes to reduce
product cycle time by half, inventory costs by $4.5 billion, and systems costs by $5 billion.
There are two kinds of industrial networks. Vertical industrial networks integrate the
operations of the firm with its suppliers and can be used for supply chain management.
Horizontal industrial networks link firms across an entire industry. An example would be
the OASIS network of utility industry firms, which uses the Web to help members sell surplus
electrical power. A few industry networks coordinate the activities of competitors. For
example, Yamaha Europe, Honda, Aprilia, and Piaggio, competing manufacturers of motor
scooters, are now working together to share suppliers. They hope to ultimately reduce the
number of suppliers, which will boost the production efficiency in the remaining group, and
they all expect to realize savings from their cooperation (Abramson, 1999). Table 2-9 provides
examples of both types of industrial networks. Most industrial networks today are vertical
and do not link together competitors in the same industry.
Figure 2-17 Industrial networks.
Industrial networks link
the enterprise systems of firms
in an entire industry into an
industry-wide system. Horizontal
industrial networks link firms in
the same industry, including competitors,
whereas vertical industrial
networks link a firm with
suppliers in the same industry.
industrial networks
Networks linking systems of
multiple firms in an industry.
Also called extended enterprises.
vertical industrial networks
Networks for integrating the
operations of a firm with its
suppliers.
horizontal industrial
networks
Networks for linking firms
across an entire industry.

26 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE
TABLE 2-9 Examples of Industrial Networks
Type of Industrial
Organization(s) Network Description
Coca-Cola Vertical Installed an enterprise system using SAP software and extended the system to its
bottling partners. Coke and its partners can pool resources, share sales information,
and leverage their combined size to obtain lower raw material costs. The
extended enterprise system enables them to react rapidly to market changes and
deploy products efficiently to the places where they are most likely to sell.
OASIS Horizontal Web sites link U.S. electrical utility companies in regional power pool groups to
sell their surplus power to wholesalers and locate the transmission facilities for
moving the power between its source and the customer.
Ford, General Motors, Horizontal Shared Internet purchasing system enables them to obtain parts online from
and DaimlerChrysler suppliers, reducing costs and saving time.
Safeway UK Vertical Has electronic links to suppliers where it can share information about forecasts,
shelf space, and inventory, so they can track demand for their products, adjust
production, and adjust the timing and size of deliveries. The suppliers can download
Safeway’s information into their enterprise systems or production planning
systems. Suppliers send Safeway information about product availability, production
capacity, and inventory levels.
Many of these industrial networks are currently dedicated to supply chain management.
Enterprise systems have primarily focused on helping companies manage their internal manufacturing,
financial, and human resource processes and were not originally designed to support
supply chain management processes involving entities outside the firm. However, enterprise
software vendors are starting to enhance their products so that firms can link their
enterprise systems with external vendors, suppliers, manufacturers, distributors, and retailers.
Enterprise systems can produce the integration among internal supply chain processes,
such as sales, inventory, and production, that makes it easy for the firm to coordinate its
activities with manufacturing partners and customers. Manufacturing can be informed of
exactly what to produce, based on sales orders, and reduce the need to keep excess stock in
inventory. If participants in the supply chain use the same enterprise software systems, their
systems can exchange data without manual intervention. Companies can also use Internet
technology to create industrial networks, because it provides a platform where systems from
different companies can seamlessly exchange information.
Application Software Exercise
Database Exercise: Tracking Reservations at Monroe’s
Midnight Inn
Monroe’s Midnight Inn is a family-owned and operated bed and breakfast. After inheriting
the Monroe mansion eight years ago, James and Peggy Monroe decided to renovate the mansion
and establish a bed and breakfast. The bed and breakfast has 14 rooms: 5 overlook a private
lake, 5 overlook the woods, and the remaining 4 rooms overlook the gardens. Room
rates are based on room choice, length of stay, and number of guests per room. Guests staying
for 7 days or more are given a 15 percent discount on their daily room rates. A maximum
of four guests are permitted in each room, with each additional guest charged $20 per day.
Business has grown steadily during the past eight years. In the early years, the establishment
was frequented primarily by couples; however, the bed and breakfast now caters to a
variety of clientele, including families, executives, and locals. The bed and breakfast’s growing
popularity is because, in part, of its location, the activities available to its visitors, and its
affordability.

Currently, all records are manually kept. This manual record keeping system has caused
many problems for James and Peggy. For instance, only last week Peggy had two families
booked in the Washington room. Luckily, she was able to reassign one of the families to the
Lincoln room and avoid upsetting a valuable customer. Similarly, James does not have immediate
access to management information about the bed and breakfast’s operations. He would
like to have information about current room occupancy, average length of stay, and weekly
income by room.
Using the information provided in the scenario and in the accompanying tables on the
Laudon Web site, prepare a simple database to track reservations and generate management
reports. In addition to the 10 transactions provided in the table, add at least 10 more transactions
to the database. You may make any assumptions you believe are necessary; however,
please document these assumptions in writing and provide them to your professor.
In addition to the data already provided, what additional data should be captured and
stored in the database? As mentioned previously, James requires managerial information
about the bed and breakfast’s operations. What reports would provide the necessary information?
Identify at least two other reports that would be beneficial for James. Prepare these
reports.
Enterprise systems and industrial networks require management to take a firmwide view of
business processes and information flows. Managers need to determine which business
processes should be integrated, the short- and long-term benefits of this integration, and the
appropriate level of financial and organizational resources to support this integration.
There are many types of information systems in an organization that support different organizational
levels, functions, and business processes. Some of these systems, such as those for
customer relationship management and supply chain management, span more than one
function or business process. Enterprise systems integrating information from different organizational
functions and business processes often require extensive organizational change.
Information systems that create firm- or industry-wide information flows and business
processes require major technology investments and planning. Firms must have an information
technology (IT) infrastructure that can support organization-wide or industry-wide
computing.
For Discussion
1. Review the payroll TPS illustrated in Figure 2-3. How could it provide information for
other types of systems in the firm?
2. Adopting an enterprise system is a key business decision as well as a technology decision.
Do you agree? Why or why not? Who should make this decision?
Summary
1. Analyze the role played by the six major types of information
systems in organizations and their relationship to each other.
There are six major types of information systems in contemporary
organizations that are designed for different purposes
and different audiences. Operational-level systems are
transaction processing systems (TPS), such as payroll or
order processing, that track the flow of the daily routine
transactions that are necessary to conduct business.
Knowledge-level systems support clerical, managerial, and
Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 27
Management
Wrap-Up
professional workers. They consist of office systems for
increasing data workers’ productivity and knowledge work
systems for enhancing knowledge workers’ productivity.
Management-level systems (MIS and DSS) provide the
management control level with reports and access to the
organization’s current performance and historical records.
Most MIS reports condense information from TPS and are
not highly analytical. Decision-support systems (DSS) support
management decisions when these decisions are

28 Part II ❙ INFORMATION TECHNOLOGY INFRASTRUCTURE
unique, rapidly changing, and not specified easily in
advance. They have more advanced analytical models and
data analysis capabilities than MIS and often draw on information
from external as well as internal sources.
Executive support systems (ESS) support the strategic level
by providing a generalized computing and communications
environment to assist senior management’s decision making.
They have limited analytical capabilities but can draw
on sophisticated graphics software and many sources of
internal and external information.
The various types of systems in the organization exchange
data with one another. TPS are a major source of data for
other systems, especially MIS and DSS. ESS primarily
receive data from lower-level systems. The different systems
in an organization have traditionally been loosely integrated.
2. Describe the types of information systems supporting the major
functional areas of the business. At each level of the organization
there are information systems supporting the major
functional areas of the business. Sales and marketing systems
help the firm identify customers for the firm’s products
or services, develop products and services to meet customer’s
needs, promote products and services, sell the
products and services, and provide ongoing customer support.
Manufacturing and production systems deal with the
planning, development, and production of products and
services, and control the flow of production. Finance and
accounting systems keep track of the firm’s financial assets
and fund flows. Human resources systems maintain
employee records, track employee skills, job performance,
and training; and support planning for employee compensation
and career development.
3. Assess the relationship between organizations, information systems
and business processes, including the processes for customer
relationship management and supply chain management.
Business processes refer to the manner in which work is
organized, coordinated, and focused to produce a valuable
product or service. Business processes are concrete workflows
of material, information, and knowledge, and they
also represent unique ways in which organizations coordinate
work, information, and knowledge, and the ways in
which management chooses to coordinate work. Although
each of the major business functions has its own set of business
processes, many other business processes are crossfunctional,
such as fulfilling an order. Information systems
can help organizations achieve great efficiencies by
Key Terms
Customer relationship
management, 00
Decision-support systems
(DSS), 00
Desktop publishing, 00
Document imaging systems, 00
Enterprise systems, 00
Executive support systems
(ESS), 00
Finance and accounting
information systems, 00
automating parts of these processes or by helping organizations
rethink and streamline these processes, especially
those for customer relationship management and supply
chain management. Customer relationship management
uses information systems to coordinate all of the business
processes surrounding a firm’s interactions with its customers.
Supply chain management is the close linkage of
activities involved in buying, making, and moving a product.
Information systems make supply chain management
more efficient by helping companies coordinate, schedule,
and control procurement, production, inventory management,
and delivery of products and services to customers.
4. Explain how enterprise systems and industrial networks create
new efficiencies for businesses. Enterprise systems integrate
the key business processes of a firm into a single software
system so that information can flow throughout the organization,
improving coordination, efficiency, and decision
making. Industrial networks link other organizations in the
same industry in a single industry-wide system. Vertical
industrial networks consist of an organization and its suppliers,
whereas horizontal industrial networks consist of
competitors in the same industry.
5. Evaluate the benefits and limitations of enterprise systems and
industrial networks. Enterprise systems and industrial networks
promise efficiencies from better coordination of both
internal and external business processes. Enterprise systems
can help create a uniform organization in which everyone
uses similar processes and information, and measures their
work in terms of organization-wide performance standards.
An enterprise system could supply management with better
data about business processes and overall organizational
performance. Enterprise systems feature a single information
technology platform where data definitions are standardized
across the organization. The coordination of sales,
production, finance, and logistics processes provided by
enterprise systems helps organizations respond rapidly to
customer demands.
The reality is that firm- and industry-wide systems are very
difficult to implement successfully. They require extensive
organizational change, use complicated technologies, and
require large up-front costs for long-term benefits that are
difficult to quantify. Once implemented, enterprise systems
are very difficult to change. Management vision and foresight
is required to take a firm- and industry-wide view of
problems and to find solutions that realize strategic value
from the investment.
Horizontal industrial
networks, 00
Human resources information
systems, 00
Industrial networks, 00
Knowledge-level systems, 00
Knowledge work systems
(KWS), 00
Management information
systems (MIS), 00
Management-level systems, 00

Manufacturing and production
information systems, 00
Office systems, 00
Operational-level systems, 00
Review Questions
Sales and marketing
information systems, 00
Strategic-level systems, 00
Supply chain, 00
1. Identify and describe the four levels of the organizational
hierarchy. What types of information systems
serve each level?
2. List and briefly describe the major types of systems in
organizations.
3. What are the five types of TPS in business organizations?
What functions do they perform? Give examples
of each.
4. Describe the functions performed by knowledge work
and office systems and some typical applications of
each.
5. What are the characteristics of MIS? How do MIS differ
from TPS? From DSS?
6. What are the characteristics of DSS? How do they differ
from those of ESS?
7. Describe the relationship between TPS, office systems,
KWS, MIS, DSS, and ESS.
8. List and describe the information systems serving each
of the major functional areas of a business.
Group Project
With a group of three or four other students, select a business
using an industrial network for supply chain management. Use
the Web, newspapers, journals, and computer or business magazines
to find out more about that organization and its use of
Tools for Interactive Learning
■ Internet
The Internet Connection for this chapter will take you to a series
of Web sites used in business-to-business electronic commerce
where you can complete an exercise to evaluate the use of the Web
in supply chain management. You can also use the Interactive
Study Guide to test your knowledge of the topics in this chapter
and get instant feedback when you need more practice.
■ Electronic Commerce Project
At the Laudon Web site for Chapter 2 you will find an electronic
commerce project where you can use a series of Web sites to help
a company plan and budget for a sales conference.
Chapter 8 ❙ TELECOMMUNICATIONS AND NETWORKS 29
Supply chain management, 00
Transaction processing systems
(TPS), 00
Vertical industrial networks, 00
Word processing, 00
9. What is a business process? Give two examples of
processes for functional areas of the business and one
example of a cross-functional process.
10. What is customer relationship management? Why is it
so important to businesses? How do information systems
facilitate customer relationship management?
11. What is supply chain management? What activities
does it comprise? Why is it so important to businesses?
12. How do information systems facilitate supply chain
management?
13. What are enterprise systems? How do they change the
way an organization works?
14. What are the benefits and challenges of implementing
enterprise systems?
15. What are industrial networks? Define and describe the
two types of industrial networks.
16. How can organizations benefit from participating in
industrial networks?
information technology to provide links to other organizations.
If possible, use presentation software to present your findings to
the class.
■ CD-ROM
If you purchase and use the Multimedia Edition CD-
ROM with this chapter, you can complete an interactive exercise
to analyze an enterprise system implementation. You can also
find an audio overview of the major themes of this chapter and
bullet text summarizing the key points of the chapter.

30 Part II ❙ INFORMATION TECHNOLOGY INFRASTRUCTURE
Case Study Owens-Corning’s Enterprise System Struggle
In the early 1990s Owens-Corning was a U.S. leader in the production
and sale of such building materials as insulation, siding,
and roofing, but management wanted the company to grow.
The company had only two possible paths to growth: offering a
fuller range of building materials, or becoming a global force. To
increase its range of products Owens-Corning decided to
acquire other companies. To become a global force, management
realized the company would need to become a global
enterprise that could coordinate the activities of all of its units in
many different countries.
Headquartered in Toledo, Ohio, Owens-Corning had been
divided along product lines, such as fiberglass insulation, exterior
siding, and roofing materials. Each unit operated as a distinct
entity with its own set of information systems. (The company
had more than 200 archaic, inflexible, and isolated
systems.) Each plant had its own product lines, pricing schedules,
and trucking carriers. Owens-Corning customers had to
place separate telephone calls for each product ordered–one each
for siding, roofing, and insulation. The company operated like a
collection of autonomous fiefdoms.
Owens-Corning management believed that these problems
could be solved by implementing an enterprise system. The
company selected enterprise software from SAP AG to serve as
the foundation for a broad company overhaul. “The primary
intent with SAP was to totally integrate our business systems on
a global basis so everyone was operating on the same platform
with the same information,” said Dennis Sheets, sourcing manager
for the insulation and roofing business. Sheets wanted to
centralize purchasing. “Prior to SAP,” he said, “we were buying
widgets all over the world without any consolidated knowledge
of how much we were buying and from whom. Now [using
SAP’s R/3 software] we can find out how many widgets we’re
using, where they’re being purchased, and how much we paid
for them, [allowing] us to consolidate the overall acquisition
process.” Now, he added, “we can . . . make better business decisions
and better buys.” Sheets expected the company’s material
and supply inventories to drop by 25 percent as a result.
However, the project to install SAP’s enterprise system would
ultimately cost Owens-Corning about $100 million and take
several years, too expensive and time consuming to be justified
only by the reasons given by Sheets. The company hoped that
the new system would also enable it to digest acquisitions more
easily. Owens-Corning wanted to acquire other companies to
expand its product line so it could increase sales from $2.9 billion
in 1992 to $5 billion within a few years. That meant that
Owens-Corning would have to digest the archaic, inflexible systems
from the companies it purchased. If Owens-Corning were
to become a global enterprise, it would need a flexible system
that would enable the company to access all of its data in an
open and consolidated way.
ERP experts point out that simply converting to ERP systems
does not solve companies’ problems. “Unless a company
does a lot of thinking about what its supply chain strategy is and
articulating what its business processes are, these tools are going
to be of little use,” explained Mark Orton, of the New England
Supplier Institute in Boston.
Owens-Corning’s project began with its insulation group,
and those on the project team understood this. They undertook
a redesign process before implementing SAP’s R/3. They set up
cross-functional teams to identify the handoffs and touch points
between the various functions. For example, the process that
runs from the time the firm needs to buy something through the
payment issuance to the supplier touches logistics and accounting.
The teams also kept in close contact with suppliers who
needed to know what Owens-Corning would require of them.
As a result of the redesign, purchasing decisions were moved
from the plants up to a regional level, enabling commodity specialists
to use their expertise and the leverage of buying for a
larger base to improve Owens-Corning’s purchasing position.
How did the first ERP project go? During a weekend in
March 1997 a team of about 60 people transferred legacy data
into the SAP system, and on Monday morning the company
went live. When Owens-Corning first went live with SAP, overall
productivity and customer service dropped sharply during
the first six months. “When you put in something like SAP, it’s
not a mere systems change,” said David Johns, Owens-Corning’s
director of global development. “You’re changing the way people
have done their jobs for the past 20 years.”
The first problems that surfaced were technical. According to
Johns, application response time had increased from seconds
before ERP to minutes under the new system. Other technical
problems also emerged. For example, Johns said the system wasn’t
working the way it was supposed to. Johns believes the source
of these problems was inadequate testing. The team further
tuned the software, and during the next weeks response time
reduced to an acceptable level, and slowly the software began
operating smoothly.
However, after Owens-Corning fixed some of the technical
problems, it saw that this was much bigger than a technology
problem. There were problems in the business, problems with
the way people’s new roles had been defined, communication
and change management issues, and business process issues. For
example, the SAP system demanded that the entire corporation
adopt a single product list and a single price list. Staff members
initially resisted. Owens-Corning employees had not been properly
trained and they were overwhelmed, resulting in a lot of
errors. Johns explained that at Owens-Corning “we underestimated
the impact that swapping out all our old systems would
have on our people.” Users had indeed been properly trained on
their own functions, but ERP systems are integrated, and the
users did not understand the impact their work was having on
other departments.
ERP systems are complex and errors ripple throughout the
system. When using the old systems, employees had time to correct
data entry mistakes, and if they were not caught, they only
affected the local function. However, now that they were using
R/3, the databases are immediately updated. Thus, for example,
the data flows instantly from sales to purchasing, production,

and logistics systems. Johns offered another example. “If you’re
at a warehouse, and you don’t tell the system when a truck is
leaving the dock, the truck can still leave, but the customer will
never get an invoice for the goods. Accounting won’t find out
later because the transaction will never get to them.” Such errors
can be costly. To motivate users to work with more care, they
needed to know how their errors would affect other workers and
even company profitability.
To address this problem the company quickly instituted a
new training approach. Training now would include information
on the larger system and its complexities, so users would
understand the impact of their work. Under the new training
regimen, all employees were denied access to the system until
they had passed a test and so became certified. Those who failed
the test had to return to training until they could pass it. About
20 percent of Owens-Corning employees never passed the test
and had to change jobs. This job shifting was massive and time
consuming, causing organizational disruption. Whereas the
original project training was budgeted for 7 percent of overall
costs, training eventually consumed 13 percent of the budget.
Customers also suffered. Owens-Corning had been known
for its excellent customer service, but the quality of that service
declined sharply after the SAP system went live. Many customers
were shocked, and some began turning to other suppliers.
Owens-Corning began losing important customers. The
company was forced to devote a great deal of personnel time
rebuilding relations with its customers while simultaneously
repairing both its organization and the software installation.
ERP implementation problems of this type are common.
According to Barry Wilderman of the Meta Group, ERP projects
often result in a negative return on investment (ROI) for
five or more years. Why? Because ERP systems are so complex.
The company may not understand all that needs to be done in
preparation. Moreover, these systems are expensive, and testing
and training often get cut for budgetary reasons. Not only do
employees need to become accustomed to new ways of doing
business, but customers and suppliers may need to change their
business processes as well.
How successful was the whole project? Management believes
it has been a success. Johns said, “We made each mistake only
once. Each deployment [in the rollout] got better.” For instance,
“We do a lot more testing now before we go live,” he said, “to
make sure that all the different pieces of the system work
together.” Customers now have a single point of contact for all
orders. With Owens-Corning’s old system, it didn’t know what
inventory was in stock. Employees would have to check around
and get back to the customer. The firm can see what inventory is
available, when it will be produced, and who is the lowest cost
carrier. It can commit to the customer before hanging up the
phone. The changes have been massive, with about 10,000 people
involved with the reengineering effort.
Chapter 8 ❙ TELECOMMUNICATIONS AND NETWORKS 31
The ERP system’s rollout was completed in 2000. During
those years, Owens-Corning acquired and integrated 17 companies,
successfully expanding their product offerings. Company
sales have reached $5 billion annually. Because of the new system,
Owens-Corning has been able to reduce its inventory significantly,
while centralizing coordination of various functions
and divisions. Lot size and machine allocations have become
more efficient. The company can perform production planning
and control globally because it has one uniform system with
which to work. The integrated system lets the company leverage
common carriers and take advantage of overlapping transportation
routes. Managers can use the system to identify its biggest
suppliers across the entire company and use that information to
negotiate bulk discounts. A customer needs to call only one
location to place an order. Factory production managers no
longer have to concern themselves with taking customer orders,
tracking logistics or after-sales service. Because centralization
applied not only to U.S. operations but also to foreign activities,
the corporation has been transformed into a truly globalized
enterprise.
Sources: Rajagopal Palaniswamy and Tyler Frank, “Enhancing
Manufacturing Performance with ERP Systems,” Information Systems
Management, Summer 2000; SAP, “Owens Corning Builds Its Internet
Future with mySAP.com,” September 14, 2000, www.sap.com;
Christopher Koch, “From Team Techie to Enterprise Leader,” CIO
Magazine, October 15, 1999; Tom Stein, “Making ERP Add Up,”
Information Week, May 24, 1999, and “Key Work: Integration,”
Information Week, September 22, 1997; Tim Minahan, “Enterprise
Resource Planning: Strategies Not Included,” Purchasing, July 16,
1998; Janice Fioravante, “ERP Orchestrates Change,” Beyond
Computing, October 1998; Bruce Caldwell and Tom Stein, “Beyond
ERP,” Information Week, October 12, 1998; John E. Ettlie, “The ERP
Challenge,” Automotive Manufacturing & Production, June 1998; and
Joseph B. White, Don Clark, and Silvio Ascarelli, “Program of Pain,”
Wall Street Journal, March 14, 1997.
CASE STUDY QUESTIONS
1. Describe the problems Owens-Corning had with its information
systems prior to installing its enterprise system. What
management, organization, and technology factors were
responsible for those problems?
2. What management, organization, and technology problems
did Owens-Corning face in putting their enterprise system
into effect?
3. How did implementing an enterprise system change the way
Owens-Corning ran its business?
4. Was installing an enterprise system the right solution for
Owens-Corning? Explain.