Organizational Information Systems and Their Impact

© Gabriele Piccoli

Chapter 3

Vocabulary and concepts to categorize

different Information Systems

© Gabriele Piccoli

Course Roadmap

• Part I: Foundations– Chapter 1: Introduction– Chapter 2: Information Systems Defined– Chapter 3: Organizational Information Systems and

Their Impact

• Part II: Competing in the Internet Age• Part III: The Strategic use of Information Systems• Part IV: Getting IT Done

Learning Objectives

1. How to categorize systems according to the hierarchical, functional, and process perspectives. You will also learn the rationale for each perspective and its limitations.

2. The definition, underlying principles, and applications of business process reengineering (BPR), as well as the advantages and disadvantages of BPR.

3. The concept of integration and its role in the modern firm. We will also discuss business and systems integration trends and the relationship between the two.

4. The genesis of the enterprise systems (ES) trend and why so many companies are employing or introducing them. You will also learn to articulate the principal benefits and risks associated with these systems.

5. The definition of the term supply chain management and the role that supply chain management applications play in modern organizations.

6. The definition of the term best-of-breed and how to describe the benefits and drawbacks of this approach to systems integration. You will also learn to draw comparisons between the best-of-breed and enterprise systems approaches.

7. The definition of knowledge management, how to categorize different types of knowledge commonly found in organizations and why organizations feel the need to employ knowledge management applications.

8. The definition of the terms business intelligence (BI) and BI infrastructure.9. The definition of the term customer relationship management (CRM) and how to articulate both its

benefits and limitations. 10. The relationship between the CRM and BI trends.

© Gabriele Piccoli

Introduction

• Successful managers understanding Information Systems classifications

• The introduction of new IT and the implementation of information systems often represent the catalyst for organizational change

• It is therefore paramount that you have a solid understanding of what classes of software programs underpin information systems in modern organizations.

© Gabriele Piccoli

© Gabriele Piccoli

Categorizing Systems

• The Hierarchical Perspective

• The Functional Perspective

• The Process Perspective

What is the Hierarchical Perspective?

• Decision making and activities in organizations occur at different levels.

• Individuals – have different responsibilities– make different types of decisions– carry out different types of activities

• Having the correct information is important

© Gabriele Piccoli

© Gabriele Piccoli

Hierarchical Perspective

Activity Timeline Hierarchical level Characteristics

Strategic Long term General managementFunctional management

Externally focused Ad-hoc Highly unstructured

Tactical Mid term Middle management Repeatable Semi-structured Recurrent

Operational Short term Front line employees Low discretion Highly structured Transaction focused

Operational Activities

• Concerned with short-term activities, typically those that occur in during the course of day-to-day business

• Operational personnel are focused on performing the day-to-day activities that deliver the firm’s value proposition

• Decision making at the operational level is typically highly structured by means of detailed procedures

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Operation Examples

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Atomicity Transactions are atomic. If one part of the transaction fails, the system must cancel the transaction. For example, if while withdrawing money at the ATM the cash dispenser jams, your balance should not be debited.

Consistency Transactions are consistent. In other words, only valid data is committed to long term memory and stored in the system. For example, if the airline seat assignment system requires only letters in the first name field, no transaction with numbers in the field is accepted.

Isolation Transactions are non-concurrent. If the system has yet to store the results of a transaction while writing the results of a second transaction, its database may end up holding invalid data. For example, if you are withdrawing money from and ATM while your sister at home is moving money electronically, the resulting balance may be invalid unless the system maintains isolation of the two transactions.

Durability Transactions are durable when they can be recovered in the face of system failure. In other words, once the system has successfully processed the transaction, it will no longer lose it. For example, once the agent has changed your seat, the change is recorded in a transaction log. If anything were to go wrong with the database, the current state could be re-created by reprocessing the transactions from the log.

Tactical Activities

• The activities tend to be semi-structured, having both well-known components and some degree of uncertainty

• Decision making at this level is typically semi-structured, but characterized by repeatable patterns and established methods

• The objective is to improve the effectiveness of the organization, or one of its functions, within the broad strategic guidelines set by the executive team

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Strategic Activities

• Decision making at this level is highly unstructured

• Reliant on internal as well as external data sources

• Focused on making decisions by evaluating trends

• Little structure and formal methodologies exist for activities at this level.

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© Gabriele Piccoli

Hierarchical Perspective

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Today’s Hierarchy

• Adoption of flatter hierarchies between front-line operations and strategic decision-making – Empowerment

• Limitation: – Difficult to neatly separate information

systems in clear cut categories

Functional Perspective

• Systems support the specific needs of individuals in the same functional area

• Based on the idea that information processing needs are unique and homogeneous within a functional area

• Optimal systems are tailored to those highly specific needs

• They use a language that is familiar to the professionals in the functional area

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Functional Perspective

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© Gabriele Piccoli

Process Perspective

• The functional and hierarchical perspectives are limited by:– Lack of integration of separate systems

– Leading to:• Redundancy• Inefficiency

• Business Process Reengineering offers a potential solution

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Business Process Reengineering

• Business processes are inherently cross-functional

• BPR is a managerial approach that employs a process view of organizational activities

• BPR seeks to break down “information silos” in organizations

• BPR achieves internal business integration and increases performance

Photo used with permission from George Kashou

Business Process

• Series of steps that a firm performs in order to complete an economic activity– Inputs

– Steps / Activities

– Outputs

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© Gabriele Piccoli

BPR Risks

• BPR requires radical 3rd order change

• Significant downsizing and layoffs follow BPR initiatives

• Because of the degree of change it engenders, BPR can be very expensive to implement

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Integration

• The history of lack of integration– Coordination costs– Mergers and acquisition

Integration: The process of unifying, or joining together, some tangible or intangible

assets

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The Dimensions of Integration

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Object & Locus of Integration

• Locus:– Internal – External

• Object:– The assets the organization seeks to

combine

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Business Integration

• The introduction of cohesive, streamlined business processes that encompass previously separate activities

• Objective:– Presenting “one face” to the customer– Providing coordinated solutions– Achieving global inventory visibility

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Systems Integration

• Unification or tight linkage of IT-enabled information systems and databases

• Primary focus: – Technological component of the IS

• Types of systems integration:– Internal– External

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The Integration Trade-offs

• Benefits– Reduction of duplication and redundancy– Access to information– Speed – Response time

• Drawbacks– Increased coordination costs– Reduced local flexibility

Enterprise Systems

• Class of standardized software applications that would enable and support integrated business processes

• Firms typically live and die by their enterprise systems ERP vendors market share

ERP Modules & Functionality

FinancialsAccounts receivable and payableAsset accountingCash management and forecastingFinancial consolidationGeneral ledgerProduct-cost accountingProfit-center accounting

Human ResourcesPayrollPersonnel planningTravel expenses

Operations and Logistics Inventory managementMaterial requirements planningMaterials managementPlant maintenanceProduction planningRouting managementShipping

Sales and MarketingOrder managementPricingSales managementSales planning

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ERP Pros & Cons

Advantages

• Efficiency  • Responsiveness• Knowledge infusion• Adaptability  

Disadvantages

• Standardization and flexibility 

• Is the best practice embedded in the enterprise system really the best?

• Strategic clash• High costs and Risks 

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ERP Failures

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Year ERP Vendor ERP Customer Reason for ERP Failure and/or Lawsuit 2010 JDA Software (i2) Dillard's, Inc. Dillard's had alleged i2 failed to meet obligations regarding two software-

license agreements for which the department-store operator had paid $8 million.

2010 SAP and Deloitte Consulting

Marin County, California

The lawsuit alleges that Deloitte committed fraud and “misrepresented its skills and experience.”

2010 Capgemini and SAP

Dorset County in the UK

A job which previously only took a minute is now alleged to take an hour. The system has to shut down a few days each month to allow data to be processed.

2009 Epicor Software Corporation

Ferazzoli Imports of New England

Epicor's system never worked as intended or promised. Initial budget: $184,443, Cost to date: $224,656.

2009 SAP and Axon City of San Diego The city of San Diego, CA terminated its software implementation contract with services provider, Axon. The project was $11 million over budget.

2009 Lawson Software Public Health Foundation Enterprises

Failed ERP implementation.

2008 SAP Levi Strauss The company was forced to take shipping systems at its three massive US distribution centers off line for a full week with ensuing loss of business.

2008 Oracle Overstock.com ERP implementation problems blamed for losses during the 2005 Christmas season and extending into 2006.

2008 SAP City of Portland Portland’s SAP project, budgeted at $31 million in 2006 for a 2007 go-live date, is now estimated to be nearly $50 million.

2004 PeopleSoft Cleveland State University

A faulty installation of the company's ERP applications. The lawsuit charges PeopleSoft with breach of contract and negligent misrepresentation.

2003 EDS British Sky Broadcasting

Late delivery of the project and lost benefits that amount to estimated £709m.

2001 Oracle Corporation and KPMG

University of Cambridge

ERP project considered “faulty” after spending $13 million in the implementation.

2001 SAP (R/3) and Accenture

FoxMeyer Corp. The company claimed that a botched SAP R/3 implementation in the mid-1990s ruined them, driving them to bankruptcy.

2000 J.D. Edwards and IBM

Evans Industries Inc. The suit alleged that OneWorld was "defective and failed to operate and function as promised by the defendants."

Source: adapted from backbonemag.com/Blackblog/erp-failures-and-lawsuits-its-not-just-for-the-tier-i-erp-vendors.aspx

Supply Chain Management

• Logistical and financial processes

• Associated with the– Planning– Executing– monitoring of

supply chain operations.

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Knowledge Management (KM)

• Activities and processes used to– Create– Codify– Gather– Disseminate

knowledge within the organization

• Create: generation of new information, novel solutions to handle existing problems, new explanations for recurrent events.

• Capturing and Storing: codification of new knowledge and maintenance of an organizational memory

• Disseminating: Transmission and access of knowledge within the organization

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Business Intelligence

• Ability to gather and make sense of information about your business

• Encompasses a set of techniques, processes and technologies.

• Designed to enable managers to gain superior business insight and understanding

• Designed to enable better decisions

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The Information Systems Cycle

• Models the progression of data– From its inception in

transaction processing systems

– To its safekeeping in data repositories

– To its use in analytical applications

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Components of BI

• Data Warehouse  – Data repository– Collects and consolidates data from multiple source

systems– Enables analysis

• Data Mart  – Scaled-down version of a data warehouse– Focused on the needs of a specific audience

• Online Analytical Processing  (OLAP)– Enable a knowledge worker to easily and selectively

extract and view data from an analytical database• Data Mining  

– Process of automatically discovering non-obvious relationships in large databases

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Customer Relationship Management (CRM)

• CRM is:– A strategic approach – Not a technology – IT is an essential enabler of all but the smallest CRM

initiatives• That:

– Relies on customer, personal, and transactional data– To enable the firm to learn about them

• To help the firm draw inferences about:– Customer behaviors– Needs– Value

• So as to increase its profitability

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CRM Infrastructure

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Source: Goodhue, D.L., Wixom, B.H. and Watson, H.J. (2002). “Realizing business benefits through CRM: Hitting the right target in the right way,” MIS Quarterly Executive, pp. 79-94

Limitations of CRM

• CRM Is Firm Centric  – A firm only relies on transactional and

behavioral customer data it owns

• CRM Has Limited Predictive Ability – Some events are unforeseeable and only the

customer knows about their occurrence or future plans about them

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Enterprise Application Integration (EAI)

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The Recap

• Organizational information systems can be characterized through a – hierarchical – functional or– process perspective

• BPR is as a managerial approach calling for a process view of organizational activities

• Enterprise systems are modular, integrated software applications that span (all) organizational functions and rely on one database at the core

• Enterprise systems have traditionally focused on internal organizational processes

© Gabriele Piccoli

The Recap

• Knowledge management is the set of activities and processes that an organization enacts to manage the wealth of knowledge it possesses.

• Business intelligence encompasses the set of techniques, processes and technologies designed to enable managers to gain superior business insight.

• Customer relationship management is a strategic orientation that calls for iterative processes designed to turn customer data into customer relationships.

© Gabriele Piccoli

© Gabriele Piccoli

What We Learned

1. How to categorize systems according to the hierarchical, functional, and process perspectives. You also learned the rationale for each perspective and its limitations.

2. The definition, underlying principles, and applications of business process reengineering (BPR), as well as the advantages and disadvantages of BPR.

3. The definition of integration and its role in the modern firm. We explored the current trend toward integration and the challenges integration creates. We also discussed business and systems integration trends and the relationship between the two.

4. The genesis of the enterprise systems (ES) trend and why so many companies are employing or introducing them. You also learned to articulate the principal benefits and risks associated with these systems.

5. The definition of the term supply chain management and how to explain the role that supply chain management applications play in modern organizations.

6. The definition of the term best-of-breed and how to describe the benefits and drawbacks of this approach to systems integration. You also learned to draw comparisons between the best-of-breed and enterprise systems approaches.

7. How to describe what is meant by knowledge management, how to categorize the different types of knowledge commonly found in organizations and how to explain why organizations feel the need to employ knowledge management applications.

8. The definition of the terms business intelligence (BI) and BI infrastructure. You also learned how to identify and describe the role of the technologies that comprise a modern BI infrastructure.

9. The definition of the term customer relationship management (CRM) and how to articulate both its benefits and limitations. You also learned how the CRM and BI trends relate to one another.