E1 Organisational Management

Module: 08

Information Systems

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1. Information

What is information?

Katy works on the till at UK supermarket, Tesco. For around 40% of

transactions she is offered a loyalty card to swipe. The card links each item

sold to an identity – that of the customer. After a day on the till, Katy, like

most of her colleagues has collected around 3 gigabytes of data. Each till at the store generates similar data. Were someone to hack that computer what

they would see would be of no value whatsoever. Just long lists of

numbers.

That computer, however, sends all its data to a company called Dunnhumby.

Dunnhumby is the data analyst that runs Tesco's loyalty card scheme. It

receives the data from every card swiped at every store. When it gets the

data from Tesco it puts the data through a number of processes to

analyse it. Dunnhumby can see, for example, that each ID number

corresponds to an age, a gender and a postcode, volunteered by the user

when signing up.

From this processed data, Dunnhumby produce information – something of

use to the business. For example, it can see that 60% of its premium price-

point sales at Hypermarket A come from a particular postcode, 10 miles

away from the store. It then gives this information back to Tesco.

Tesco can now use the information to form strategy. For example, it may

decide that it should open a small-format store directly in the postcode that

travels 10 miles for premium products and adjust its range towards the upper

end of the market. The information gave Tesco a competitive advantage.

Katy collected data. It had no value on its own. Only after it was processed by

Dunnhumby did the data become information. Information is data, plus

process and that information can be used to drive strategy.

Information is data, plus process and that information can be used in all kinds

of ways.

In other words:

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For example:

High quality information

Information produced, including financial information, can be seen to be of

high quality when it meets the following criteria. We will consider these in

relation to what would be needed for a financial report to directors for the last

quarter's results.

Accurate – correct e.g the report contains no errors.

Complete – includes all relevant data e.g. every departments' figures are

included, none are missing.

Cost beneficial – the benefits of producing the information outweigh the

costs e.g. the costs would be those of the finance department producing

relevant information while the benefits are good strategic decisions.

Understandable – readers are clear what is is producing e.g. the reported

information is clearly presented with standard financial terms and using

standard financial conventions.

Relevant – information is relevant to the users e.g. the financial report is

going to the board of directors and is about the company as a whole so it's

relevant to them. Had it been about a small part of the business, say a

detailed inventory report then it would not have been relevant.

Accessible – the information is readily found e.g. if the report is sent by

email to all recipients and is also available on their intranet for download it

would be easily accessible.

Timely – it is received on time and quickly. e.g. a financial report which is a year

old would not be useful!

Easy to use – it is clearly presented and usable by readers e.g. the report

presents information in graphs and tables to make it easy to use.

You'll notice the letters of those points spell out the word ACCURATE, so that

should be an easy one for you to remember!

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The role of information systems in organisations

We live in an information age. It's never been easier to collect data, process it

into information and share that information with multiple stakeholders.

Information is vital in modern organisations because it enables:

1. Competitive advantage

Information systems can identify trends in data. In particular, sales data

can give a business an insight into what customers are buying. Having this

insight will mean a company can tailor its products, marketing and pricing

accordingly, something a competitor may not be able to do.

For example, online retailer, Amazon use customer data to make

suggestions to customers of other products they might like to purchase, so if a

customer has previously purchased a book by a particular author they will pop

up a suggestion of another popular book by the same author. They use their

information to provide the customer with a better service while also

increasing their sales.

2. Effective decision making

Information systems that hold valuable data enable managers to make

valuable decisions. When organisations have access to up-to-date,

accurate and real-time information, decisions can be made quickly and

with confidence.

For example, imagine a sales manager has to decide whether to discontinue

a product, they will need to know how many units have been sold, how

profitable the product is, and if there is any relevant customer feedback.

Information is critical to making the best decision.

3. Undertaking day to day activities

Information systems can be used to support the day-to-day running of an

organisation. In many cases, tasks that used to take hours to do manually

are now done quickly and efficiently due to the implementation of

information systems.

For example, large retail stores have increased efficiency by using

information systems in checkouts. In many cases, as soon as a bar-code is

swiped, the product inventory is updated, and the product is automatically

re-ordered from the supplier.

4. Measuring performance

Informations systems can be used to produce cost estimates and

forecasts. These are then reviewed against actual results when looking at

business performance, allowing organisations to find the causes of problems

and take remedial action.

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For example, a forecast for the upcoming year may estimate that the

summer months are likely to produce little profit. In order to prepare the

business may run offers and promotions to ensure that potential sales

problems are eliminated. When reviewing the sales data later in the year they

find that sales were much higher than expected and decide to follow the

same marketing approach the following summer.

5. Communication

Information systems aid managers in particular because they can gather and

distribute information to employees quickly and efficiently. Information

systems are efficient platforms for sharing documents between organisations or individuals. This type of communication encourages collaboration and

team working between employees.

Costs

When a new IT system is produced these benefits must be weighed up

against the costs in a cost benefit analysis. Costs can include:

• Design and development

• Hardware

• Software

• Testing

• Training

• Staff costs

• Outsourced costs (e.g. external IT programmers)

• Ongoing costs (e.g. updates, ongoing training, maintenance).

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2. Levels of management, information and control

In organisations, there are different levels of management and these levels

will have different levels of control. Imagine you were the owner of an

international furniture company, would you leave important decisions about

the company's strategy to a store manager? Probably not! They have

different skills and abilities. Decisions about inventory levels, accepting

deliveries and stock management are their forte and as the owner you

probably would know little.

Organisations can be divided into three hierarchical levels: Strategic (senior

management), tactical (middle management) and operational

(supervisors and their staff). These organisational decision-making levels

can also be used to distinguish the organisational control levels.

Strategic control

This is the level of control operating at board level. It will largely consist of the

setting of the control environment as a whole. It will include:

• strategic planning determining the course the organisation will take

• procedures for board meetings.

• setting up and reviewing the organisational structure

• codes of conduct (e.g. ethics)

• setting performance measures for the company as a whole.

• risk assessment and management.

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Tactical control

This is control at the middle management level of the organisation.

Controls at tactical level include:

• budgets (e.g. cost budget for the department) and variances (reviewing differences between cost and actual to review reasons)

• applying central policies so standard procedure is followed

e.g. health and safety rules or recruitment procedures.

• supervising divisions and departments

• staff management

• setting business plans for the division.

Operational control

This occurs at the lower levels of the organisation. Operational controls

are designed to control structured and repetitive activities according to

pre-set rules. For example, a computerised stock control system, where

stock levels per component, reorder levels and reorder quantities are

calculated and operated according to predetermined and precise rules.

Controls at operational level include:

• Staff management

• Staff scheduling

• Standard procedures (e.g. as with the computerised stock system example).

The role of information in control at each level

Information plays a key part in control at each level.

We'll run through this section in a practical way using an example for each.

Run through each of these exercises generating your own ideas first and

then seeing our ideas to add to your own. You could, of course, just read our

solutions, but you'll get more benefit if you generate your own ideas first. We

will use a supermarket for our example

Example 1 - Strategic level – Managing director

Consider the information needed by the managing director of a supermarket chain

to help them set the strategy and run the business as a whole

Solution 1

• Information about competitors such as any new marketing campaigns

• Information about major suppliers such as pricing and new products

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• Economic forecasts to understand customer buying patterns

• Technological changes (recent and future) to stay on top of competitors

• Social trends such as a health food fad

• Political and Legal changes such as food labelling laws

• Company performance as a whole (Profits, Cashflows)

• Divisional performance to understand which divisions perform best

• Share price information.

Example 2 - Divisional level – e.g. Supermarket manager

Consider the information needed by a supermarket manager to help them to

manage the store they are running. They'll need to manage their staff, the

customers, the building and the overall store performance.

Solution 2

• Performance of store (profits, sales, cashflow, return on investment)

• Performance of each area (bakery, restaurant, frozen foods)

• Comparative information about local competitors

• Policies and procedures to be implemented (as dictated by head office)

• Problems or issues as they occur e.g. customer complaints, stock- outs, issues with the building.

Example 3 - Operational level – e.g. Bakery manager

Finally, let's consider the bakery manager. They run a small team of bakers

who are up early each morning to bake fresh bread and cakes for the store.

The bakery manager will need to ensure that the right quantities and quality of

produce is produced each day and manage their staff on a moment by

moment basis. But what information would they need?

Solution 3

• Demand for different products so that production schedules can be completed and the right ingredients ordered – previous sales levels

would be useful to identify demand

• Employee information (work schedules, skills)

• Standard procedures from head office e.g. recipe information, cooking times, cleaning procedures

• Supplier information in case additional supplies need to be ordered

• Stock levels so that a constant supply can be maintained

• Prices – as dictated by head-office, in competitor’s stores, past prices.

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3. Process Technology

Working in a large organisation without an information system would be like

trying to find a book in a library with no organised system: every time

someone needed information, it would be chaos!

It is vital then that information systems are systems designed to provide the right

information to the right people at the right time throughout the

organisation. They are hence crucial to the control of an organisation.

As the above diagram shows, there are many different types of information

systems, operating at different levels. Let's take a look at these and some

additional systems in detail:

Executive information systems (EIS)

Executive information systems (EIS) are systems which collate and provide

information to senior managers to enable them to make strategic

decisions. This will include information such as:

• Organisational performance e.g. sales figures

• Competitor performance, strategies and actions e.g. competitor's sales figures

• Broad environmental information e.g. political change

• Customer information e.g. customer emails

• Market information e.g. market share.

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Characteristics of EISs are:

• Summarised information provided so no need to rake through a large volume of information

• Can drill-down to more detailed information if needed

• Graphical displays for ease of use e.g. a pie chart of the market

share

• Connected to external databases to provide external information

• Flexible for different purposes, unlike standardised reports.

Management information systems (MIS)

Management information systems (MIS) provide management information

to support decisions made by senior and middle management.

MISs provide information in a regular standardised way, often summarising

transaction processing systems (see below) data at a higher level e.g.

profitability by division.

Features of MISs:

• Internally focused

• Produce simple summaries and comparisons of data (e.g. divisional sales, costs and profits)

• Standardised reports- done in the same way each month or quarter.

Decision support systems (DSS)

Decisions support systems (DSS) analyse data and report on it in a form

which helps the user to make decisions. DSSs do not make the decision

for the user, they simply provide information to help make the best decision.

Examples include:

• Spreadsheet models

• Simulations

• Price comparators for similar products from different suppliers.

They are distinguishable from MISs because they use detailed mathematical

or statistical models to analyse data. MISs simply summarise

transaction data (e.g. total profits).

They are used for semi-structured decisions where making the decision

can be helped by analysis of data, but where some judgement is required.

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Expert systems

Expert systems analyse and examine data about a situation and, using

this, provide an answer to a specific query. Examples include:

• Tax software

• Credit checking systems

• Fault diagnostic systems

Expert systems take the decision making out of the hands of the expert

and can allow lower level staff to make decisions which previously needed

to be made by an expert in the field. This can save the organisation money

and make decision making quicker. Tax software for instance allows a junior

member of staff to input client data and produce a tax return for a customer

without themselves being a tax expert.

Expert systems can only be used for structured decisions where there are

specific rules (e.g. tax rules) which can be applied to specific data (an

individual’s income and personal details).

Transaction processing systems (TPS)

Transaction processing systems (TPS) record and process the basic

transactions of the organisation. These systems produce information

specific to certain tasks. They are used in every area of the business.

Examples include:

• Finance – recording all income and expense items and producing a P&L and Balance sheet.

• Manufacturing – record purchases, stock, information on production processes, goods orders, deliveries made.

• Sales – recording and processing sales.

• Human resources – personnel records, payroll, training undertaken.

• Marketing – recording market research information (e.g. market research results).

TPSs only provide basic transactional based information (e.g. whether a

particular order has been met). The data is fed into MISs where the data is

analysed to produce broader, more useful information (e.g. total sales by

division).

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Knowledge Management

Maybe you've worked with someone who knows how to work the photocopier

but won't tell you how. She wants to be the gatekeeper to the photocopier, so she's guarding her knowledge. Knowledge is the information held within

people’s minds. It is used as part of many of the tasks undertaken in an

organisation, for instance:

a) The CEO has built up knowledge of how to manage organisations

through years of past experience.

b) A secretary knows how create excellent presentations on PowerPoint.

c) A researcher knows the likely result of a particular experiment

through study and experience.

d) A doctor diagnoses an illness, again through study and experience.

Of course, if that co-worker would share her photocopier knowledge everyone would end up doing a better and more efficient job. Knowledge

management is that process of capturing and storing knowledge for

access by relevant staff. For instance, the secretary outlines some key tips

on using PowerPoint to share with all staff. By sharing knowledge people will

be able to be more efficient, save time, and do a better job, making the

organisation more effective overall.

Knowledge management is particularly important for companies where

knowledge can be key to the organisation’s success, for instance in hi-tech

organisations where research and development are important, or consultants

where the success of a project is highly dependent on the knowledge of the

individuals in the team.

Knowledge work systems (KWS) help in the capture of knowledge and

the distribution of this knowledge around the organisation. A company

intranet where people share tips and techniques would be a simple KWS.

Knowledge workers

In a post-industrial age, work is often less about production or distribution of

goods and more about deploying expertise or specialised knowledge. This is

especially the case in hi-tech companies, where specialised knowledge is a

competitive advantage. But the rise of knowledge-based organisations has

implications for the knowledge workers who work within these companies

and the human resource managers supporting them:

Distributed or remote working

Knowledge work often does not require physical presence, so employees

may work remotely.

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Shorter contracts

Since knowledge skills are more readily transferable to other areas of the

business, it may not be necessary to define permanent roles but focus

instead on task-based objectives, for which short-term contracts can be

negotiated.

Development expectations

Knowledge workers may want to play a greater role in the definition of their

development objectives. For example, an expert programmer may be better

placed than management to foresee what future skills will be needed as

technology advances, and so will want to feed into the development process.

Knowledge management systems which facilitate the work of knowledge

workers include:

• Databases for sharing of information

• Internet and intranets for communication

• Groupware – team software which has features such as messaging, storage of files, team calendars and project management tools

• Internal networks – locally within a building (LAN – Local Area Network) or with other parts of the business (WAN – Wide Area Network).

Enterprise resource planning (ERP) systems

Enterprise resource planning (ERP) systems integrate internal and external

management information across an entire organisation, embracing

finance/accounting, manufacturing, sales and service, customer relationship

management, etc.

ERP systems automate this activity with an integrated software application. Their

purpose is to facilitate the flow of information between all business functions

inside the boundaries of the organisation and manage the connections to

outside stakeholders.

ERP systems can run on a variety of computer hardware and network

configurations, typically employing a database as a repository for

information. Examples include SAP and Oracle.

Benefits of ERPs

• Integrating the myriad processes by which businesses operate saves time and expense. Decisions can be made more quickly

and with fewer errors.

• Data becomes more visible across the organisation as it is in one

interlinked system and not in many each being held in each department.

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• Changes in one system, automatically transfer to others —e.g.

changes in inventory level automatically update inventory balances in

the finance system. This saves time and improves information

accuracy.

• Comprehensive enterprise view of information (no "islands of

information"). They make real–time information available to management anywhere, any time to make proper decisions.

• They protect sensitive data by consolidating multiple security systems into a single structure which can then be better managed.

• Improves the quality and efficiency of a business by having efficient inter-linked systems.

Computer integrated manufacturing (CIM)

CIM is the integration of computers into the manufacturing process so

that they have complete control over the process. This encompasses

computer aided manufacturing (CAM) and computer aided design (CAD).

Flexible manufacturing systems (FMS)

An FMS is a manufacturing system that the flexibility to allow for

change. This is good because it means that predicted and unpredicted

changes in the process or in demand can be dealt with efficiently.

Robotics

Robotics are a key part of many flexible manufacturing systems. Robotic

arms can be programmed in many different ways and so are not limited to

producing one single type of product.

Computer numerical control (CNC)

CNC Machining is a process used in the manufacturing sector that involves the use of computers to control machine tools e.g. lathes, mills and

grinders.

CNC allows computers to operate machinery which ensures consistency of

approach to manufacture precise designs over and over again to the same

specification while also saving labour costs.

Automated guided vehicles (AGV)

An automatic guided vehicle is an unmanned transportation system that

follows markers or wires in the floor, or uses vision, magnets, or lasers for

navigation. This saves cost on workers and also reduces human error.

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4. E-business

Introduction

Most organisations now use the internet to aid their work in some way. If

you have ever used the internet at work then you have participated in e-

business. If you have ever shopped online, you have also participated in e-

business. So, for a formal definition:

E-business (electronic business) is the use of the internet in business.

E-commerce (electronic commerce) is a subset of e-business related to the

buying and selling of products or services over the Internet.

E-business includes the following elements:

• Electronic funds transfer e.g. paying a supplier invoice.

• Internet marketing e.g. website, social media, emails.

• Automated process of transactions online e.g. customers buying a product online with no human interaction needed.

• Electronic data interchange (EDI) – the direct sharing of information between organisations e.g. for purchases or sales.

• Inventory management systems e.g. the automatic re-ordering of stock when it is needed.

• Automated data collection e.g. collecting customer emails when they make a purchase online.

Digital goods

Digital markets have allowed for the introduction of digital goods. For example,

downloaded music and books. Some companies may operate completely within

a digital market and not produce a physical product or service. e.g. makers of

mobile apps or online training companies.

Impact of e-business

E-business has allowed business transactions to become quicker and

cheaper and as such has been embraced by many organisations as a key

part of their competitive strategy. E-business is particularly important for

cost leaders, who often aim to automate the whole of their commerce and

data collection/management processes to keep costs low.

It also opens up a range of new marketing opportunities enabling

companies to reach new markets quickly and easily through a website, or

social media.

E-business has allowed global competition which can also be a threat as

new companies enter local markets and allows customers quick and easy

comparison of prices, reducing profit margins available on many products.

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5. Internet-based technologies

Wireless Technology

Wireless technology is an extremely useful technological development, and

not just because we can now read our emails on the go or watch a video of

cats on the bus!

Wireless technology has become more common over recent years as an

alternative to cable and fibre optic networks. With the developments of

networking, wireless technologies eliminate costly and untidy wires and

cables. Wireless technologies bring a number of benefits to networking in

business, such as:

Increased efficiency

Wireless technologies provide better data communications and faster

transfer of information.

For example, an employee out of the office on a sales call can at the same

time, check stock levels and prices.

Coverage

Wireless technologies are not restricted to areas that only cables and

wires can reach. Wireless routers can have far better coverage than cables

and routers which allow employees to work from almost anywhere in the

building. Employees can also communicate whilst on the move.

Costs

Wireless connections are generally easier and cheaper to install. The costs

of cables and wires to cover a large building will be extremely high. With

wireless technology, businesses will only require a number of routers to

ensure that the building is covered.

Hand-held technology

Wireless internet connections have led to the development of hand-held

technologies such as tablets and smartphones. More and more companies

are making their websites smartphone friendly and designing apps to

encourage frequent use.

The Internet

The internet is a global network of computers: severs or clients that

exchange information through copper wires, wireless connections and

other technologies. It's not limited by geography: it's available to anyone who

knows their Internet Protocol (IP) address and has an internet connection.

Businesses use the internet everyday, for communications, research, even

payments. Also sometimes for Facebook, when the boss isn't looking …

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However, despite the revolution it has spelled for information exchange, the

internet can be a high risk to businesses, and they must be very careful

about what they share over the internet, both for security and privacy

reasons.

Intranets

Unlike the global computer public-access network that forms the internet, an

intranet is a collection or group of private computer networks within an

organisation. In business, an intranet is a tool for communicating and

securely sharing information between work groups or people. An intranet is of

course similar to the internet, however information that is shared within an

intranet can only be accessed by authorised persons such as members or employees of the organisation. An intranet can provide many benefits to an

organisation, such as giving employees quick and easy access to the

resources that they need and improving communication.

The Cloud

The cloud, or cloud computing, specifically focuses on using internet for

the storage of data, making it accessible at any time. The cloud is most

commonly used for the backing-up of data in business. For example, work

may be completed on local computers, but a copy is backed up over the

internet to servers operated by a third party, such as Google or Amazon. The

technology was common long before the term “cloud” started to be used.

Businesses use the cloud because it has a number of benefits:

Costs

Using the cloud rather than physical file storage can save a significant

amount of money. Rather than everyone holding data on their own

computers it can be shared in single central location accessible to all. Cloud

computing applications can also run on all existing hardware infrastructure, so there is no need to upgrade computer systems.

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Disaster recovery

With Cloud computing, there is no need to plan for complex disaster

recovery. Files that are backed-up over the Internet can be easily accessed

and recovered, a lot quicker than traditional back-up recovery procedures.

Work from anywhere

If employees have internet access, they can access files that are stored over the cloud, meaning that they can work from anywhere. This encourages

flexibility and productivity in the work-force. One way that this is done is via

hot-desking.

Hot-desking

When an office has no assigned desks but 'work stations' where anyone can

plug in and work. This allows businesses to have more fluidity between

departments and means office space is not being wasted if employees

sometimes work at home.

Collaboration

As with working over an Intranet, the Cloud enables employees to work

together on tasks wherever they are by simply accessing the company's

cloud and updating files from there.

Remote working

Internet based technologies have enabled people to work away from a

single office location, working at clients or at home for instance. This is

remote working.

If people work in different locations and are part of a team then that team is

known as a virtual team.

Remote working and virtual team working can have the following benefits

for the organisation:

• Motivation of staff – being trusted, flexible working

• Lower overheads (as less office space required)

• Having staff from a wider catchment area i.e. those who do not live

within commuting distance of the office or people working together in a team from different offices.

On the other hand when people work from away from the office or work in

virtual teams they are harder to supervise and control. They may also feel

alone and without support, particularly when they are having difficulties

with some aspect of their work. There may also be a lack of team working

compared to a group being in the same office together and it may be hard

to have a consistent approach and culture.

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As a result, both remote working and virtual team working need to be carefully managed. According to David Skyrme to ensure a virtual team is

effective there should be:

• Regular and simple communication e.g. by email or

messaging, focusing on one topic per email or message

• Team support for each other

• Clear team goals and purpose

• Informal communications by email and messaging to replace what would have previously been informal verbal communication.

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6. Digitisation

Do you remember when looking something up meant checking a dictionary,

asking a friend or going to a library? Depending on your age some of you

probably do not! Now, of course, you can probably find the same information

online because it requires so little storage space and can be searched so

easily you can find exactly what you want much more quickly than you could

in the past.

Here's a formal definition of digitisation: the conversion of information

into a digital format so that information can be processed, stored

and transmitted.

Digitisation has brought a number of benefits to businesses, such as:

Improving business efficiency, quality and consistency

The introduction of digitisation programs enables data that was once on paper

to be quickly and efficiently accessed by a much wider group of people.

Everyone is also accessing the same, consistent information.

Improving response times and customer services

Having all customer and product information on a database allows finding

information about and for customers much easier.

Reducing costs

Digitisation programs can potentially reduce storage, management and

access costs. For example, once paper records have been digitised, they

can be destroyed; therefore decreasing the amount of storage space needed. Digitisation means that staff costs for filing, retrieving and

transporting records are reduced.