Information Systems for Business Functions

Chapter 12

Information Systems for Business
Functions

12.1 Supporting Business Functions in an Enterprise
with Information

The principal business functions in a
business firm are:

1. Marketing and sales

2. Production

3. Accounting and finance

4. Human resources

Figure 12.1: Outlines a general view of information
systems supporting a company’s operations and management. Emphasize that management
support systems (MRS), decision support systems (DSS), and executive information systems
(EIS), rest on the foundation of transaction processing systems (TPS) that support
business operations. TPSs are the major source of data used by the higher-level systems to
derive information. Professional support systems (PSS) and office information systems
(OIS), which support individual and group knowledge work, are also a part of this
foundation.

12.2 Marketing Information Systems [Figure 12.2 &
Figure 12.3]

Marketing activities are directed toward planning,
promoting, and selling goods and services to satisfy the needs of customers and the
objectives of the organization.

Marketing information systems support decision making
regarding the marketing mix. These include:

1. Product

2. Price

3. Place

4. Promotion

Figure 12.3 illustrates the structure of the entire
marketing information system. In order to support decision making on the marketing mix, a
marketing information system draws on several sources of data and information.

Sources of Data and Information for Marketing:
Boundary-Spanning and Transaction Processing Subsystems

A marketing information system relies on external
information to a far greater degree than other organizational information systems. It
includes two subsystems designed for boundary spanning – bringing into the firm data and
information about the marketplace.

The objective of marketing research is to
collect data on the actual customers and the potential customers, known as prospects. The
identification of the needs of the customer is a fundamental starting point for total
quality management (TQM). Electronic commerce on the WEB makes it easy to compile
statistics on actual buyer behaviour.

Marketing research software supports statistical
analysis of data. It enables the firm to correlate buyer behaviour with very detailed
geographic variables, demographic variables, and psychographic variables.

Marketing (competitive) intelligence is
responsible for the gathering and interpretation of data regarding the firm’s competitors,
and for the dissemination of the competitive information to the appropriate users. Most of
the competitor information comes from corporate annual reports, media-tracking services,
and from reports purchased from external providers, including on-line database services.
The Internet has become a major source of competitive intelligence.

Marketing Mix Subsystems

The marketing mix subsystems support decision making
regarding product introduction, pricing, promotion (advertising and personal selling), and
distribution. These decisions are integrated into the sales forecast and marketing plans
against which the ongoing sales results are compared.

Marketing mix subsystems include:

1. Product subsystem

2. Place subsystem

3. Promotion subsystem

4. Price subsystem

5. Sales forecasting

Product Subsystem

The product subsystem helps to plan the introduction of
new products. Continually bringing new products to market is vital in today’s competitive
environment of rapid change. The product subsystem should support balancing the degree of
risk in the overall new-product portfolio, with more aggressive competitors assuming
higher degrees of risk for a potentially higher payoff.

Although decisions regarding the introduction of new
products are unstructured, information systems support this process in several ways:

1. Professional support systems assist designers in
their knowledge work

2. DSSs are used to evaluate proposed new products

3. With a DSS, a marketing manager can score the
desirability of a new product.

4. Electronic meeting systems help bring the expertise
of people dispersed in space and time to bear on the problem

5. Information derived from marketing intelligence and
research is vital in evaluating new product ideas.

Place Subsystem

The place subsystem assists the decision makers in
making the product available to the customer at the right place at the right time. The
place subsystem helps plan the distribution channels for the product and track their
performance.

The use of information technology has dramatically
increased the availability of information on product movement in the distribution channel.
Examples include:

1. Bar-coded Universal Product Code (UPC)

2. Point-of-sale (POS) scanning

3. Electronic data interchange (EDI)

4. Supports just-in-time product delivery and
customized delivery

Promotion Subsystem

The promotion subsystem is often the most elaborate in
the marketing information system, since it supports both personal selling and advertising.
Media selection packages assist in selecting a mix of avenues to persuade the potential
purchaser, including direct mail, television, print media, and the electronic media such
as the Internet and the WEB in particular. The effectiveness of the selected media mix is
monitored and its composition is continually adjusted.

Database marketing relies on the accumulation and
use of extensive databases to segment potential customers and reach tem with personalized
promotional information.

The role of telemarketing, marketing over
the telephone, has increased. Telemarketing calls are well supported by information
technology.

Sales management is thoroughly supported with
information technology. Customer profitability analysis help identify high-profit and
high-growth customers and target marketing efforts in order to retain and develop these
accounts.

Sales force automation, involves equipping
salespeople with portable computers tied into the corporate information systems. This
gives the salespeople instantaneous access to information and frees them from the
reporting paperwork. This increases selling time and the level of performance. Access to
corporate databases is sometimes accompanied by access to corporate expertise, either by
being able to contact the experts or by using expert systems that help specify the product
meeting customer requirements.

Price Subsystem

Pricing decisions find a degree of support from DSSs
and access to databases that contain industry prices. These highly unstructured decisions
are made in pursuit of the companys pricing objectives. General strategies range from
profit maximization to forgoing a part of the profit in order to increase a market share.

Information systems provide an opportunity to finely
segment customer groups, and charge different prices depending on the combination of
products and services provided, as well as the circumstances of the sale transaction.

Sales Forecasting

Based on the planned marketing mix and outstanding
orders, sales are forecast and a full marketing plan is developed. Sale forecasting
is an area where any quantitative methods employed must be tempered with human insight and
experience. The actual sales will depend to a large degree on the dynamics of the
environment.

Qualitative techniques are generally used for environmental
forecasting – an attempt to predict the social, economic, legal, and technological
environment in which the company will try to realize its plans. Sales forecasting uses
numerous techniques, which include:

1. Group decision making techniques are used to elicit
broad expert opinion

2. Scenario analysis in which each scenario in this
process is a plausible future environment

3. Extrapolation of trends and cycles through a
time-series analysis.

12.3 Manufacturing Information Systems

Global competitive pressures of the information society
have been highly pronounced in manufacturing and have radically changed it. The new
marketplace calls for manufacturing that are:

1. Lean – highly efficient, using fewer input resources
in production through better engineering and through production processes that rely on low
inventories and result in less waste.

2. Agile – fit for time-based competition. Both the new
product design and order fulfilment are drastically shortened.

3. Flexible – able to adjust the product to a
customer’s preferences rapidly and cost effectively.

4. Managed for quality – by measuring quality
throughout the production process and following world standards, manufacturers treat
quality as a necessity and not a high-price option.

Structure of Manufacturing Information Systems
[Figure 12.5]

Information technology must play a vital role in the
design and manufacturing processes. Manufacturing information systems are among the most
difficult both to develop and to implement.

TPSs are embedded in the production process or in other
company processes. The data provided by the transaction processing systems are used by
management support subsystems, which are tightly integrated and interdependent.

Manufacturing information subsystems include:

1. Product design and engineering

2. Product scheduling

3. Quality control

4. Facilities planning, production costing, logistics
and inventory subsystems

Product Design and Engineering

Product design and engineering are widely supported
today by computer-aided design (CAD) and computer-aided engineering (CAE)
systems. CAD systems assist the designer with automatic calculations and display of
surfaces while storing the design information in databases. The produced designs are
subject to processing with CAE systems to ensure their quality, safety, manufacturability,
and cost-effectiveness. CAD/CAE systems increasingly eliminate paperwork from the design
process, while speeding up the process itself. As well, the combined techniques of CAD/CAE
and rapid prototyping cut time to market.

Product Scheduling

Production scheduling is the heart of the manufacturing
information system. This complex subsystem has to ensure that an appropriate combination
of human, machinery, and material resources will be provided at an appropriate time in
order to manufacture the goods.

Production scheduling and the ancillary processes are
today frequently controlled with a manufacturing resource planning system as
the main informational tool. This elaborate software converts the sales forecast for the
plants products into a detailed production plan and further into a master schedule of
production.

Computer integrated manufacturing (CIM) is a
strategy through which a manufacturer takes control of the entire manufacturing process.
The process starts with CAD and CAE and continues on the factory floor where robots and
numerically controlled machinery are installed – and thus computer-aided
manufacturing (CAM) is implemented. A manufacturing system based on this concept
can turn out very small batches of a particular product as cost-effectively as a
traditional production line can turn out millions of identical products. A full-fledged
CIM is extremely difficult to implement; indeed, many firms have failed in their attempts
to do so.

Quality Control

The quality control subsystem of a manufacturing
information system relies on the data collected on the shop floor by the sensors embedded
in the process control systems.

Total quality management (TQM) is a management
technique for continuously improving the performance of all members and units of a firm to
ensure customer satisfaction. In particular, the principles of TQM state that quality
comes from improving the design and manufacturing process, rather than Ainspecting out@
defective products. The foundation of quality is also understanding and reducing variation
in the overall manufacturing process.

Facilities Planning, Production Costing, Logistics and
Inventory Subsystems

Among the higher-level decision making supported by
manufacturing information systems are facilities planning – locating the sites for
manufacturing plants, deciding on their production capacities, and laying out the plant
floors.

Manufacturing management requires a cost control
program, relying on the information systems. Among the informational outputs of the
production costing subsystem are labor and equipment productivity reports, performance of
plants as cost centers, and schedules for equipment maintenance and replacement.

Managing the raw-materials, packaging, and the work in
progress inventory is a responsibility of the manufacturing function. In some cases,
inventory management is combined with the general logistics systems, which plan and
control the arrival of purchased goods into the firm as well as shipments to the
customers.

12.4 Accounting and Financial Information Systems
[Figure 12.9]

The financial function of the enterprise consists in
taking stock of the flows of money and other assets into and out of an organization,
ensuring that its available resources are properly used and that the organization is
financially fit. The components of the accounting system include:

1. Accounts receivable records

2. Accounts payable records

3. Payroll records

4. Inventory control records

5. General ledgers

Financial information systems rely on external sources,
such as on-line databases and custom produced reports, particularly in the areas of
financial forecasting and funds management. The essential functions that financial
information systems perform include:

1. Financial forecasting and planning

2. Financial control

3. Funds management

4. Internal auditing

Financial Forecasting

Financial forecasting is the process of predicting the
inflows of funds into the company and the outflows of funds from it for a long term into
the future. Outflows of funds must be balanced over the long term with the inflows. With
the globalization of business, the function of financial forecasting has become more
complex, since the activities in multiple national markets have to be consolidated, taking
into consideration the vagaries of multiple national currencies. Scenario analysis is
frequently employed in order to prepare the firm for various contingencies.

Financial forecasts are based on computerized models
known as cash-flow models. They range from rather simple spreadsheet templates to
sophisticated models developed for the given industry and customized for the firm or, in
the case of large corporations to specify modeling of their financial operations.
Financial forecasting serves to identify the need for funds and their sources.

Financial Control

The primary tools of financial control are budgets. A budget
specifies the resources committed to a plan for a given project or time period. Fixed
budgets are independent of the level of activity of the unit for which the budget is drawn
up. Flexible budgets commit resources depending on the level of activity.

Spreadsheet programs are the main budgeting tools.
Spreadsheets are the personal productivity tools in use today in budget preparation.

In the systems-theoretic view, budgets serve as the
standard against which managers can compare the actual results by using information
systems. Performance reports are used to monitor budgets of various managerial levels. A
performance report states the actual financial results achieved by the unit and compares
them with the planned results.

Along with budgets and performance reports, financial
control employs a number of financial ratios indicating the performance of the business
unit. A widely employed financial ratio is return on investment (ROI). ROS
shows how well a business unit uses its resources. Its value is obtained by dividing the
earnings of the business unit by its total assets.

Funds Management

Financial information systems help to manage the
organization’s liquid assets, such as cash or securities, for high yields with the lowest
degree of loss risk. Some firms deploy computerized systems to manage their securities
portfolios and automatically generate buy or sell orders.

Internal Auditing

The audit function provides an
independent appraisal of an organization’s accounting, financial, and operational
procedures and information. All large firms have internal auditors,
answerable only to the audit committee of the board of directors. The staff of the chief
financial officer of the company performs financial and operational audits. During a financial
audit, an appraisal is made of the reliability and integrity of the company’s
financial information and of the means used to process it. An operational audit
is an appraisal of how well management utilizes company resources and how well corporate
plans are being carried out.

12.5 Human Resource Information Systems

A human resource information system (HRIS) supports the
human resources function of an organization with information. The name of this function
reflects the recognition that people who work in a firm are frequently its most valuable
resources. The complexity of human resource management has grown immensely over recent
years, primary due to the need to conform with new laws and regulations.

A HRIS has to ensure the appropriate degree of access
to a great variety of internal stakeholders, including:

1. The employees of the Human Resources department in
performance of their duties

2. All the employees of the firm wishing ti inspect
their own records

3. All the employees of the firm seeking information
regarding open positions or available benefit plans

4. Employees availing themselves of the
computer-assisted training and evaluation opportunities

5. Managers throughout the firm in the process of
evaluating their subordinates and making personnel decisions

6. Corporate executives involved in tactical and
strategic planning and control

Transaction Processing Subsystems and Databases of
Human Resource Information Systems

At the heart of HRIS are its databases, which are in
some cases integrated into a single human resource database. The record of each employee
in a sophisticated employee database may contain 150 to 200 data items, including the
personal data, educational history and skills, occupational background, and the history of
occupied positions, salary, and performance in the firm. Richer multimedia databases are
not assembled by some firms in order to facilitate fast formation of compatible teams of
people with complementary skills.

Other HRIS databases include:

1. Applicant databases

2. Position inventory

3. Skills inventory

4. Benefit databases

5. External databases

Information Subsystems for Human Resource Management

The information subsystems of HRIS reflect the flow of
human resources through the firm, from planning and recruitment to termination. A
sophisticated HRIS includes the following subsystems:

1. Human resource planning

2. Recruiting and workforce management

3. Compensation and benefits

4. Government reporting and labour relations
support

Human Resource Planning

To identify the human resources necessary to accomplish
the long-term objectives of a firm, we need to project the skills, knowledge, and
experience of the future employees.

Recruiting and Workforce Management

Based on the long-term resource plan, a recruitment
plan is developed. The plan lists the currently unfilled positions and those expected to
become vacant due to turnover.

The life-cycle transitions of the firm’s workforce –
hiring, promotion and transfer, and termination – have to be supported with the
appropriate information system components.

Compensation and Benefits

Two principal external stakeholders have an abiding
interest in the human resource policies of organizations. These are:

1. Various levels of government

2. Labor unions

12.6 Integrating Functional Systems for Superior
Organizational Performance

Functional information systems rarely stand alone. This
reflects the fact that the functions they support should, as much as possible, connect
with each other seamlessly in order to serve the firms customers. Customers expect timely
order delivery, often on a just-in-time schedule; quality inspection to their own
standards; flexible credit terms; post-delivery service; and often, participation in the
product design process.

Information technology provides vital support for
integrating internal business processes, cutting across functional lines, and for
integrating operations with the firm’s business partners, its customers and suppliers.