Chapter 11 - Information Systems PDF

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Information Systems...

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chapter 11

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Information Systems Competencies After you have read this chapter, you should be able to:

1 Explain the functional view of an organization and describe each function. 2 Describe the management levels and the informational needs for each level in an organization. 3 Discuss how information flows within an organization. 4 Discuss computer-based information systems. 5 Distinguish among a transaction processing system, a management information system, a decision support system, and an executive support system. 6 Distinguish between office automation systems and knowledge work systems. 7 Explain the difference between data workers and knowledge workers.

One of the challenges that has emerged as technology becomes more consistent and available is to filter through the data. In a large corporation there may be so much data available to management that it is unusable. Today’s managers and executives need access to timely and complete information about the daily operations of their business.

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Some experts predict that artificial intelligence may some day filter the facts and figures available to executives. Imagine a world where an executive can expect aroundthe-clock service from the computer sitting on the desk.

Introduction

Hi, I'm Joe, and I’m a manager in information systems. I’d like to talk with you about how organizations use computer information systems.

An information system is a collection of people, procedures, software, hardware, and data (as we discussed in Chapter 1). They all work together to provide information essential to running an organization. This is information that will successfully produce a product or service and, for profit-oriented enterprises, derive a profit. Why are computers used in organizations? No doubt you can easily state one reason: to keep records of events. However, another reason might be less obvious: to help make decisions. For example, point-of-sale terminals record sales as well as which salesperson made each sale. This information can be used for decision making. For instance, it can help the sales manager decide which salespeople will get year-end bonuses for doing exceptional work. The Internet, communication links, and databases connect you with information resources as well as information systems far beyond the surface of your desk. The microcomputer offers you access to a greater quantity of information than was possible a few years ago. In addition, you also have access to better-quality information. As we show in this chapter, when you tap into a computer-based information system, you not only get information—you also get help in making decisions. Competent end users need to understand how the information flows as it moves through an organization’s different functional areas and management levels. They need to be aware of the different types of computer-based information systems, including transaction processing systems, management information systems, decision support systems, and executive support systems. They also need to understand the role and importance of databases to support each level or type of information system.

Organizational Information Flow Computerized information systems do not just keep track of transactions and day-to-day business operations. They also support the vertical and horizontal flow of information within the organization. To understand this, we need to understand how an organization is structured. One way to examine an organization’s structure is to view it from a functional perspective. That is, you can study the different basic functional areas in organizations and the different types of people within these functional areas. As we describe these, consider how they apply to a hypothetical manufacturer of sporting goods, the HealthWise Group. This company manufactures equipment for sports and physical activities. Their products range from soccer balls to surfboards. (See Figure11-1.) Like many organizations, HealthWise Group can be viewed from a functional perspective with various management levels. Effective operations require an efficient and coordinated flow of information throughout the organization.

Functions Depending on the services or products they provide, most organizations have departments that specialize in one of five basic functions. These are

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accounting, marketing, human resources, production, and research. (See Figure11-2.) • Accounting records all financial activity from billing customers to paying employees. For example, at HealthWise, the accounting department tracks all sales, payments, and transfers of funds. It also produces reports detailing the financial condition of the company. • Marketing plans, prices, promotes, sells, and distributes the organization’s goods and services. At HealthWise, goods include a wide range of products related to sports and other types of physical activity. • Human resources focuses on people—hiring, training, promoting, and any number of other human-centered activities within the organization. This function relates to people in each of the functional areas, including accountants, sales representatives, human resource specialists, production workers, and research scientists. • Production actually creates finished goods and services using raw materials and personnel. At HealthWise, this includes manufacturing a variety of sports equipment, including surfboards. • Research identifies, investigates, and develops new products and services. For example, at HealthWise, scientists are investigating a light, inexpensive alloy for a new line of weight-training equipment. Although the titles may vary, nearly every large and small organization has departments that perform these basic Figure 11-1 Manufacturing surfboards functions. Whatever your job in an organization, it is likely to be in one of these functional areas.

Management Levels Most people who work in an organization are not managers, of course. At the base of the organizational pyramid are the assemblers, painters, welders, drivers, and so on. These people produce goods and services. Above them are various levels of managers—people with titles such as supervisor, director, regional manager, and vice president. These are the people who do the planning, leading, organizing, and controlling necessary to see that the work gets done. At HealthWise, for example, the northwest district sales manager directs and coordinates all the salespeople in her area. Other job titles might be vice president of marketing, director of human resources, or production manager. In smaller organizations, these titles are often combined. Management in many organizations is divided into three levels. (See Figure11-3.) • Supervisors: Supervisors manage and monitor the employees or workers. Thus, these managers have responsibility relating to operational matters. They monitor day-to-day events and immediately take corrective action, if necessary. (See Figure11-4.) • Middle management: Middle-level managers deal with control, planning (also called tactical planning), and decision making. They implement the long-term goals of the organization. • Top management: Top-level managers are concerned with long-range planning (also called strategic planning). They need information that will help them to plan the future growth and direction of the organization.

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Human resources finds and hires people and handles matters such as sick leave and retirement benefits.In addition, it is concemed with evaluation, compensation, and professional development.

Accounting tracks all

Research conducts basic research and relates new discoveries to the firm’s current or new products department. Research people at HealthWise explore new ideas from exercise physiologists about muscle development. They use this knowledge to design new physical fitness machines.

Marketing handles planning, pricing, promoting, selling, and distributing goods and services to customers. At HealthWise, they even get involved with creating a customer newsletter that is distributed via the corporate Web page.

rch sea Re

ction Produ

Human resources

Functional perspective

Ac co un tin g Mark eting

financial activity. At HealthWise, this department records bills and other financial transactions with sporting goods stores, It also produces financial statements, including budgets and forecasts of financial performance.

Production takes in raw materials and people work to turn out finished goods (or services). It may be a manufacturing activity or—in the case of a retail store—an operations activity. At HealthWise, this department purchases steel and aluminum to be used in weight-lifting and exercise machines.

Figure 11-2 The five functions of an organization

Managerial levels

Top management

Top managers are responsible for long-range planning. At HealthWise, the vice president of marketing develops long-term marketing strategies to introduce newly developed products. Middle managers are responsible for tactical

Middle management

planning. At HealthWise, regional sales managers set sales goals, monitor progress to meet goals, and initiate corrective action as needed.

Supervisors

Figure 11-3 Three levels of management

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Supervisors are responsible for operational matters. At HealthWise, a production supervisor monitors the inventory for parts and reorders when low.

Information Flow Each level of management has different information needs. Top-level managers need information that is summarized in capsule form to reveal the overall condition of the business. They also need information from outside the organization because top-level managers need to forecast and plan for long-range events. Middle-level managers need summarized information—weekly or monthly reports. They need to develop budget projections and to evaluate the performance of supervisors. Supervisors need detailed, very current, day-to-day information on their units so that they can keep operations running smoothly. To support these different needs, information flows in different directions. (See Figure 11-5.) For top-level managers, the flow of information from Figure 11-4 Supervisors monitor day-to-day events within the organization is both vertical and horizontal. The top-level managers, such as the chief executive officer (CEO), need information from below and from all departments. (See Figure11-6.) They also need information from outside the organization. For example, at HealthWise, they are deciding whether to introduce a line of hockey equipment in the southwestern United States. The vice president of marketing must look at relevant data. Such data might include availability of ice rinks and census data about the number of young people. It also might include sales histories on related cold-weather sports equipment. For middle-level managers, the information flow is both vertical and horizontal across functional lines. For example, the regional sales managers at HealthWise set their sales goals by coordinating with middle managers in the production department. They are able to tell sales managers what products will be produced, how many, and when. The regional sales managers also must coordinate with the strategic goals set by the top managers. They must set and monitor the sales goals for the supervisors beneath them. Information flow

Top managerial-level information flow is vertical, horizontal, and external. At HealthWise, the vice president of marketing communicates vertically (with regional sales managers), horizontally (with other vice presidents), and externally to obtain data to forecast sales. Middle managerial-level information flow is vertical and horizontal. At HealthWise, regional sales managers communicate vertically (with district sales managers and the vice president of marketing) and horizontally with other middle-level managers. Supervisory-level information flow is primarily vertical. At HealthWise, production supervisors monitor worker activities to ensure smooth production. They provide daily status reports to middle-level production managers. Figure 11-5 Information flow within an organization

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For supervisory managers, information flow is primarily vertical. That is, supervisors communicate mainly with their middle managers and with the workers beneath them. For instance, at HealthWise, production supervisors rarely communicate with people in the accounting department. However, they are constantly communicating with production-line workers and with their own managers. Now we know how a large organization is usually structured and how information flows within the organization. But how is a computer-based information system likely to be set up to support its needs? And what do you, as a microcomputer user, need to know to use it?

CONCEPT CHECK

Figure 11-6 Top-level managers handle both vertical and horizontal information flow

What are the five basic functions within an organization? What are the three levels of management? Discuss each level. Describe the flow of information within an organization.

Computer-Based Information Systems A lmost all organizations have computer-based information systems. Large organizations typically have formal names for the systems designed to collect and use the data. Although different organizations may use different names, the most common names are transaction processing, management information, decision support, and executive support systems. (See Figure11-7 .) Information systems

ESS

DSS

Executive support systems (ESS) use internal data from MIS and TPS and external data to support top-level managers. At HealthWise, the marketing vice president uses his ESS to view current marketing operations and to develop long-term marketing strategies.

Decision support systems (DSS) use data from TPS and a set of flexible analytical tools to support middle managers. At HealthWise, the regional sales managers use the DSS to evaluate the impact of a recent national promotion campaign on regional sales and corporate profit.

MIS

TPS

Management information systems (MIS) use data from the TPS to support middle-level managers. At HealthWise, regional sales managers use their MIS reports to monitor weekly divisional sales and to compare actual sales to established sales goals. Transaction processing systems (TPS) record

day-to-day transactions to support supervisors. At HealthWise, production supervisors use their TPS to record and to monitor current inventory levels and production line output.

Figure 11-7 Four kinds of computer-based information systems

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• Transaction processing system: The transaction processing system (TPS) records day-to-day transactions, such as customer orders, bills, inventory levels, and production output. The TPS helps supervisors by generating databases that act as the foundation for the other information systems. • Management information system: The management information system (MIS) summarizes the detailed data of the transaction processing system in standard reports for middle-level managers. Such reports might include weekly sales and production schedules. • Decision support system: The decision support system (DSS) provides a flexible tool for analysis. The DSS helps middle-level managers and others in the organization analyze a wide range of problems, such as the effect of events and trends outside the organization. Like the MIS, the DSS draws on the detailed data of the transaction processing system. • Executive support system: The executive support system (ESS), also known as the executive information system (EIS), is an easy-to-use system that presents information in a very highly summarized form. It helps top-level managers oversee the company’s operations and develop strategic plans. The ESS combines the internal data from the TPS and the MIS with external data.

CONCEPT CHECK What are the four most common computer-based information systems? Describe each. Compare and contrast management information systems with decision support systems.

Transaction Processing Systems A transaction processing system (TPS) helps an organization keep track of routine operations and records these events in a database. For this reason, some firms call this the data processing system (DPS). The data from operations— for example, customer orders for HealthWise’s products—makes up a database that records the transactions of the company. This database of transactions is used to support an MIS, DSS, and ESS. One of the most essential transaction processing systems for any organization is in the accounting area. (See Figure11-8.) Every accounting department handles six basic activities. Five of these are sales order processing, accounts receivable, inventory and purchasing, accounts payable, and payroll. All of these are recorded in the general ledger, the sixth activity.

Accounting

Sales order processing

Accounts receivable

Inventory and purchasing

Accounts payable

Payroll

General ledger

Figure 11-8 Transaction processing system for accounting Information Systems

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Let us take a look at these six activities. They will make up the basis of the accounting system for almost any office you might work in. • The sales order processing activity records the customer requests for the company’s products or services. When an order comes in—a request for a set of barbells, for example— the warehouse is alerted to ship a product. (See Figure11-9.) • The accounts receivable activity records money received from or owed by customers. HealthWise keeps track of bills paid by sporting goods stores and by gyms and health clubs to which it sells directly. • The parts and finished goods that the company has in stock are called inventory —all exercise machines in the warehouse, for example. (See Figure11-10.) An inventory control system keeps records of the number of each kind of part or finished good in the warehouse. Purchasing is the buying of materials and services. Often a purchase order is used. This is a form that shows the name of the company supplying the material or service and what is being purchased. • Accounts payable refers to money the company owes its suppliers for materials and services it has received—steel and aluminum, for example. Figure 11-9 Customer orders are sent to the • The payroll activity is concerned with calculating employee warehouse via sales order processing paychecks. Amounts are generally determined by the kind of job, hours worked, and kinds of deductions (such as taxes, Social Security, medical insurance). Paychecks may be calculated from employee time cards or, in some cases, supervisors’ time sheets. • The general ledger keeps track of all summaries of all the foregoing transactions. A typical general ledger system can produce income statements and balance sheets. Income statements show a company’s financial performance—income, expenses, and the difference between them for a specific time period. Balance sheets list the overall financial condition of an organization. They include assets (for example, buildings and property owned), liabilities (debts), and how much of the organization (the equity) is owned by the owners.

Figure 11-10 Inventory control systems manage the merchandise in the warehouse

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There are many other transaction systems that you come into contact with every day. These include automatic teller machines, which record cash withdrawals; online registration sy...