chapter 2 e-business: how businesses use information systems

2.1 © 2007 by Prentice Hall

STUDENT LEARNING OBJECTIVES

Essentials of Business Information SystemsEssentials of Business Information SystemsChapter 2 E-Business: How Businesses Use Information SystemsChapter 2 E-Business: How Businesses Use Information Systems

• What are the major features of a business that are important for understanding the role of information systems?

• How do information systems support the major business functions: sales and marketing, manufacturing and production, finance and accounting, and human resources?

• How do systems serve the various levels of management in a business and how are these systems related?

• How do enterprise applications, collaboration and communication systems, and intranets improve organizational performance?

• What is the role of the information system’s function in a business?


Information Systems Join the Tupperware Party

• Problem: Changing business model caused unnecessary difficulty for Tupperware sales consultants.

• Solutions: Implement Web-based order management system that simplifies order entry and other tasks.

• Oracle Collaboration Suite and Oracle Portal also streamlines communication and support.

• Demonstrates IT’s role in centralizing data, improving production processes, and driving growth and profitability.

• Illustrates the importance of automating business processes to reduce workloads and increase productivity.



Information Systems Join the Tupperware Party



Components of a Business

• Four basic business functions

• Manufacturing and production

• Sales and marketing

• Finance and accounting

• Human resources

Organizing a Business: Basic Business Functions Organizing a Business: Basic Business Functions


Business: Formal organization that makes products or provides a service in order to make a profit


Figure 2-1

Every business, regardless of its size, must perform four functions to succeed. It must produce the product or service; market and sell the product; keep track of accounting and financial transactions; and perform basic human resources tasks, such as hiring and retaining employees.

The Four Major Functions of a BusinessThe Four Major Functions of a Business




• Five basic business entities:

• Suppliers

• Customers

• Employees

• Invoices/payments

• Products and services

Organizing a Business: Basic Business Functions Organizing a Business: Basic Business Functions




• Logically related set of tasks that define how specific business tasks are performed

• The tasks each employee performs, in what order, and on what schedule

• E.g., Steps in hiring an employee

• Some processes tied to functional area

• Sales and marketing: Identifying customers

• Some processes arre cross-functional

• Fulfilling customer order

Business ProcessesBusiness Processes




Figure 2-2

Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales, accounting, and manufacturing functions.

The Order Fulfillment ProcessThe Order Fulfillment Process




Read the Interactive Session and then discuss the following questions:

• What are the basic principles of Toyota’s production system? To which areas of the organization do these principles apply?

• How is TPS interconnected with the culture at Toyota? Are TPS and Toyota’s culture interdependent? Could one exist without the other?

• Describe how information systems support each of the business processes described in this case.

Interactive Session: OrganizationsInteractive Session: OrganizationsToyota As Number OneToyota As Number One




Managing a Business and Firm HierarchiesManaging a Business and Firm Hierarchies

• Firms coordinate work of employees by developing hierarchy in which authority is concentrated at top– Senior management

– Middle management

– Operational management

– Knowledge workers

– Data workers

– Production or service workers

• Each group has different needs for information




Figure 2-3Business organizations are hierarchies consisting of three principal levels: senior management, middle management, and operational management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management.

Levels in a FirmLevels in a Firm




The Business EnvironmentThe Business Environment


• Global environment Global environment factorsfactors

• Technology and Technology and sciencescience

• EconomyEconomy

• PoliticsPolitics

• International changeInternational change

• Immediate environment Immediate environment factorsfactors

• CustomersCustomers

• SuppliersSuppliers

• Competitors Competitors

• RegulationsRegulations

• StockholdersStockholders



Figure 2-4

To be successful, an organization must constantly monitor and respond to—or even anticipate—developments in its environment. A firm's environment includes specific groups with which the business must deal directly, such as customers, suppliers, and competitors as well as the broader general environment, including socioeconomic trends, political conditions, technological innovations, and global events.

The Business EnvironmentThe Business Environment




• Firms invest in information systems in order to:

• Achieve operational excellence

• Develop new products and services

• Attain customer intimacy and service

• Improve decision making

• Promote competitive advantage

• Ensure survival

The Role of Information Systems in a BusinessThe Role of Information Systems in a Business




• Sales and marketing systems

• Manufacturing and production systems

• Finance and accounting systems

• Human resources systems

Systems from a Functional PerspectiveSystems from a Functional Perspective

Types of Business Information Systems



• Sales and marketing systems • Support activities for selling and marketing firm’s products or

services

• Senior management: • Monitor trends affecting products and sales, planning for new

products and services, monitor performance of competitors

• Middle management: • Support market research, analyze marketing campaigns, pricing

decisions, sales performance

• Operational management and employees: • Locating and contacting prospective customers, process orders,

provide customer service support





Figure 2-5

This system captures sales data at the moment the sale takes place to help the business monitor sales transactions and to provide information to help management analyze sales trends and the effectiveness of marketing campaigns.

Example of a Sales Information SystemExample of a Sales Information System




• Manufacturing and production systems • Support activities for producing firm’s products or services

• Senior management: • Help plan long-term manufacturing goals, such as technology

investments and locating new plants

• Middle management: • Analyze and monitor manufacturing and production costs and

resources

• Operational management • Manage status of production tasks





Figure 2-6

This system provides information about the number of items available in inventory to support manufacturing and production activities.

Overview of an Inventory SystemOverview of an Inventory System




• Finance and accounting systems • Support activities for managing financial assets, firm’s

capitalization, and financial records

• Senior management: • Establish long-term investment goals and provide long-range

forecasts of firm’s financial performance

• Middle management: • Oversee and control firm’s financial resources

• Operational management • Track flow of funds in firm through transactions (paychecks,

payments, securities reports, receipts, etc.)





Figure 2-7

An accounts receivable system tracks and stores important customer data, such as payment history, credit rating, and billing history.

An Accounts Receivable SystemAn Accounts Receivable System




• Human resources systems • Support activities for attracting, developing, and maintaining

firm’s workforce

• Senior management: • Identify manpower requirements (skill, education level, types and

numbers of positions, etc.) for meeting long-term business plans

• Middle management: • Monitor and analyze recruitment, allocation, and compensation of

employees

• Operational management • Track recruitment and placement of employees





Figure 2-8

This system maintains data on the firm’s employees to support the human resources function.

An Employee Record-Keeping SystemAn Employee Record-Keeping System




Read the Interactive Session and then discuss the following Read the Interactive Session and then discuss the following questions:questions:• Did Google’s traditional hiring practices create business problems? Explain.Did Google’s traditional hiring practices create business problems? Explain.• Is Google’s quantitative approach to hiring a good solution to its employee Is Google’s quantitative approach to hiring a good solution to its employee

recruiting problems? Why or why not?recruiting problems? Why or why not?• What role does culture play in Google’s hiring preferences?What role does culture play in Google’s hiring preferences?• What kind of system or systems described in this chapter are discussed in What kind of system or systems described in this chapter are discussed in

this case? What are the inputs, processes, and outputs?this case? What are the inputs, processes, and outputs?• Create a list of ten questions that you think might be appropriate for Create a list of ten questions that you think might be appropriate for

Google’s job applicant survey. Justify each question with a short Google’s job applicant survey. Justify each question with a short explanation of why the answer would be useful.explanation of why the answer would be useful.

• If you were applying for a job at Google, how would you want to be If you were applying for a job at Google, how would you want to be evaluated? Which evaluation techniques do you think favor your strengths? evaluated? Which evaluation techniques do you think favor your strengths? Which techniques might expose your weaknesses?Which techniques might expose your weaknesses?

Interactive Session: PeopleInteractive Session: PeopleGoogle’s New Search for the Best and the BrightestGoogle’s New Search for the Best and the Brightest




• Transaction processing systems• Keep track of basic activities and transactions of organization

(e.g., sales, receipts, cash deposits, payroll, credit decisions, flow of materials in a factory))

• Management information systems and decision-support systems• Help with monitoring, controlling, decision-making, and

administrative activities

• Executive support systems::• Help address strategic issues and long-term trends, both in

firm and in external environment

Systems from a Constituency PerspectiveSystems from a Constituency Perspective




• Transaction processing systems

• Serve operational managers

• Principal purpose is to answer routine questions and to track the flow of transactions through the organization

• E.g., Inventory questions, granting credit to customer

• Monitor status of internal operations and firm’s relationship with external environment

• Major producers of information for other systems

• Highly central to business operations and functioning





• Management information systems

• Provide middle managers with reports on firm’s performance

• To monitor firm and help predict future performance

• Summarize and report on basic operations using data from TPS

• Provide weekly, monthly, annual results, but may enable drilling down into daily or hourly data

• Typically not very flexible systems with little analytic capability





How MIS Obtain Data from Organization’s TPSHow MIS Obtain Data from Organization’s TPS

Systems That Span the Enterprise


Figure 2-9

In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data

through the MIS, which provides them with the appropriate reports.


Sample MIS ReportSample MIS Report


Figure 2-10

This report, showing summarized annual sales data, was produced by the MIS in Figure 2-9.



• Decision support systems (DSS)

• Support non-routine decision making for middle management

• E.g., What would impact on production schedules be if sales doubled in December?

• Use information from TPS, MIS, and external sources

• Use models to analyze data

• E.g., voyage estimating system of metals company that calculates financial and technical voyage details

• Focus on extracting, analyzing information from large amounts of data





Voyage-Estimating Decision Support SystemVoyage-Estimating Decision Support System



Figure 2-11

This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping contracts.


• Executive support systems (ESS)

• Serve senior managers

• Address strategic issues and long-term trends

• E.g., What products should we make in 5 years?

• Address non-routine decision-making

• Provide generalized computing capacity that can be applied to changing array of problems

• Draw summarized information from MIS, DSS and data from external events

• Typically use portal with Web interface to present content





Model of an Executive Support SystemModel of an Executive Support System



Figure 2-12

This system pools data from diverse internal and external sources and makes them available to executives in an easy-to-use form.


• TPS: Major source of data for other systems

• ESS: Primarily a recipient of data from lower-level systems

• Other systems may exchange data as well

• Exchange of data between functional areas

• E.g., Sales order transmitted to manufacturing system

• In most organizations, systems are loosely integrated

Relationship of Systems to One AnotherRelationship of Systems to One Another




Interrelationships Among SystemsInterrelationships Among Systems



Figure 2-13

The various types of systems in the organization have interdependencies. TPS are major producers of information that is required by many other systems in the firm, which, in turn, produce information for other systems. These different types of systems have been loosely coupled in most organizations.


Enterprise ApplicationsEnterprise Applications



• Enterprise applications are systems that span functional areas and automate processes for multiple business functions and organizational areas; they include:

• Enterprise systems

• Supply chain management systems

• Customer relationship management systems

• Knowledge management systems


Enterprise Application ArchitectureEnterprise Application Architecture



Figure 2-14

Enterprise applications automate processes that span multiple business functions and organizational levels and may extend outside the organization.


• Integrate data from key business processes into single system

• Speed communication of information throughout firm

• Enable greater flexibility in responding to customer requests, greater accuracy in order fulfillment

• Enable managers of large firms to assemble overall view of operations

• Alcoa used ERP to eliminate redundancies and inefficiencies in its disparate systems

Enterprise Systems Enterprise Systems




Enterprise SystemsEnterprise Systems



Figure 2-15Enterprise systems integrate the key business processes of an entire firm into a single software system that enables information to flow seamlessly throughout the organization. These systems focus primarily on internal processes but may include transactions with customers and vendors.


• Manage relationships with suppliers, purchasing firms, distributors, and logistics companies

• Manage shared information about orders, production, inventory levels, etc.

• Goal is to move correct amount of product from source to point of consumption as quickly as possible and at lowest cost

• Type of interorganizational system:

• Automating flow of information across organizational boundaries

Supply Chain Management SystemsSupply Chain Management Systems




Example of a Supply Chain Management SystemExample of a Supply Chain Management System



Figure 2-16

Customer orders, shipping notifications, optimized shipping plans, and other supply chain information flow among Haworth’s Warehouse Management System (WMS), Transportation Management System (TMS), and its back-end corporate systems.


• Help manage relationship with customers• Coordinate business processes that deal with

customers to optimize revenue and customer satisfaction, and increase sales

• Combine sales, marketing, and service record data from multiple communication channels to provide unified view of customer, eliminate duplicate efforts

• E.g., Saab CRM applications to achieve 360º view of customers resulted in greater follow-up rate on sales leads and increased customer satisfaction

Customer Relationship Management SystemsCustomer Relationship Management Systems






Illustrated here are some of the capabilities of Salesforce.com, a market-leading provider of on-demand customer relationship management (CRM) software. CRM systems integrate information from sales, marketing, and customer service.




• Intangible knowledge assets• Knowledge about producing and delivering products• Source of value and advantage for firms

• Knowledge management systems: • Help capture, storage, distribute, and apply knowledge so that

it can be leveraged for strategic benefit• Include systems for:

• Managing and distributing documents, graphics, other digital knowledge objects

• Creating knowledge directories of employees with specialized expertise

• Distributing knowledge

Knowledge Management SystemsKnowledge Management Systems


Intranets and ExtranetsIntranets and Extranets



• Technology platforms that increase integration and expedite the flow of information

• Intranets:

• Internal networks based on Internet standards

• Typically utilize a portal

• Extranets:

• Intranets extended for authorized use outside the company for partners, customers

• Facilitate collaboration


Collaboration and Communication Systems: Collaboration and Communication Systems: “Interaction” Jobs in a Global Economy“Interaction” Jobs in a Global Economy



• Interaction jobs:

• Primary value-adding activities are talking, e-mailing, presenting, persuading

• 41% of U.S. labor force

• 70% of new jobs since 1998

• Involves knowledge and problem-solving that can’t be put into information system


Collaboration and Communication Systems: Collaboration and Communication Systems: “Interaction” Jobs in a Global Economy“Interaction” Jobs in a Global Economy



• Enterprise-wide information system solutions for interaction

• Internet-based collaboration environments

• E-mail and instant messaging (IM)

• Cell phones and wireless handhelds

• Social networking

• Wikis

• Virtual worlds


E-Business, E-Commerce, and E-GovernmentE-Business, E-Commerce, and E-Government



• E-business

• Use of digital technology and Internet to drive major business processes

• E-commerce

• Subset of e-business

• Buying and selling goods and services through Internet

• E-government:

• Using Internet technology to deliver information and services to citizens, employees, and businesses


The Information Systems DepartmentThe Information Systems Department


The Information System’s Function in Business

• Programmers• Systems analysts

• Principle liaisons to rest of firm

• Information systems managers• Leaders of teams of programmers and analysts, project

managers, physical facility managers, telecommunications managers, database specialists, managers of computer operations and data entry staff

• Senior managers: CIO, CSO, CKO• End users• External specialists


Information Systems ServicesInformation Systems Services


• Services provided by the information systems department include:• Computing and telecommunications services• Data management services• Application software services• Physical facilities management services• IT management services• IT standards services• IT educational services• IT research and development services

The Information System’s Function in Business


Key Terms

• Business, 41• Business processes, 43• Chief information officer (CIO), 68• Chief knowledge officer (CKO), 68• Chief privacy officer (CPO), 68• Chief security officer (CSO), 68• Customer relationship management

(CRM) systems, 62, Data workers, 45• Decision-support systems (DSS), 55• Electronic business (e-business), 67• Electronic commerce (e-commerce), 67• E-government, 67• End users, 68• Enterprise applications, 59• Enterprise systems, 59• Executive support systems (ESS), 57• Finance and accounting information

systems, 50

• Human resources information systems, 51, Information systems department, 67

• Information systems managers, 68• Interorganizational system, 61• Knowledge management systems (KMS),

64, Knowledge workers, 45• Management information systems (MIS),

55, Manufacturing and production information systems, 49,

• Middle management, 45• Operational management, 45• Portal, 57, Production or service workers,

45, Programmers, 68• Sales and marketing information

systems, 48, Senior management, 45• Supply chain management (SCM)

systems, 61, Systems analysts, 68• Transaction processing systems (TPS),

54