Competitive Advantage with Information Systems within Organizations Chapter 7 Competitive Advantage with Information Systems within Organizations © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke

Study Questions How do organizations gain a competitive advantage using IS inside the organization? What are the three fundamental types of information systems within organizations? How do functional systems relate to the value chain? What are the basic types of functional systems? What are the problems of functional systems? How do cross-functional systems relate to the value chain? How does knowledge from this chapter help you at DSI?

Achieving Competitive Advantage Businesses determine competitive strategies Create processes to achieve strategies Information systems developed to support business processes Help organizations achieve competitive advantage Need to avoid creating systems that are unrelated to organization’s strategy

Fundamental Types of Information Systems within Organizations Calculation systems Functional systems Cross-functional systems

Calculation Systems Antiquated system Relieved workers of repetitive calculations Labor-saving devices Produced little information Examples: systems that computed payroll and wrote paychecks; inventory tracking

Functional Systems Facilitates work of single department or function Functions added to calculation system programs to provide more value Islands of automation Work independently from each other Effective as independent functions Inefficient working in cooperation with other processes across entire business Examples: human resources; financial reporting

Integrated, Cross-Functional Systems Cross-department systems operate across departmental boundaries Increased functionality Process-based systems support complete business processes Integrated processing systems are more efficient Needs clear line of authority

Value Chain Activities Primary activities Relate directly to organization’s customers and products Marketing and sales Inbound logistics Operations and manufacturing Outbound logistics Service and support

Primary Activities Facilitated by support activities Human resource Accounting and infrastructure Procurement Technology activities

Reorganized Porter’s Value Chain Model Figure 7-3

Basic Types of Functional Systems Marketing and Sales Systems Operations systems Manufacturing systems Human resource systems Accounting systems

Marketing and Sales Systems Few systems support marketing Product management Assess product marketing efforts Many systems support sales Blog Sales forecasting Used for planning production, managing inventory, financial reporting Customer management Generate follow-on business

Operations Systems Used by non-manufacturing companies Key operations functional systems Order entry Order management systems Inventory management systems Customer service

Manufacturing Systems Support production and planning Process data about inventories Push production planning Organization creates schedule and pushes goods through manufacturing and sales Pull production planning Responds to customer demand Reduction in inventory triggers production One-off producers fall into neither category

Additional Functional Manufacturing Systems and Technologies Manufacturing scheduling systems Assist organizations to determine optimal methods Operations systems Control manufacturing plants and machines Radio-frequency identification tags (RFIDs) Computer chips that transmit data about items Sensors connected to functional systems receive signals and record information

Human Resources Systems Payroll Compensation systems Recruiting Assessing employee performance, skills, and training Human resource planning systems

Accounting Systems Support organization’s accounting activities General ledger Financial reporting Accounts receivable Accounts payable Cost accounting Cash management Treasury management

The Sarbanes-Oxley Act of 2002 Revision of Exchange Act of 1934 Enacted to prevent corporate fraud Requires management: Create internal controls for production of financial statements Issue statement attesting to control activities External auditor must issue opinion on quality of controls Exposes both management and external auditor to financial and criminal liability

Controls Examples Internal control: separation of duties and authorities All computer-based systems must have controls Increases burden on development of systems Assets subject to contingent liability Customer information

MIS in Use: Sarbanes-Oxley: Boon or Bane? Goal was to upgrade financial reporting Intended to improve trust in financial reports More than 15 percent of IS will be diverted to SOx compliance No one knows exactly what is necessary for compliance Act requires external auditors become more independent Act is vague and is often given broadest possible interpretation Potential for millions of dollars to be wasted in compliance

Functional Systems Problems Systems provide tremendous benefits, but are limited because they operate in isolation Data duplication results from each application having own database Potential lack of data integrity Business processes disjointed across functions Produces lack of integrated enterprise information Limited information available at any one source Inefficient decisions based on limited knowledge Increased costs to organization

Cross-Functional Systems and the Value Chain Cross-functional systems designed to overcome problems in functional systems Customer relationship management systems (CRM) Integrates all of the primary business activities Makes the organization customer-centric All customer data stored in single database Enterprise resource management systems (ERP) Integrates primary value chain activities with human resources and accounting Enterprise-wide systems

Active Review How do organizations gain a competitive advantage using IS inside the organization? What are the three fundamental types of information systems within organizations? How do functional systems relate to the value chain? What are the basic types of functional systems? What are the problems of functional systems? How do cross-functional systems relate to the value chain? How does knowledge from this chapter help you at DSI?