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

This Could Happen to You DSI leases facilities capable of handling three aircraft at a time Connected through wireless and wired network DSI can handle up to six projects a year Each project takes about six months Typical project costs between $5-$10M Estimated yearly revenue: $30-$60M

Dilemma You are summer intern at DSI One intern will be offered a full-time job Your work is very good and you are a very hard worker One of the other interns is a relative of one of the owners How do you gain a competitive advantage?

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 Antiquates 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

Ethics Guide: Dialing for Dollars Poor performance has resulted in the organization giving a 20 percent discount – provided delivery is taken before end of quarter In order to make sale, salesperson tells customer that company will take back any unsold inventory Customer wants this stipulated on purchase order Accounting won’t book order Salesperson agrees to send an e-mail agreeing to this Accounting books full amount Product will probably come back

Ethics Guide: Dialing for Dollars, continued With another customer, salesperson doesn’t offer discount, but agrees to pay 20 percent credit in next quarter Accounting books full price now Will hurt sales next quarter Salesperson sells product to fictitious company owned by relative Accounting books full sale Merchandise returned next quarter MRP II system schedules production based on increased sales

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

Opposing Forces Guide: The Flavor-of-the-Month Club Management programs are often introduced into organizations Kick-off meetings Change management experts explain programs HR changes annual review to include changes Senior management seems to forget about the programs Program loses support and new one is introduced

How Does Knowledge from This Chapter Help You at DSI? DSI competitive strategy based on quality Can propose system that increases quality and labor costs Increases sales challenges Decide not to pursue Focus instead on increased labor productivity, reducing labor costs First consider how DSI currently saves labor Uses recycled vending machines for consumables Connected to IS that allocates expense of items

How Does Knowledge from This Chapter Help You at DSI?, continued Consider other ways to increase labor productivity DSI maintains shop to repair tools Broken tools means lost time Need to process repair data to determine how much time is lost DSI operates a tool crib for portable tools Workers lose time waiting in line Wonder about RFID and potential for “virtual tool crib”

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?