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Chapter 2

Review Questions

1. Identify and describe the four levels of the organizational hierarchy. What types of information systems serve each level?

From lowest to highest, the four levels of the organizational hierarchy are operational, knowledge, management, and strategic. Types of information systems include transaction processing systems, office systems, knowledge work systems, decision-support systems, management information systems, and executive support systems.

Transaction processing systems, such as order tracking, payroll, machine control, and compensation, serve the operational level. Engineering workstations, word processing, graphics workstations, managerial workstations, document imaging, and electronic calendars are examples of knowledge work systems and office systems that serve the knowledge level. Sales region analysis, cost analysis, annual budgeting, and relocation analysis are examples of decision-support systems and management information systems. Many of these systems are programs that students learn in their management science or quantitative methods courses. Some are based on database management systems. Examples of executive support systems that serve the strategic level are sales trend forecasting, operating plan development, budget forecasting, profit planning, and manpower planning.

2. List and briefly describe the major types of systems in organizations.

Transaction processing systems, office systems, knowledge work systems, decision-support systems, management information systems, and executive support systems are the major types of systems in organizations. Transaction processing systems function at the operational level of the organization. Examples of transaction processing systems include order tracking, order processing, machine control, plant scheduling, compensation, and securities trading.

Knowledge work systems help create and integrate new knowledge within the organization. Examples of knowledge work systems include engineering workstations, managerial workstations, and graphics workstations. Office systems help increase data worker productivity and include word processing document imaging, and electronic calendars.

Management information systems provide managers with reports based primarily on data pulled from transaction processing systems, have an internal orientation, and have limited flexibility. Examples of management information systems include sales management, inventory control, and capital investment analysis. Decision-support systems function at the management level and provide analytical models and data analysis tools to provide support for semistructured and unstructured decision-making activities. Examples of decision-support systems include sales region analysis, cost analysis, and contract cost analysis.

Executive support systems function at the strategic level, support unstructured decision making, and use advanced graphics and communications. Examples of executive support systems include sales trend forecasting, budget forecasting, and personnel planning.

The systems form a level of systems, with all types either formatting or processing the information from a lower level. For instance, the office systems provide reports or presentations on the information or data in transaction processing systems. Decision-support and executive support systems often use office systems in presenting information extracted from transaction processing systems and management information system. Management information systems depend on data from transaction processing systems. Some systems, including knowledge work systems, decision-support systems, and executive support systems may use external information, such as stock market information and design information from suppliers.

3. What are the five types of TPS in business organizations? What functions do they perform? Give examples of each.

The five types of transaction processing systems include sales/marketing systems, manufacturing/production systems, finance/accounting systems, human resources systems, and other types. Figure 2-4 identifies and provides examples for each type of transaction processing system. Sales/marketing systems provide sales management, market research, promotion, pricing, and new product functions. Examples include sales order information systems, market research systems, and sales commission systems. Manufacturing/production systems provide scheduling, purchasing, shipping/receiving, engineering, and operations functions. Examples of manufacturing systems include machine control systems, purchase order systems, and quality control systems. Finance/accounting systems provide budgeting, general ledger, billing, and cost accounting functions. Examples of finance/accounting systems include general ledger, accounts receivable/payable, and funds management systems. Human resource systems provide personnel records, benefits, compensation, labor relations, training, and payroll functions. Examples include employee records, benefit systems, and career path systems. Other types include admissions, grade records, course records, and alumni for a university. Examples of transaction processing systems for a university include a registration system, student transcript system, and an alumni benefactor system.

4. Describe the functions performed by knowledge work systems and office systems and some typical applications of each.

Knowledge work systems (KWS) aid knowledge work professionals to create new information and knowledge, and ensure that new knowledge and technical expertise are properly used in their corporations. Examples of knowledge workers (and some of their software) include engineers (graphics workstations), Wall Street traders, analysts, and arbitrageurs (financial and stock market workstations), research scientists, doctors, and designers (CAD systems).

Office systems provide support for data workers, including secretaries, accountants, filing clerks, and some managers. Software examples include word processing, desktop publishing, presentation programs, electronic calendars, and document imaging.

5. What are the characteristics of MIS? How do MIS differ from TPS? From DSS?

MIS supports the management level by providing routine summary reports and exception reports for various purposes, including planning, controlling, and decision making. Examples include sales and profit per customer and per region, relocation summary and analysis, inventory control, capital investment analysis, and even a report on students who were here in the autumn but did not to return in the spring. MIS differs from TPS in that MIS deals with summarized and compressed data from the TPS and sometimes analysis of that summarized data.

Decision-support systems provide material for analysis for the solution of semi-structured problems, which often are unique or rapidly changing. Typically, they provide the ability to do “what if” analysis. While MIS have an internal orientation, DSS will often use data from external sources, as well as data from TPS and MIS. DSS supports “right now” analysis rather than the long-term structured analysis of MIS. MIS are generally not flexible and provide little analytical capabilities. In contrast, DSS are designed for analytical purposes and are flexible.

6. What are the characteristics of DSS? How do they differ from those of ESS?

DSS provide sophisticated analytical models and data analysis tools to support semistructured and unstructured decision-making activities. DSS use data from TPS, MIS, and external sources, provide more analytical power than other systems, combine data, and are interactive. ESS support senior managers with unstructured strategic-level decision making. They may be less analytical than DSS with less use of models such as linear programming or forecasting. However, they often rely on external data and rely heavily on graphics.

7. Describe the relationship between TPS, office systems, KWS, MIS, DSS, and ESS.

The various types of systems in the organization exchange data with one another. TPS are a major source of data for other systems, especially MIS and DSS. TPS are operational-level systems that collect transaction data. Examples of these are payroll or order processing that track the flow of the daily routine transactions that are necessary to conduct business. TPS provide data that are required by office systems, KWS, MIS and DSS, although these systems may also use other data. KWS and office systems not only use data from TPS but also from MIS. DSS not only use data from TPS but also from KWS, office systems, and MIS. MIS rely heavily on data from TPS but also use data from KWS and office systems. ESS obtain most of their internal data from MIS and DSS.

8. List and describe the information systems serving each of the major functional areas of a business.

Sales and marketing information systems help the firm identify customers for the organization's products and services. These systems help develop, promote, sell, and provide ongoing customer support for the firm's products and services. Specific sales and marketing information systems include order processing, market analysis, pricing analysis, and sales trend forecasting.

Manufacturing and production information systems provide information for planning, product development, production or service scheduling, and controlling the flow of products and services. Specific manufacturing and production information systems include machine control, CAD, production planning, and facilities location.

Finance and accounting information systems track the organization's financial assets and fund flows. Financial and accounting systems include accounts receivable, portfolio analysis, budgeting, and profit planning.

Human resources information systems maintain employee records; track employee skills, job performance, and training; and support planning for employee compensation, including pensions and benefits, legal and regulatory requirements, and career development. Systems include training and development, career pathing, compensation analysis, and human resources planning.

9. What is a business process? Give two examples of processes for functional areas of the business and one example of a cross-functional process.

Business processes are the ways in which organizations coordinate and organize work activities, information, and knowledge to produce their valuable products or services. Business processes for the manufacturing and production area include product assembling, quality checking, and producing bills of materials. For the sales and marketing area, business processes include identifying customers, making customers aware of the product, and selling the product. For finance and accounting, business processes includes paying creditors, creating financial statements, and managing cash accounts. For human resources, business processes include hiring employees, evaluating job performance of employees, and enrolling employees in benefits plans.

The order fulfillment process is an example of a cross-functional process. As Figure 2-12 illustrates, the order fulfillment process involves activities performed by sales, accounting, and manufacturing functions.

10. Why are organizations trying to integrate their business processes? What are the four key enterprise applications for organization-wide process integration?

An organization operates in an ever-increasing competitive, global environment. Operating in a global environment requires an organization to focus on the efficient execution of its processes, customer service, and speed to market. To accomplish these goals, the organization must exchange valuable information across different functions, levels, and business units. By integrating its processes, the organization can more efficiently exchange information among its functional areas, business units, suppliers, and customers. The four key enterprise applications are enterprise systems, supply chain management systems, customer relationship management systems, and knowledge management systems.

11. What are enterprise systems? How do they change the way an organization works?

Enterprise systems integrate the key business processes of an organization into a single software system. Data from various functional areas are maintained centrally where they can be accessed and used by other functions and cross-functional processes. This changes the work flow of an organization. Now information can seamlessly flow throughout the organization, improving coordination, efficiency, and decision making.

12. What are the benefits and challenges of implementing enterprise systems?

Enterprise systems are firm-wide information systems that integrate key business processes so that information can flow freely between different parts of the firm. Enterprise systems help create a more uniform organization in which everyone uses similar processes and innovation and measures their work in terms of organization-wide performance standards. Enterprise systems are very difficult to successfully implement and once implemented, are very difficult to change. Enterprise systems require extensive organizational change, use complicated technologies, and require large up-front costs for long-term benefits that are difficult to quantify.

13. What is supply chain management? What activities does it comprise? Why is it so important to businesses? How do information systems facilitate supply chain management?

Supply chain management is the close linkage of activities involved in the processes of buying, making and moving a product. Supply chain management is important to a business because through its efficiency it can coordinate, schedule, and control the delivery of products and services to customers.

Supply chain management closely links and coordinates activities in buying, making, and moving a product. The system should lower costs and streamline the user’s business. Information systems make supply chain management more efficient by helping companies coordinate, schedule, and control procurement, production, inventory management, and delivery of products and services to customers. Information systems help organizations achieve great efficiencies by automating parts of these processes or by helping organizations rethink and streamline these processes.

14. What is collaborative commerce? How can organizations benefit from it?

For supply chain management to work, an atmosphere of trust must exist among supply chain members. Members need to work together on a common goal, and they must redesign appropriate business processes so they can more easily coordinate their activities. Collaborative commerce uses digital technologies to enable the members of the supply chain to collaboratively design, develop, build, and manage products through their lifecycles. It helps the various partners to integrate their systems with each other. Aside from gaining benefits from any successful supply chain, they also benefit by achieving new levels of efficiency in reducing product design cycles, minimizing excess inventory, forecasting demand, and keeping all partners informed.

15. How can organizations benefit from participating in private industrial networks?

Private industrial networks are Web-enabled networks that permit firms and their business partners to share such activities as product design and development, marketing, inventory, production scheduling, and communications, including graphics, CAD drawings, and e-mail. Benefits include the ability to reduce inventory, product cycle time, inventory costs, and system costs. Private industrial networks also improve the coordination and sharing of information, as well as provide the ability to track a product from raw materials to the customer, track demand, adjust production, and adjust the timing and size of deliveries, as well as monitor product availability, production capacity, and inventory levels.

16. What is customer relationship management? Why is it so important to businesses? How do information systems facilitate customer relationship management?

Customer relationship management is a business and technology discipline to coordinate all of the business processes for dealing with existing and potential customers. With the growth of the Web, potential customers can easily comparison shop for retail and wholesale goods and even raw materials, so better treatment of customers has become very important. Good CRM systems consolidate customer data from multiple sources and provide analytical tools for answering questions such as: What is the value of a particular customer to the firm over his/her lifetime? CRM tools integrate the firm’s customer-related processes and consolidate customer information from multiple communication channels, so that the firm can put one coherent face to the customer.

17. What is the role of knowledge management systems in the enterprise? What organizational processes are supported by knowledge management applications?

Knowledge management systems codify knowledge and experience, make the collected knowledge and experience available when and where it is needed, and provide links to external sources of knowledge. Organizational processes include creating knowledge, discovering and codifying knowledge, sharing knowledge, and distributing knowledge. Knowledge work systems support knowledge creation; artificial intelligence systems support knowledge discovery and codification; group collaboration systems support knowledge sharing, and office and communication tools support knowledge distribution.

Case Study – Can Information Systems Save U.S. Steel?

1. Summarize U.S. Steel's current competitive situation.

Despite its innovative information systems and significant investments in information technology, U.S. Steel still faces stiff competition. Several issues facing USS include economies of scale, producing higher-grade steel, significant losses due to a recession and low prices, and an industry that produces more steel than the world consumes. One of the key problems that USS has is its location. As the case mentions, USS spends $240 to produce a ton of steel, and half of that cost is spent on purchasing and shipping raw materials. In contrast, one of its major competitors, South Korea's POSCO, incurs $175-$180 per ton, is located on the Pacific coastline, has very modern facilities, and uses the Internet for the company's activities.

2. How are information systems related to the way U.S. Steel runs its business? What role is played by supply chain management systems? How do these systems provide value for USS?

Currently, USS's continuous flow manufacturing system is a crucial component of its business. As mentioned in the case, USS manages its entire supply chain via a single integrated system. The continuous flow manufacturing system facilitates order entry by customers, credit authorization, automatic order generation, order tracking, product configuration, order fulfillment, order delivery, and demand forecasting. The supply chain management system allows the customer to enter his order via the Web, specifying product limitations and capabilities. Once the order is entered and customer credit is approved, an accurate price quote is quickly delivered back to the customer. The order tracking system triggers each step in the ordering process, ASNs, and deliveries. The product configuration system uses complex business rules and procedures to determine the right mix of product specifications and prices.

3. What management, organization, and technology factors were responsible for USS's inability to compete with other steel manufacturers?

In 1996, USS faced several management challenges. USS needed to drastically improve its notification system, accurately monitor and track orders, lower production costs (cost of steel and number of hours per person), lower inventory costs, and reduce the size of its inventory. USS needed to make a profit, increase its share of the higher-grade steel market, and centralize the management of its various businesses and factories. The exchange of information between the plants, processors, customers (such as Ford), and USS management was inflexible, error-prone, and cumbersome. Technology factors include incompatible technology, manual order taking methods, a dialup system, different tracking and ordering systems for each processor, different inventory codes, the necessity to translate processing data into USS's own system, and the delay and delivery of advanced shipping notices (ASNs).

4. Describe how USS has responded to its global and American competition.

USS has gone from having a poor performance track record to being a vanguard in the industry. After Ford threatened to drop USS as one of its suppliers, USS completely reengineered its supply chain management. Its new continuous flow manufacturing system now manages USS's supply chain through a single integrated system. USS's innovative use of information technology enabled the company to become very efficient. However, other factors, such as labor costs, production costs, being a higher-grade steel producer, its location, and economies of scale are just a few reasons why the company still has trouble competing in a global market. To help alleviate some of its problems, USS wants to combine with Bethlehem Steel, National Steel, and possibly Weirton Steel. However, these companies appear to be opposed to the merger. Additionally, to remain competitive and to generate additional revenue, USS uses its subsidiary, UEC Technologies, to sell its technology and services.

5. How helpful were information systems in addressing USS problems?

The information systems were very helpful in addressing USS problems. The information systems have sped up credit authorization, provided more accurate ASNs and orders, handled processor messages in less time, provided management with the ability to know where supplies are and how the processing is proceeding, reduced order revisions by two-thirds, aggregated orders, reduced waste, and helped reduced inventory. Although the information systems enabled USS to operate more efficiently and have made the company a vanguard in the industry, USS still faces stiff competition.

6. Evaluate the decision by USS to sell its software to other companies. Could it help or hinder USS? Explain your answer.

The sale of USS's information technology and software to other companies is an additional source of revenue for the company. With an eye to the competition, USS sells systems that are one-generation behind the technology that it uses. Because the company is facing stiff competition, it needs to generate revenue and profits for the company. Since USS sells software that is one generation behind, it can still maintain a competitive edge with the development of new software innovations. Since several smaller companies now use Straightline Source, USS has enticed these companies away from service centers. Because a company is likely to make a substantial investment in the software and related technology, that company will probably give due consideration before it switches to a new technology. Therefore, USS can "lock-in" its customers with the software.