Topic 2: Use of Information System in Management

Management is the process of planning and organising the resources and activities of a business to
achieve specific goals in the most effective and efficient manner possible. Efficiency in management
refers to the completion of tasks correctly and at minimal costs. Effectiveness in management relates
to the completion of tasks within specific timelines to yield tangible results.
Functions of management
The purpose of management is to unify the efforts of different individuals in an organisation
towards achieving a common goal. These are some functions of management:
1. Planning
Planning involves creating a timeline of tasks that need to be completed to achieve a specific
goal. Managers execute planning. Planning should be carried out in a systematic fashion to
avoid wastage of resources and time. A detailed plan of action minimises confusion, risk,
wastage and uncertainty.
2. Prioritise organisation
The objective of organising is to nurture a symbiotic relationship between the personnel,
financial and physical resources of the company. Proper organising provides the course of
action that meets all parameters for success. Organising involves the identification and
classification of business activities, delegation and coordination.
For instance, the top managers may allocate funds or resources to different branches. The.
3. Improve staffing
Staffing involves recruiting and building a team for the organisation. The staffing process of
companies is often lengthy and in-depth. Management identifies professional roles in the
company and the skills/qualities required to perform well in these roles. The manager then
selects staff for those roles through the recruitment processes. Once selected, candidates
undergo training and join the company's workforce. Managers are also responsible for
awarding appraisals and promotions as part of staffing.
4. Provide direction
Supervising, motivating and guiding the staff members is central to the functions of a
manager. Directing involves taking the steps to put the work in motion and maintain
productivity to achieve company goals. This requires excellent leadership, communication
and interpersonal skills to drive the team towards completing organisational objectives.
5. Monitor quality
Businesses function on some established standards of performance. A manager ensures that
the staff's collective output meets quantity and quality benchmarks set by the company.
Control at each level prevents overall deviation from prescribed quality specifications.
For example, supervisors in a fast-food chain often micro-manage cashiers, cooking staff,
delivery personnel and servers to make sure that the food and service in their branch meet
quality standards. Top management prescribes these quality standards and they usually
evolve with time.

Levels of management
Management roles come in three levels:
1. Top management (responsible for the direction and growth of the company)
Typically, the senior-most executives in a company are the chairman, chief executive officer,
chief operating officer, president and vice-president. Their role lies in integrating diverse
components of the company and coordinating activities of different departments. They also
analyse the business environment and its implications to formulate goals in order to ensure
the survival of the company and the welfare of its stakeholders.

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2. Middle management(Communication between top and operational)
Mostly composed of division heads, the middle management links the operational
management to the top management. Division/department heads receive guidance from top
managers and are leaders to operational managers. Their job is to understand the policies
framed by the top management and relay them to their respective divisions/departments to
ensure that they follow through with company policies and decisions.
3. Operational management
Supervisors, section leads or forepersons directly oversee the efforts of the workforce. They
are responsible for quality control and ensure that the work meets deadlines. The top
management draws out the plans that define the authority and responsibility of supervisors.

Importance of Information system in management

The main purpose of Information System is to provide the management the necessary
information for decision making. In order to achieve this purpose MIS is to perform the
following functions.

Collection of data: The first function of MIS is to collect necessary data from both internal
and external sources of the organization. The data of the organization which have already
been gathered are kept in some physical medium such as a paper form or entering it directly
into computer system.

(i) Processing data: After storing the data, the next important function of MIS is to
process the same. In the processing, the data are converted to require management
information, calculating company, sorting, classifying and summarizing etc. are
the necessary activities to be done for processing the data.
(ii) Storage of information: Under the MIS, necessary data and information are
carefully stored, so that it can save time for searching the same. Generally, data
and information are stored by reserving and organizing them in the form of files,
records and databases for future use.
(iii) Retrieval of information: Another function of MIS is to retrieve the information
to meet the exact management information demands. So retrieval should be done
as per the requirement of the management users.
(iv) Disseminating: Disseminating is the last function or finished product of MIS. By
disseminating the data and information are divided and distributed to the users in
an organization. This can be done through reports or outline through computer
terminals periodically.

Types of Information Systems in Organizations

Because there are different interests, specialties, and levels in an organization, there are
different kinds of information systems.
No single information system can provide all the information an organization needs. The
figure below illustrates how to determine the kinds of information systems found in an
organization.
There are many ways in which information systems can be determined e.g:
 Organisation Hierarchy
Where the organization is divided into strategic, management/tactical, and operational
decision levels.
 Functional Perspective

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 Where the organization is divided into functional areas, such as sales and marketing,
manufacturing and production, finance and accounting, Credit management, human resources
management etc.
Information Systems are built to serve these different organizational interests.

Tactical /
Management level

Organizations can be divided into strategic, management/tactical, and operational levels and
into four major functional areas: sales and marketing, manufacturing and production, finance
and accounting, credit management, human resources. There are information systems to serve
each of these decision levels and functions.

Information Application in Organizations

 As a manager, you’ll want to know exactly how information systems can help your
company. You’ll need to understand which types of information systems are available to
businesses and what they can do for them.
 In this chapter, we first look at different ways of classifying information systems
based on the organizational level, business functions, and business processes they support.
We then briefly examine enterprise applications, which consist of enterprise systems,
supply chain management systems, customer relationship management systems, and
knowledge management systems.
 These enterprise applications span the entire firm, integrating information from
multiple functions and business processes to enhance the performance of the organization
as a whole.
 For a large organization we can have an expanded illustration of its structure as shown
in the following diagram:
INFORMATION

REQUIREMENTS DECISION LEVELS TYPES OF STAFF

General, Broadscope, 3
Interactive, External, TYPES OF IS CEO, MD, Senior
Internal, Realtime, manager, President,
Adhoc. ESS / EIS Strategic
Top manager.
 Level

 Because there are different interests, specialties, and levels in an organization, there
are different kinds of information systems. No single system can provide all the information
an organization needs.
 The Figure above illustrates one way to depict the kinds of information systems found
in an organization. In the illustration, the organization is divided into strategic, tactical, and
operational levels and then is further divided into functional areas, such as sales and
marketing, manufacturing and production, finance and accounting, Credit control,
Purchases, Payroll, human resources e.t.c.
Information Systems are built to serve these different organizational interests For instance
Mango is a Company that has a core of designers and production facilities that can churn out
new fashion styles at lightning speed. But Mango would not be able to stock its stores so
quickly with hot fashion trends without its powerful information systems. These information
systems support finely tuned business processes that organize merchandise based on style and
customer tastes to drive inventory replenishment.

Types of Information Systems

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For most businesses, there are a variety of requirements for information. Senior managers
need information to help with their business planning. Middle management need more
detailed information to help them monitor and control business activities. Employees with
operational roles need information to help them carry out their duties.

Transaction Processing System (TPS)

A TPS collects and stores information about transactions, and controls some aspects of
transactions. A transaction is an event of interest to the organisation. e.g. a sale at a store.

A transaction is any business -related exchange, such as a sale to a client or a payment to a

vendor. Transaction processing systems process and record transactions as well as update
records. They automate the handling of data about business activities and transactions. They
record daily routine transactions such as sales orders from customers, or bank deposits and
withdrawals. Although they are the oldest type of business information system around and
handle routine tasks, they are critical to business organization.

Transaction processing systems were created to maintain records and do simple calculations
faster, more accurately and more cheaply than people could do the tasks.

Characteristics of TPS:
 are large and complex in terms of the number of system interfaces with the various
users and databases and usually developed by MIS experts.
 controls collection of specific data in specific formats and in accordance with rules,
policies, and goals of organisation- standard format
 They accumulate information from internal operations of the business.
 serves the most elementary day-to-day activities of an organisation
 They are general in nature—applied across organisations.
 They are continuously evolving.
 supplies data for higher-level management decisions.
 is often critical to survival of the organisation
 mostly for predefined, structured tasks
 usually has high volumes of input and output
 need to be fault-tolerant.

The goals of TPS is to improve transaction handling by:

 Speeding it up
 Using fewer people
 Improving efficiency and accuracy
 Integrating with other organizational information systems
 Providing information that was not available previously.
Examples—Airline reservation systems, ATMs, order processing systems, registration
systems, payroll systems and point of sale systems.

Office Automation System (OAS)

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The OAS is also called OIS (office information system) and is designed to computerize
operations in order to achieve an automated office through use of application packages for
different data analysis purposes

OAS provides individuals effective ways to process personal and organizational data,
perform calculations, and create documents.
e.g. word processing, spreadsheets, file managers, personal calendars, presentation, DTP,
spread-sheet, email, faxing system etc.

OAS are used for increasing personal productivity. They reduce "paper warfare". OAS
software tools are often integrated (e.g. Word processor can import a graph from a
spreadsheet) and designed for easy operation.

Knowledge Work Systems (KWS): are used by technical staff. KWS use modelling
functions to convert design specifications into graphical designs. They may include
computer-aided design/manufacture (CAD/CAM).

Computer Aided Design (CAD) systems used by product designers not only allow them to
easily make modifications without having to redraw the entire object (just like word
processors for documents), but also enable them to test the product without having to build
physical prototypes. Architects use CAD software to create, modify, evaluate and test their
designs; such systems can generate photo-realistic pictures, simulating the lighting in rooms
at different times of the day, perform calculations, for instance on the amount of paint
required. Surgeons use sophisticated CAD systems to design operations. Financial institutions
use knowledge work systems to support trading and portfolio management with powerful
high-end PCs. These allow managers to get instantaneously analysed results on huge amounts
of financial data and provide access to external databases.

Management Reporting System (MRS) / MIS

Management Reporting Systems (MRS) formerly called Management Information Systems

(MIS) provide routine information to decision makers to make structured, recurring and
routine decisions, such as restocking decisions or bonus awards. They focus on operational
efficiency and provide summaries of data. An MRS takes the relatively raw data available
through a TPS and converts it into meaningful aggregated form that managers need to
conduct their responsibilities. They generate information for monitoring performance (e.g.
productivity information) and maintaining coordination (e.g. between purchasing and
accounts payable).

The main input to an MRS is data collected and stored by transaction processing systems. An
MRS further processes transaction data to produce information useful for specific purposes.
Generally, all MIS output have been pre-programmed by information systems personnel.

Outputs include:
(a) Scheduled Reports – These were originally the only reports provided by early
management information systems. Scheduled reports are produced periodically, such as
hourly, daily, weekly or monthly. An example might be a weekly sales report that a store

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manager gets each Monday showing total weekly sales for each department compared to
sales this week last year or planned sales.
(b) Exception Reports – These are produced to describe unusual circumstances. For example,
the store manager might receive a report for the week if any department’s sales were more
than 10% below planned sales.
(c) Summary report: Refers to any report that reduces the details in order to provide specific
information only. However, it should be possible to drill down whenever more details about a
data item is needed.
(d) Demand report. Also known as adhoc report refers to the type of report produced in non-
predetermined/ unplanned period of time i.e. a demand report is not based a prior
arrangement between the manager and the report analyst but rather the manager demand for
some information from any topic and at any time in an adhoc manner.
(e) Push report: Refers to any report produced so that the manager can get some information
about something he/she is not aware. It is known as push because once such information is
received it is taken to the managers IN-tray or Inbox even when the manager is not in the
office.

Characteristics of MRS
• MIS professionals usually design MRS rather than end users - using life cycle oriented
development methodologies
• They are large and complex in terms of the number of system interfaces with the
various users and databases.
• MRS are built for situations in which information requirements are reasonably well
known and are expected to remain relatively stable. This limits the informational
flexibility of MRS but ensures that a stable informational environment exists.
• They do not directly support the decision-making process in a search for alternative
solutions to problems. Information gained through MRS is used in the decision-making
process.
• They are oriented towards reporting on the past and the present, rather than projecting
the future. Can be manipulated to do predictive reporting.
• MRS have limited analytical capabilities. They are not built around elaborate models,
but rather rely on summarisation and extraction from the databases according to the
given criteria
Decision Support System (DSS)
Decision support systems provide problem-specific support for non-routine, dynamic and
often complex decisions or problems. DSS users interact directly with the information
systems, helping to model the problem interactively. DSS basically provide support for non-
routine decisions or problems and an interactive environment in which decision makers can
quickly manipulate data and models of business operations. A DSS might be used, for
example, to help a management team decide where to locate a new distribution facility. This
is a non-routine, dynamic problem. Each time a new facility must be built, the competitive,
environmental, or internal contexts are most likely different. New competitors or government
regulations may need to be considered, or the facility may be needed due to a new product
line or business venture

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It helps strategic management staff (often senior managers) make decisions by providing
information, models, or analysis tools.Used for analytical work, rather than general office
support.
They are flexible, adaptable and quick. The user controls inputs and outputs. They support
the decision process and often are sophisticated modeling tools so managers can make
simulations and predictions.
Their inputs are aggregate data, and they produce projections. An example job for a DSS
would be a 5 year operating plan.
DSS have less structure and predictable use. They are user-friendly and highly interactive.
Although they use data from the TPS and MIS, they also allow the inclusion of new data,
often from external sources such as current share prices or prices of competitors.
DSS components include:
(a) Database (usually extracted from MIS or TPS)
(b) Model Base
(c) User Dialogue/Dialogue Module

GROUP DECISION-SUPPORT SYSTEMS (GDSS)

The DSS we have just described focus primarily on individual decision making.
GDSS is an interactive computer-based system used to facilitate the solution of unstructured
problems by a set of decision makers working together as a group.
Groupware and Web-based tools for videoconferencing and electronic meetings can support
some group decision processes, but their focus is primarily on communication.
GDSS, however, provide tools and technologies geared explicitly toward group decision
making and were developed in response to a growing concern over the quality and
effectiveness of meetings.
The underlying problems in group decision-making have been the explosion of decision-
maker meetings, the growing length of those meetings, and the increased number of
attendees. Estimates on the amount of a manager’s time spent in meetings range from 35 to
70 percent.

Components of a GDSS
GDSS make meetings more productive by providing tools to facilitate planning, generating,
organizing, and evaluating ideas; establishing priorities; and documenting meeting
proceedings for others in the firm. GDSS consist of three basic elements: hardware, software
tools, and people.
 Hardware refers to the conference facility itself, including the room, the tables, and the
chairs. Such a facility must be physically laid out in a manner that supports
group collaboration. It also must include some electronic hardware, such as electronic display
boards, as well as audiovisual, computer, and networking equipment
 Groupware tools are used for collaborative work and can be used to support group
decision making. In addition specific GDSS software tools support group meetings. These
tools were originally developed for meetings in which all participants are in the same room,

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but they also can be used for networked meetings in which participants are in different
locations.
 Specific GDSS software tools include the following:
i. Electronic questionnaires: aid the organizers in premeeting planning by
identifying issues of concern and by helping to ensure that key planning
information is not overlooked.
ii. Electronic brainstorming tools: enable individuals, simultaneously
and anonymously, to contribute ideas on the topics of the meeting.
iii. Idea organizers: facilitate the organized integration and synthesis of ideas
generated during brainstorming.
iv. Questionnaire tools: support the facilitators and group leaders as they gather
information before and during the process of setting priorities.
v. Tools for voting: or setting priorities make available a range of methods from
simple voting, to ranking in order, to a range of weighted techniques for setting
priorities or voting.
vi. Stakeholder identification: and analysis tools use structured approaches to
evaluate the impact of an emerging proposal on the organization and to identify
stakeholders and evaluate the potential impact of those stakeholders on the
proposed project.
vii. Policy formation tools: provide structured support for developing agreement on
the wording of policy statements.
viii. Group dictionaries: document group agreement on definitions of words and
terms central to the project.
 People refer not only to the participants but also to a trained facilitator and often to a staff
that supports the hardware and software. Together, these elements have led to the creation of
a range of different kinds of GDSS, from simple electronic boardrooms to elaborate
collaboration laboratories. In a collaboration laboratory, individuals work on their own
desktop PCs or workstations. Their input is integrated on a file server and is viewable on
a common screen at the front of the room; in most systems the integrated input is also
viewable on the individual participant’s screen.

Example of a GDSS Meeting

 In a GDSS electronic meeting, each attendee has a workstation. The workstations are
networked and are connected to the facilitator’s console, which serves as the facilitator’s
workstation and control panel, and to the meeting’s file server. All data that the attendees
forward from their workstations to the group are collected and saved on the file server.
 The facilitator is able to project computer images onto the projection screen at the front of
the room. The facilitator also has an overhead projector available. Whiteboards are visible
on either side of the projection screen.
 Many electronic meeting rooms have seating arrangements in semicircles and are tiered in
legislative style to accommodate a large number of attendees.
 The facilitator controls the use of tools during the meeting. Attendees have full control of
their own desktop computers. An attendee is able to view the agenda (and other planning
documents), look at the integrated screen (or screens, as the session progresses), use ordinary
desktop PC tools (such as a word processor or a spreadsheet), tap into production data that
have been made available, or work on the screen associated with the current meeting step and
tool (such as a brainstorming screen).
 During the meeting all input to the integrated screens is saved on the file server and
participants’ work is kept confidential.

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 When the meeting is completed, a full record of the meeting (both raw material and
resultant output) is available to the attendees and can be made available to anyone else with
a need for access.

Executive Information System (EIS)

Also known as an Executive Support System (ESS),
EIS provide a generalized computing and communication environment to senior managers to
support strategic decisions. They draw data from the MIS and allow communication with
external sources of information. But unlike DSS, they are not designed to use analytical
models for specific problem solving. EIS are designed to facilitate senior managers’ access to
information quickly and effectively. ESS has menu-driven user-friendly interfaces,
interactive graphics to help visualisation of the situation and communication capabilities that
link the senior executives to the external databases he requires. Top executives need ESS
because they are busy and want information quickly and in an easy to read form. They want
to have direct access to information and want their computer set-up to directly communicate
with others. They want structured forms for viewing and want summaries rather than details.
It provides executives information in a readily accessible, interactive format. They are an
MIS for executive use. An EIS/ESS usually allows summary over the entire organisation and
also allows drilling down to specific levels of detail.

It is used by top level (strategic) management. They are designed to the individual. They let
the CEO of an organisation tie in to all levels of the organisation. They are very expensive to
run and require extensive staff support to operate.

Expert Systems (ES)

 ES is a computer system or program that uses artificial intelligence techniques to solve

problems that ordinarily require a knowledgeable human.
 It is an advanced DSS that provides expert advice by asking users a sequence of questions
dependent on prior answers that lead to a conclusion or recommendation. It is made of a
knowledge base (database of decision rules and outcomes), inference engine (search
algorithm), and a user interface.
 ES use artificial intelligence technology
 It attempts to codify and manipulate knowledge rather than information
 ES may expand the capabilities of a DSS in support of the initial phase of the decision-
making process. It can assist the second (design) phase of the decision-making process by
suggesting alternative scenarios for "what if" evaluation.
 It assists a human in the selection of an appropriate model for the decision problem. This
is an avenue for automatic model management; the user of such a system would need less
knowledge about models.
 ES can simplify model-building in particular simulation models lends itself to this
approach.
 ES can provide an explanation of the result obtained with a DSS. This would be a new
and important DSS capability.
 ES can act as tutors. In addition ES capabilities may be employed during DSS
development; their general potential in software engineering has been recognised.

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Among some of the successful expert systems developed are

 INTERNIST, a medical diagnosis tool that contains nearly 100,000 relationships

between symptoms and diseases
 PROSPECTOR, an aid to geologists in interpreting mineral data."
 MYCIN, a disease diagnosis system.

Expert systems imitate human experts in many different fields of expertise. Such systems
contain rules (such as decision tables) that help a human answer expert questions.

Expert systems are built with decision-making rules, and they can ask humans a series of
questions to narrow down the correct answer

Advantages of expert systems:

 The computer can store far more information than a human.

 The computer does not 'forget', make silly mistakes or get drunk when it is most
needed.
 Data can be kept up-to-date.
 The expert system is always available 24 hours a day and will never 'retire'.
 The system can be used at a distance over a network.

Expert systems are computer application programs that take the knowledge of one or more
human experts in a field and computerize it so that it is readily available for use. The human
experts do not need to be physically present to accomplish a specialized project or task.
Expert systems are only designed to be “expert” in a very narrow and specific task or subject
field. They contain the acquired expert knowledge and try to imitate the expert’s evaluation
processes to offer a conclusion. An advantage of an expert system is that it may include the
knowledge of many experts in one specific field.

Other Information Systems

These are special purpose information systems. They are more recent types of information
systems that cannot be characterised as one of the types discussed above.

 Artificial Intelligence Systems Artificial intelligence is a broad field of research that

focuses on developing computer systems that simulate human behaviour, that is,
systems with human characteristics. These characteristics include, vision, reasoning,
learning and natural language processing. Examples: Expert systems, Neural
Networks, Robotics, Case-based reasoning (CBR), Fuzzy logic, Data mining, Genetic
algorithms etc
 Geographic Information Systems (GIS). Geographic information systems include
digital mapping technology used to store and manipulate data relative to locations on
the earth. An example is a marketing GIS database. A GIS is different from a Global
Positioning System (GPS). The latter is a satellite-based system that allows accurate
location determination.
 Virtual Reality Systems. Virtual reality systems include 3-dimensional simulation
software, where often the user is immersed in a simulated environment using special

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 hardware (such as gloves, data suits or head mounted displays). Sample applications
include flight simulators, interior design or surgical training using a virtual patient.
 E-Commerce/E-Business Systems E-Commerce involves business transactions
executed electronically between parties. Parties can be companies, consumers, public
sector organisations or governments.
 Enterprise Resource Planning (ERP) systems ERP systems are a set of integrated
programmes that handle most or all organisations’ key business processes at all its
locations in a unified manner. Different ERP packages have different scopes. They
often coordinate planning, inventory control, production and ordering. Most include
finance and manufacturing functions, but many are now including customer
relationship management, distribution, human resource as well as supply chain
management. ERP systems are integrated around a common database. Some well
known ERP vendors are ORACLE, SAP and PeopleSoft
For instance a manufacturing company may prepare a demand forecast for an item for
the next month. The ERP system would then check existing items inventory to see if
there is enough on hand to meet the demand. If not, the ERP system schedules
production of the shortfall, ordering additional raw material and shipping materials if
necessary.
 Electronic Funds Transfer (EFT) EFT is the exchange of money via
telecommunications without currency actually changing hands. EFT refers to any
financial transaction that transfers a sum of money from one account to another
electronically. Usually, transactions originate at a computer at one institution
(location) and are transmitted to a computer at another institution (location) with the
monetary amount recorded in the respective organisation’s accounts. Because of the
potential high volume of money being exchanged, these systems may be in an
extremely high-risk category. Therefore, access security and authorisation of
processing are important controls. Security in an EFT environment is extremely
important. Security includes methods used by the customer to gain access to the
system, the communications network and the host or applicationprocessing site.
Individual customer access to the EFT system is generally controlled by a plastic card
and a personal identification number (PIN). Both items are required to initiate a
transaction.
 Automated Teller Machine (ATM) An ATM is a specialised form of point of sale
terminal designed for the unattended use by a customer of a financial institution.
These customarily allow a range of banking and debit operations, especially financial
deposits and cash withdrawals. ATMs are usually located in uncontrolled areas and
utilise unprotected telecommunications lines for data transmissions. Therefore, the
system must provide high levels of logical and physical security for both the customer
and the machinery. Recommended internal control guidelines for ATMs include the
following:
o Review measures to establish proper customer identification and maintenance
of their confidentiality
o Review file maintenance and retention system to trace transactions • Review
and maintain exception reports to provide an audit trail
o Review daily reconciliation of ATM machine transactions.

Types of Information Systems in a Functional Perspective

 Information systems also serve the major business functions, such as sales and
marketing, manufacturing and production, finance and accounting, payroll and credit
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management, and human resources. Therefore, Information systems can be classified by the
specific organizational function they serve as well as by organizational level.

1. Credit Management System

 It is true that one of the most critical steps in any business is to have a credit control
department to ensure that the company gets paid for what it provides. The department
minimizes the risk of not getting paid while at the same time prioritizing payments from
debtors.
 A "successful" business can be defined as one where sufficient profit is retained in the
form of cash to pay the business' expenses when they fall due or, in the case of a small
business or professional, the business owner's personal and business expenses when they
fall due. There can often be a fine balance between the cost of providing a product or
service to the client or customer and making a profit for the owner.
 To minimize their credit risk, companies traditionally used external credit rating
agency to determine whether to provide credit to a potential client or customer. Credit
rating agencies provide historical information about debtors who have defaulted in making
payment, typically determined only after 4 or more months have passed from the time the
goods or services were supplied. Credit worthiness information was not available about
slow payers - only about defaulting payers. Credit providers were generally prohibited by
privacy laws from sharing information about slow payers.
 To collect debts that have become overdue credit providers typically out source such
work to debt collection agencies. When accounts are placed with collection agencies the
credit provider loses control over their accounts. Collection agencies typically charge a fee
calculated as a percentage of what is collected. This percentage can be significant, and is
often more than the profit on the original transaction. Further, because of the way the
agency gets paid the debt collection agency typically has a "pay up now and don't come
back" approach and mentality. This often results in the total breakdown of business
relationships.
 In view of the foregoing problems, there is a need to provide dynamic credit
information regarding a customer so that a company may make an informed decision on
whether to engage in commerce with a potential customer. This credit information needs to
convey a meaningful level of the creditworthiness of each prospective customer.

Functions of a credit management system

1) Automatic gathering and recording of debtors’ information during a debtor’s
transaction or call or visit.
2) Quick search for debtors’ information during decision making i.e. to make fast and
efficient credit decisions, a credit manager needs a credit management system that
efficiently look for internal and external credit information, coming from different
other systems throughout the whole company.
3) Analyzing credit worthiness of a client by thorough checking of incoming credit order
i.e. Credit Management system checks an incoming loan order against a customer's
credit limit.
4) Automatic calculation of loan payments instalments i.e. according to the company
policies the system should compute the recommended instalment amount.
5) To help prepare credit policies guidelines according to national and international laws.
6) Preparing reminder letters to defaulters and recording their response to the letter.
7) Automatic blocking of an order that doesn’t meet the credit limits requirements.

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 8) Automatic updates of the credit scoring of the customer i.e. the system updates the
credit scoring of the customer by requesting online information from an external
credit information provider. The update of the scoring reveals that the
creditworthiness of the customer has improved, so the credit manager can set up a
higher credit limit and releases the blocked sales order.
9) To help classify customers into risk classes and so the company concentrates its sales
and marketing-activities on reliable and profitable customers.
2. Sales and Marketing Systems
 The sales and marketing function is responsible for selling the organization’s products
or services.
 Marketing is concerned with identifying the customers for the firm’s products or
services, determining what customers need or want, planning and developing products and
services to meet their needs, and advertising and promoting these products and services.
 Sales is concerned with contacting customers, selling the products and
services, taking orders, and following up on sales.
 Sales and marketing information systems support these activities. Table 2-2 shows
that information systems are used in sales and marketing in a number of ways.
 At the strategic level, sales and marketing systems monitor trends affecting new
products and sales opportunities, support planning for new products and services, and
monitor the performance of competitors.
 At the management level, sales and marketing systems support market research,
advertising and promotional campaigns, and pricing decisions. They analyze sales
performance and the performance of the sales staff.
 At the operational level, sales and marketing systems assist in locating and contacting
prospective customers, tracking sales, processing orders, and providing customer service
support.

 The sales information system at the management level consolidates data about each
item sold (such as the product code, product description, and amount sold) for further
management analysis. Company managers examine these sales data to monitor sales
activity and buying trends.

3. Manufacturing and Production Systems

 The manufacturing and production function is responsible for actually producing the
firm’s goods and services.
 Manufacturing and production systems deal with the planning, development, and
maintenance of production facilities; the establishment of production goals; the acquisition,
storage, and availability of production materials; and the scheduling of equipment,
facilities, materials, and labour required to fashion finished products.
 Manufacturing and production information systems support these activities. They can
guide the actions of machines and equipment to help pharmaceutical and other types of

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firms monitor and control the manufacturing process. Table 2-3 shows some typical
manufacturing and production information systems arranged by organizational level.
 Strategic-level manufacturing systems deal with the firm’s long-term manufacturing
goals, such as where to locate new plants or whether to invest in new manufacturing
technology.
 At the management level, manufacturing and production systems analyze and monitor
manufacturing and production costs and resources.
 Operational manufacturing and production systems deal with the status of production
tasks.

 Most manufacturing and production systems use some sort of inventory system,
as illustrated in Figure 2-10. Data about each item in inventory, such as the number of
units depleted because of a shipment or purchase or the number of units replenished
by reordering or returns, are either scanned or keyed into the system.
 The inventory master file contains basic data about each item, including the unique
identification code for each item, a description of the item, the number of units on hand, the
number of units on order, and the reorder point (the number of units in inventory that
triggers a decision to reorder to prevent a stock-out).
 Companies can estimate the number of items to reorder, or they can use a formula for
calculating the least expensive quantity to reorder called the economic order quantity.
 The system produces reports that give information about such things as the number of
each item available in inventory, the number of units of each item to reorder, or items in
inventory that must be replenished. This system provides information about the number of
items available in inventory to support manufacturing and production activities.
 Product life cycle management (PLM) systems are one type of manufacturing and
production system that has become increasingly valuable in the automotive, aerospace, and
consumer products industries. PLM systems are based on a data repository that organizes
every piece of information that goes into making a particular product, such as formula
cards, packaging information, shipping specifications, and patent data.

4. Finance and Accounting Systems

 The finance function is responsible for managing the firm’s financial assets, such as
cash, stocks, bonds, and other investments, to maximize the return on these financial
assets.
 The finance function is also in charge of managing the capitalization of the firm
(finding new financial assets in stocks, bonds, or other forms of debt). To determine
whether the firm is getting the best return on its investments, the finance function must
obtain a considerable amount of information from sources external to the firm.
 The accounting function is responsible for maintaining and managing the
firm’s financial records—receipts, disbursements, depreciation, payroll—to account for the

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flow of funds in a firm.
 Finance and accounting share related problems—how to keep track of a firm’s
financial assets and fund flows. They provide answers to questions such as these:
 What is the current inventory of financial assets?
 What records exist for disbursements, receipts, payroll, and other fund
flows?
 Table 2-4 shows some of the typical finance and accounting information
systems found in large organizations.
 Strategic-level systems for the finance and accounting function establish long-term
investment goals for the firm and provide long-range forecasts of the firm’s financial
performance.
 At the management level, information systems help managers oversee and control the
firm’s financial resources. Operational systems in finance and accounting track the flow of
funds in the firm through transactions such as paychecks, payments to vendors, securities
reports, and receipts.

 A payroll system, is a typical accounting TPS found in all businesses with employees.

5. Human Resources Systems

 The human resources function is responsible for attracting, developing, and
maintaining the firm’s workforce.
 Human resources information systems support activities, such as identifying potential
employees, maintaining complete records on existing employees, and creating programs to
develop employees’ talents and skills.
 Delphia Consulting’s ABRA Suite software for human resources and payroll
management includes online tools to view and change employment and payroll
information.
 Human resources information systems reduce administrative costs, provide faster
service to employees, and help firms manage their workforce.
 Strategic-level human resources systems identify the manpower requirements (skills,
educational level, types of positions, number of positions, and cost) for meeting the firm’s
long-term business plans.
 At the management level, human resources systems help managers monitor and
analyze the recruitment, allocation, and compensation of employees.
 Human resources operational systems track the recruitment and placement of the
firm’s employees (see Table 2-5).

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Enterprise Applications & Business Process Integration

 One of the major challenges facing firms today is putting together data from the
systems we have just described to make information flow across the enterprise.
Electronic commerce, electronic business, and intensifying global competition are forcing
firms to focus on speed to market, improving customer service, and more efficient execution.
 The flow of information and work needs to be orchestrated so that the organization
can perform like a well-oiled machine. These changes require powerful new systems that can
integrate information from many different functional areas and organizational units and
coordinate firm activities with those of suppliers and other business partners.
 The new digital firm business environment requires companies to think more
strategically about their business processes
 Business processes refer to sets of logically related activities for accomplishing a
specific business result. Business processes also refer to the unique ways in which
organizations and management coordinate these activities.
 A company’s business processes can be a source of competitive strength if they
enable the company to innovate better or to execute better than its rivals. Business processes
can also be liabilities if they are based on outdated ways of working that
impede organizational responsiveness and efficiency. Some business processes support the
major functional areas of the firm, others are cross-functional. Table 2-6 describes some
typical business processes for each of the functional areas.
 Many business processes are cross-functional, transcending the boundaries
between sales, marketing, manufacturing, and research and development. These cross-
functional processes cut across the traditional organizational structure, grouping employees
from different functional specialties to complete a piece of work.
 For example, the order fulfilment process at many companies requires cooperation
among the sales function (receiving the order, entering the order), the accounting function
(credit checking and billing for the order), and the manufacturing function (assembling and
shipping the order).

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Overview of Enterprise Systems
 A large organization typically has many different kinds of information systems
that support different functions, organizational levels, and business processes. Most of these
systems were built around different functions, business units, and business processes that do
not “talk” to each other and thus cannot automatically exchange information.
 Managers might have a hard time assembling the data they need for a comprehensive,
overall picture of the organization’s operations. For instance, sales personnel might not be
able to tell at the time they place an order whether the items that were ordered were in
inventory; customers could not track their orders; and manufacturing could not communicate
easily with finance to plan for new production.
Enterprise 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. The enterprise system collects data from various key business
processes in manufacturing and production, finance and accounting, sales and marketing,
and human resources and stores the data in a single comprehensive data repository where
they can be used by other parts of the business.
 Managers emerge with more precise and timely information for coordinating the daily
operations of the business and a firmwide view of business processes and information flows.
 For instance, when a sales representative in Brussels enters a customer order, the data
flow automatically to others in the company who need to see them. The factory in Hong
Kong receives the order and begins production. The warehouse checks its progress online and
schedules the shipment date. The warehouse can check its stock of parts and replenish
whatever the factory has depleted.
 The enterprise system stores production information, where it can be accessed
by customer service representatives to track the progress of the order through every step of
the manufacturing process. Updated sales and production data automatically flow to the
accounting department. The system transmits information for calculating the salesperson’s
commission to the payroll department. The system also automatically recalculates the
company’s balance sheets, accounts receivable and payable ledgers, cost-center accounts, and

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available cash. Corporate headquarters in London can view up-to-the-minute data on sales,
inventory, and production at every step of the process, as well as updated sales and
production forecasts and calculations of product cost and availability.

Supply Chain Management Systems (SCM)

Supply chain management (SCM) systems are more outward facing, focusing on helping the
firm manage its relationship with suppliers to optimize the planning, sourcing,
manufacturing, and delivery of products and services.
These systems provide information to help suppliers, purchasing firms, distributors, and
logistics companies coordinate, schedule, and control business processes for
procurement, production, inventory management, and delivery of products and
services. Supply chain management systems are one type of interorganizational system
because they automate the flow of information across organizational boundaries.
A firm using a supply chain management system would exchange information with its
suppliers about availability of materials and components, delivery dates for shipments of
supplies, and production requirements.
It might also use the system to exchange information with its distributors about inventory
levels, the status of orders being fulfilled, or delivery dates for shipments of finished goods.
Such systems make it possible for firms to link electronically to customers and to outsource
their work to other companies. Table 2-7 describes how firms can benefit from supply chain
management systems. The ultimate objective is to get the right amount of their products from
their source to their point of consumption with the least amount of time and with the lowest
cost.
Supply chain management systems can be built using intranets, extranets, or special supply
chain management software.
Customer Relationship Management systems (CRM)

Instead of treating customers as exploitable sources of income, businesses are now

viewing them as long-term assets to be nurtured through customer relationship management.
Customer relationship management (CRM) systems focus on coordinating all of the business
processes surrounding the firm’s interactions with its customers in sales, marketing, and
service to optimize revenue, customer satisfaction, and customer retention.
The ideal CRM system provides end-to-end customer care from receipt of an order
through product delivery. In the past, a firm’s processes for sales, service, and marketing
were highly compartmentalized, and these departments did not share much essential
customer information.
Some information on a specific customer might be stored and organized in terms of that
person’s account with the company. Other pieces of information about the same customer
might be organized by products that were purchased. There was no way to consolidate all of
this information to provide a unified view of a customer across the company.
Customer relationship management systems examine customers from a multifaceted

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perspective. These systems use a net of integrated applications to address all aspects of the
customer relationship, including customer service, sales, and marketing.
USE OF IS IN MANAGEMENT DECISION-MAKING
Information Systems (IS) play a crucial role in supporting management decision-making by
providing timely, accurate, and relevant information. Here are several ways in which
Information Systems contribute to the decision-making process in management:
Data Collection and Storage:
Information Systems collect, store, and organize vast amounts of data from various sources,
including internal and external sources. This data serves as the foundation for decision-
making processes.
Data Analysis and Reporting:
IS enable managers to analyze data through various tools and technologies, helping them
identify patterns, trends, and insights. Reporting functionalities within IS facilitate the
presentation of information in a clear and understandable format.
Decision Support Systems (DSS):
DSS are specialized IS designed to assist in decision-making. These systems provide
interactive tools and models to help managers analyze information, evaluate alternatives, and
make informed decisions.
Business Intelligence (BI):
IS support BI by collecting, analyzing, and presenting business data to enhance decision-
making. BI tools can generate reports, dashboards, and visualizations that offer a
comprehensive view of the organization's performance.
Forecasting and Predictive Modeling:
IS facilitate forecasting and predictive modeling by utilizing historical data and trends. This
helps management anticipate future scenarios, identify potential risks, and make decisions
based on likely outcomes.
Communication and Collaboration:
Information Systems enhance communication and collaboration among different levels of
management and various departments. This ensures that decision-makers have access to the
most up-to-date information and can collaborate effectively.
Supply Chain Management Systems:
IS in supply chain management help in optimizing the flow of goods and services. Decision-
makers can use these systems to track inventory levels, monitor supplier performance, and
make informed decisions to improve the efficiency of the supply chain.
Customer Relationship Management (CRM):
CRM systems assist in managing customer interactions, providing valuable insights into
customer preferences and behaviors. This information supports decision-making related to

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marketing strategies, customer satisfaction, and product development.
Enterprise Resource Planning (ERP):
ERP systems integrate various business processes and functions, providing a centralized
database. This integration enables better coordination among different departments, leading
to improved decision-making across the organization.
Risk Management:
IS help in identifying, assessing, and managing risks by providing real-time data and
analytics. This supports management in making decisions that mitigate potential risks and
uncertainties.
TYPES OF DECISIONS
 The characteristics of decisions faced by managers at different levels are quite
different. Decisions can be classified into three types:
1) structured,
2) semi-structured,
3) unstructured.
 Unstructured decisions are those in which the decision maker must provide judgment,
evaluation, and insights into the problem definition. Each of these decisions is novel,
important, and nonroutine, and there is no well-understood or agreed-on procedure for
making them.
 Structured decisions, by contrast, are repetitive and routine, and decision makers can
follow a definite procedure for handling them to be efficient.
 Many decisions have elements of both and are considered semi-structured decisions, in
which only part of the problem has a clear-cut answer provided by an accepted procedure.
 In general, structured decisions are made more prevalently at lower organizational levels,
whereas unstructured decision making is more common at higher levels of the firm.
 Senior executives tend to be exposed to many unstructured decision situations that are
open ended and evaluative and that require insight based on many sources of information and
personal experience.
 For example, a CEO in today’s music industry might ask, “Whom should we choose as a
distribution partner for our online music catalog— Apple, Microsoft, or Sony?” Answering
this question would require access to news, government reports, and industry views as well as
high-level summaries of firm performance. However, the answer would also require senior
managers to use their own best judgment and poll other managers for their opinions
 Middle management and operational management tend to face more structured decision
scenarios, but their decisions may include unstructured components. A typical middle level
management decision might be “Why is the order fulfillment report showing a decline over
the last six months at a distribution center in Minneapolis?” This middle manager could
obtain a report from the firm’s enterprise system or distribution management system on order
activity and operational efficiency at the Minneapolis distribution center. This is the
structured part of the decision. But before arriving at an answer, this middle manager will
have to interview employees and gather more unstructured information from external sources
about local economic conditions or sales trends. Rank-and-file employees tend to make more
structured decisions.
 For example, a sales account representative often has to make decisions about extending
credit to customers by consulting the firm’s customer database that contains credit
information. In this case the decision is highly structured, it is a routine decision made

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thousands of times each day in most firms, and the answer has been preprogrammed into a
corporate risk management or credit reporting system.
 The types of decisions faced by project teams cannot be classified neatly
by organizational level. Teams are small groups of middle and operational managers
and perhaps employees assigned specific tasks that may last a few months to a few
years. Their tasks may involve unstructured or semi-structured decisions such as designing
new products, devising new ways to enter the marketplace, or reorganizing sales territories
and compensation systems.
 The kinds of systems used to support the different levels and types of decisions are
summarized in Table 13-2 below.
 Management information systems (MIS) provide routine reports and summaries
of transaction- level data to middle and operational-level managers to provide answers
to structured and semi-structured decision problems.
 Decision-support systems (DSS) are targeted systems that combine analytical models with
operational data and supportive interactive queries and analysis for middle managers who
face semi-structured decision situations.
 Executive support systems (ESS) are specialized systems that provide senior management
making primarily unstructured decisions with a broad array of both external information
(news, stock analyses, industry trends) and high-level summaries of firm performance.
 Group decision-support systems (GDSS) are specialized systems that provide a group
electronic environment in which managers and teams can collectively make decisions and
design solutions for unstructured and semi-structured problems.

TABLE 13-2 Organizational Level and Systems for Decision Support

Stages in the Decision-Making Process

 Making decisions consists of several different activities. Simon (1960) describes
four different stages in decision making: intelligence, design, choice, and implementation
(Figure 13-3)

FIGURE 13-3 Stages in decision making

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 The decision-making process can be described in four steps that follow one another in a
logical order. In reality, decision makers frequently circle back to reconsider the previous
stages and through a process of iteration eventually arrive at a solution that is workable.
 Intelligence consists of discovering, identifying, and understanding the problems
occurring in the organization—why is there a problem, where, and what effects is it having
on the firm. Traditional MIS that deliver a wide variety of detailed information can help
identify problems, especially if the systems report exceptions.
 Design involves identifying and exploring various solutions to the problem. Decision
support systems (DSS) are ideal in this stage for exploring alternatives because they possess
analytical tools for modelling data, enabling users to explore various options quickly.
 Choice consists of choosing among solution alternatives. Here, DSS with
access extensive firm data can help managers choose the optimal solution. Also group
decision support systems can be used to bring groups of managers together in an
electronic online environment to discuss different solutions and make a choice.
 Implementation involves making the chosen alternative work and continuing to monitor
how well the solution is working. Here, traditional MIS come back into play by providing

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managers with routine reports on the progress of a specific solution. Support systems can
range from full-blown MIS to much smaller systems, as well as project planning software
operating on personal computers. In the real world, the stages of decision making described
here do not necessarily follow a linear path.
 You can be in the process of implementing a decision, only to discover that your solution
is not working. In such cases, you will be forced to repeat the design, choice, or perhaps even
the intelligence stage. For instance, in the face of declining sales, a sales management team
may strongly support a new sales incentive system to spur the sales force on to greater effort.
If paying the sales force a higher commission for making more sales does not produce
sales increases, managers would need to investigate whether the problem stems from
poor product design, inadequate customer support, or a host of other causes, none of which
would be “solved” by a new incentive system.
Decision making cycle
Steps Involved In Decision Making Process
Decision-making involves a number of steps which need to be taken in a logical manner. This
is treated as a rational or scientific 'decision-making process' which is lengthy and time
consuming. Such lengthy process needs to be followed in order to take
rational/scientific/result oriented decisions. Decision-making process prescribes some rules
and guidelines as to how a decision should be taken / made. This involves many steps
logically arranged. It was Peter Drucker who first strongly advocated the scientific method of
decision-making in his world famous book 'The Practice of Management' published in 1955.
Drucker recommended the scientific method of decision-making which, according to him,
involves the following six steps:
1. Defining / Identifying the managerial problem,
2. Analyzing the problem,
3. Developing alternative solutions,
4. Selecting the best solution out of the available alternatives,
5. Converting the decision into action, and
6. Ensuring feedback for follow-up.

1. Identifying the Problem: Identification of the real problem before a business enterprise is
the first step in the process of decision-making. It is rightly said that a problem well-defined
is a problem half-solved. Information relevant to the problem should be gathered so that
critical analysis of the problem is possible.
This is how the problem can be diagnosed. Clear distinction should be made between the
problem and the symptoms which may cloud the real issue. In brief, the manager should
search the 'critical factor' at work. It is the point at which the choice applies. Similarly, while
diagnosing the real problem the manager should consider causes and find out whether they
are controllable or uncontrollable.
2. Analyzing the Problem: After defining the problem, the next step in the decision-making
process is to analyze the problem in depth. This is necessary to classify the problem in order
to know who must take the decision and who must be informed about the decision taken.
Here, the following four factors should be kept in mind:
 Futurity of the decision,
 The scope of its impact,
 Number of qualitative considerations involved, and
 Uniqueness of the decision.
3. Collecting Relevant Data: After defining the problem and analyzing its nature, the next
step is to obtain the relevant information/ data about it. There is information flood in the
business world due to new developments in the field of information technology. All available

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information should be utilized fully for analysis of the problem. This brings clarity to all
aspects of the problem.
4. Developing Alternative Solutions: After the problem has been defined, diagnosed on the
basis of relevant information, the manager has to determine available alternative courses of
action that could be used to solve the problem at hand. Only realistic alternatives should be
considered. It is equally important to take into account time and cost constraints and
psychological barriers that will restrict that number of alternatives.
If necessary, group participation techniques may be used while developing alternative
solutions as depending on one solution is undesirable.
5. Selecting the Best Solution: After preparing alternative solutions, the next step in the
decision-making process is to select an alternative that seems to be most rational for solving
the problem. The alternative thus selected must be communicated to those who are likely to
be affected by it. Acceptance of the decision by group members is always desirable and
useful for its effective implementation.
6. Converting Decision into Action: After the selection of the best decision, the next step is to
convert the selected decision into an effective action. Without such action, the decision will
remain merely a declaration of good intentions. Here, the manager has to convert 'his
decision into 'their decision' through his leadership.
For this, the subordinates should be taken in confidence and they should be convinced about
the correctness of the decision. Thereafter, the manager has to take follow-up steps for the
execution of decision taken.
7. Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the
manager has to make built-in arrangements to ensure feedback for continuously testing actual
developments against the expectations. It is like checking the effectiveness of follow-up
measures. Feedback is possible in the form of organized information, reports and personal
observations. Feedback is necessary to decide whether the decision already taken should be
continued or be modified in the light of changed conditions.

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