Chapter 3

Organizational Information Systems and Their Impact

Learning objectives
• To categorize systems according to the hierarchical, functional, and process perspectives.
You will learn the rationale for each perspective and its limitations.
• To discuss the underlying principles and applications of business process reengineering
(BPR), as well as its advantages and disadvantages.
• To explain the genesis of the enterprise systems (ESs) trend and why so many companies
are employing or introducing them. You will also learn to articulate the principal benefits
and risks associated with these systems.
• To evaluate the integration trend and the role of integration principles in the modern
firm.
• To explain enterprise resource planning (ERP) and discuss its main advantages and limits.
• To explain what is meant by supply chain management and the role that supply chain
management applications play in modern organizations.
• To explain what is meant by customer relationship management (CRM).
Learning objectives
• To clarify what is meant by knowledge management, categorize the different types of
knowledge commonly found in organizations, and explain why organizations feel the need to
employ knowledge management applications.
• To define the key terms analytics, big data, and business intelligence and define their underlying
trends.
• To clarify the evolution of business and organizational analytics over time, from the early days of
batch and transaction processing systems to the modern era of big data and advanced analytics.
• To evaluate the business intelligence (BI) trend and explain the components of the BI
infrastructure. You will learn how to identify and describe the role of the technologies that
compose a modern BI infrastructure.
• To evaluate the big data trend and gain insight on consolidated technologies, computing
architectures, and practices.
• To define the term cloud computing and be able to discuss its underlying delivery models:
software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).
Introduction
• Information Systems pervade the modern organization, so
understanding how they are classified and organized is a prerequisite
to being able to navigate the infrastructure of the modern firm
• Increasingly, the impetus behind organizational change comes from
the introduction of new information technology (IT) and the
implementation of information systems (IS). It is critical that you
optimally manage organizational change when it occurs. For this
reason you need to have the appropriate vocabulary and a solid
understanding of what classes of software programs underpin
information systems in modern organizations.
Categorizing Systems
• Hierarchical Perspective
• Operational level
• Management level
• Executive level
• Functional Perspective
• Process Perspective
Hierarchical Perspective
• The hierarchical perspective
recognizes that decision making and
activities in organizations occur at
different levels
• At each level of the hierarchy, the
individuals involved have different
responsibilities, make different types
of decisions, and carry out different
kinds of activities
• The type of information systems
introduced to support each level must
take these differences into account.
Operational Level
• The operational level of the organization is mostly concerned with
short-term activities, typically those that occur in the immediate
term. Operational personnel are focused on performing the day-to-
day activities that deliver the firm’s value proposition
• The objective here is efficient transaction processing under a limited
degree of uncertainty. IS that support this organizational level are
called transaction processing systems (TPSs)
• The information technology underpinning a TPS is typically used to
automate recurring activities and to structure day- to- day operations,
ensuring that they are performed with speed and accuracy
Managerial Level
• The managerial level of the organization is mostly concerned with
midterm decision making and a functional focus. The activities
performed tend to be semi-structured, having both well known
components and some degree of uncertainty
• The objective is to improve the effectiveness of the organization, or one
of its functions, within the broad strategic guidelines set by the
executive team. The information systems that support this
organizational level are typically called decision support systems (DSSs)
• DSSs provide the information needed by functional managers to engage
in tactical decision making
Executive Level
• The executive echelon of the organization is concerned with high- level, long-
range decisions. Executives are focused on strategic decision making and on
interpreting how the firm should react to trends in the marketplace and the
competitive environment
• The objective is, as much as possible, to predict future developments by
evaluating trends, using highly aggregated data and scenario analyses. The IS
that support this organizational level are called executive information systems
(EISs). A recent development in EISs is offered by the use of software
applications known as executive dashboards
• These tools enable rapid evaluation of highly aggregated organizational and
trend data while still providing drill-down features that enable executives to
view detailed information
Functional Perspective
• The functional organization within
business units is typically
represented in the form of the
organizational chart
• This decentralized management
structure solves the coordination
problems that happen when firms
become large
• Each business function manages its
own budget independently and has
unique information processing
needs
Functional Systems
• Are expressly designed to support the specific needs of individuals in
the same functional area
• Are based on the principle of local optimization, which suggests that
information processing needs are unique and homogeneous within a
functional area
• Are tailored to those highly specific needs and use a language that is
familiar to the professionals in the area
Limitations
• The primary limitation of the functional and hierarchical perspectives
is their lack of integration among separate systems and the
introduction of considerable redundancy. This redundancy often
created inefficiency, with duplication of similar efforts in separate
business units, and substandard service, with customers often being
referred to different representatives of the same organization for
support
• From a technology perspective, the functional approach led to the
development of siloed applications. These applications would serve a
vertical (i.e., functional) need very well but made it difficult to enable
communication across different functional areas
Process Perspective
• Business process reengineering (BPR)
emerged in the early 1990s as a way to
break down organizational silos in
recognition of the fact that business
processes are inherently cross-
functional
• BPR is a managerial approach that
employs a process view of
organizational activities. BPR seeks
dramatic performance improvements
through rationalization of activities and
elimination of duplication of efforts
across separate functions and units
BPR
• It is the process focus that enables the firm to eliminate the
redundancy and inefficiency associated with the multiple handoffs of
tasks from one area to another
• The firm should therefore reorganize its work in a series of processes
designed around the intended outcomes. In charge of each process is
a processes champion, who oversees process steps from start to finish
• The BPR methodology is radical in nature, requiring total disregard for
existing processes to make room for the redesigned ones
BPR’s risks
• Radical third-order change, as required by BPR efforts, engenders
significant resistance by those involved
• Despite its obvious importance, operations (and consequently
business processes) are not “glamorous” or highly valued
• BPR initiatives are very expensive because they often require the firm
to retire its legacy systems and develop a costly integrated technology
infrastructure
• The BPR methodology developed a bad reputation after the initial
excitement because of its complexity and the fact that for many
organizations, BPR led to significant downsizing and layoffs
Enterprise Systems: Integration
The overarching goal of integration is to organize, streamline, and simplify a
process or an application. We can categorize integration efforts on two dimensions:
their locus and object.
• The locus of integration can be:
• Internal  the firm is seeking to unify and coordinate owned assets that reside within the
boundaries of the firm
• External  the assets being integrated are not all owned by the firm, and
interorganizational integration efforts are involved
• The object of integration can be:
• Business integration  introduction of cohesive, streamlined business processes that
encompass previously separate activities
• Systems integration  unification or tight linkage of IT-enabled information systems and
databases
Systems Integration
• The primary focus of systems integration is the technological component
of the information systems underpinning business integration strategies.
• The outcome of system integration is a collection of compatible systems
that regularly exchange information or the development of integrated
applications that replace the former discrete ones. Type of integration
are:
• Application integration  the systems integration effort seeks to enable
communication among separate software programs
• Data integration  the systems integration effort seeks to enable the merging of
data repositories and databases
• Internal integration  the unification or linkage of intraorganizational systems
• External integration  the unification or linkage of interorganizational systems
Enterprise Resource Planning (ERP)
• A modular, integrated software application that spans (all)
organizational functions and relies on one database at the core
• The principal characteristics of ERP are:
• Modularity  enables the organization that purchases one to decide which
functionalities to enable and which ones not to use
• Application and data integration  an event that occurs in one of the
modules of the application automatically triggers an event in one or more of
the other separate module
• Configurability  offers configuration tables that enable the adopting firm to
choose among a predefined set of options during the implementation of the
application
ERP’s Advantages
• Efficiency improvements through direct and indirect cost savings
• Responsiveness
• Knowledge infusion
• Adaptability
ERP’s Limitations
• The trade-off between standardization and flexibility
• The limitations of best-practice software
• The potential for strategic clashes
• The high costs and risks of the implementation process
Supply Chain Management (SCM)
• A supply chain is the set of
coordinated entities that
contribute to moving a product
from its production to its
consumption
• SCM is the set of logistical and
financial processes associated
with the planning, executing,
and monitoring of supply chain
operations
Customer Relationship Management (CRM)
• A strategic orientation that calls for iterative processes designed to
turn customer data into customer relationships through active use of,
and learning from, the information collected. Thus the defining
characteristics of CRM are the following:
• CRM is a strategic initiative, not a technology. IT is an essential enabler of all
but the smallest CRM initiatives.
• CRM relies on customer personal and transactional data and is designed to
help the firm learn about customers.
• The ultimate objective of a CRM initiative is to help the firm use customer
data to make inferences about customer behaviors, needs, and value to the
firm so as to increase its profitability.
Knowledge Management
• The set of activities and processes that an organization enacts to manage
the wealth of knowledge it possesses and to ensure that it is properly
safeguarded and put to use to help the firm achieve its objectives
• A number of technologies are used in concert to enable the various
aspects of a knowledge management initiative:
• Creating knowledge: generation of new information, novel solutions to handle
existing problems, new explanations for recurrent events
• Capturing and storing knowledge: codification of new knowledge and
maintenance of an organizational memory
• Disseminating knowledge: transmission and access of knowledge within the
organization
Analytics
• Business analytics is the examination of business data in an effort to
reveal useful insight that enables superior decision making. The
continuing effects of the information revolution and the changing
nature of business data have created unprecedented opportunity to
(creatively) extract value from data
• Depending on the type of insight being extracted from the data we
have:
• Descriptive Analytics: The focus is on what has occurred
• Predictive Analytics: The focus is on what will occur
• Prescriptive Analytics: The focus is on what should occur
Advanced Analytics Projects
• Analytics projects are, first and foremost, Information Systems (IS)
projects that:
• Require substantial information technology at their core
• Require varying degree of process change
• Focus (or should focus) on fulfilling organizational or business objectives
• Must be successfully deployed and used in organizations in order to produce
returns
The Evolution of Business Analytics
• Why is this concept
“trending” now?
• The real catalyst for the
current attention to
analytics is the proliferation
of data generated by
sensors (e.g., humidity,
light), machines (e.g., GPS
in cars), and increasingly,
humans (e.g., Tweets)
Business Intelligence (BI)
• BI encompasses the set of techniques, processes, and technologies designed to
gather and interpret data about the business in order to improve decision
making and advance the organization’s interests.
• A BI infrastructure is the set of applications and technologies designed to create,
manage, and analyze large repositories of data in an effort to extract value from
them. Beyond the transaction processing systems that generate the needed data
• The main components of a BI infrastructure are:
• Data warehouses
• Data marts
• Query and reporting tools
• Online analytical processing (OLAP)
• Data mining
Big Data
• The pervasiveness of digital technologies and the ubiquity of the
Internet allow organizations to collect and store increasing amounts
of structured and unstructured data—probably more data than they
can make use of
• Three lines of data evolution:
• Volume is the amount of digital data that organizations have to store and
manage
• Velocity is the speed of creation and use of new digital data
• Variety is the kind of digital data that organizations have to store and manage
• Veracity is the validity and truthfulness of data
Computing Architectures: Mainframes and
Terminals
• A large digital computer
supporting multiple users and
multiple peripherals accessed by
”dumb” terminals
• Centralized architecture
Computing Architectures: Standalone
Personal Computing
• Personal computers are full-
fledged digital computers and,
as such, are able to execute
instructions and run software
applications independently
• Distributed architecture
Computing Architectures: Client- Server
Model
• Two or more machines share the load
of executing the instructions in a
software application.
• Where a client is any software
program that can make structured
requests to a server in order to access
resources that the server makes
available. A server is a software
program that makes resources
available to clients.
• Two very popular client- server
designs: three- tier architecture and
peer- to- peer architecture
Computing Architectures: Cloud Computing
• Applications or computational or storage components— the building blocks of
IT solutions— “reside online, in the cloud” and are accessed by clients
through the Internet infrastructure
• The cloud is based on the client- server architecture with personal computers
(and increasingly, tablets and smartphones) accessing powerful remote
servers
• The utilization of, and payment for, the computing resources accessed in the
cloud is dynamic and agile. By agile, we mean that an organization that sees a
growing demand for its applications can scale the service relatively rapidly—
major infrastructure providers suggest that they can scale their service in a
matter of minutes. Moreover, the scalability is also flexible, allowing
customers to acquire different services, like storage or processing capacity
Cloud computing delivery models

• Software as a service (SaaS) is when an application runs in the cloud. Salesforce,

Gmail, and Dropbox
• Platform as a service (PaaS) is when what is being rented from the provider is
not a full- fledged application but rather a platform on which the client builds its
own applications
• Infrastructure as a service (IaaS) is the level closest to hardware. In this case,
the client purchases the use of hardware functionality—in essence,
computational power, storage capacity, and network connectivity. storage
capacity, and network connectivity. All software—including the operating
system, backup and recovery, and the like—are your responsibility. The IaaS
provider takes care of the running and maintaining the infrastructure, for a fee
Delivery Models Comparison
Single-or Multitenant Approaches
• When applications are designed to run in the cloud, one of two
different models is used:
• Single-tenant: This is the traditional server hosting architecture where
customers access their own dedicated software resources. While, strictly
speaking, the hardware may be shared through virtualization technologies,
each (virtual) server is dedicated to a client and its users
• Multitenant: a single instance of the software serves all customers, and
hardware resources are shared by all users. Despite users sharing the same
application, their data are confined so that no other user can access them.
However, the manner in which the data are segregated does not imply that
each client has access to a separate database
Cloud Computing Advantages
Key advantages compared to on-premises implementations are:
• Lower entry barriers: Firms with limited investment capacity have access
to dynamically priced enterprise-class IT resources, shifting IT costs from
capital expenditures to operational expenditures. Start-ups can realize
their IT project with initial investments an order of magnitude lower
than in the past
• Faster innovation: The immediate access to IT resources reduces time to
market. Without an up-front investment, firms can deploy solutions
faster, thereby facilitating innovation
• Higher scalability: Solutions can easily scale and new IT resources can be
allocated or reduced depending on the actual need
Summary
Different organizational information systems can be characterized through a
hierarchical perspective. This perspective identifies three types of systems:
transaction processing systems, decision support systems, and executive
information systems. These systems are designed and built to support different
activities—operational, tactical, and strategic, respectively.
Different organizational information systems can be characterized through a
functional perspective. This perspective identifies vertical organizational systems
focused on the specific needs of each unit (e.g., accounting, marketing, finance,
receiving).
Summary
More recently, a process perspective emerged. According to the process perspective, the
firm and its operations are seen as a set of processes rather than functional areas. The
functional perspective underpins many of the most recent managerial trends, including
business process reengineering(BPR) and business systems integration efforts, as well as
information systems trends such as systems integration initiatives.
BPR, defined as a managerial approach calling for a process view of organizational activities,
was one of the principal management trends of the mid-1990s. While its popularity has
faded somewhat, you should not forget the key lessons of BPR: firms evolve over time, as
do technologies; old assumptions may no longer be valid today; and you have an
opportunity to use information technology (IT) to dramatically improve the efficiency and
effectiveness of the firm’s business processes.
Summary
ERP are modular, integrated software applications that span (all) organizational functions
and rely on one database at the core. The defining characteristics of ESs are their large
scope (seeking to support all aspects of an organization’s IT infrastructure in an integrated
fashion), their modularity (enabling adopting firms to select which components they need),
and their configurability (allowing adopting organizations to choose among a predefined
set of options during the implementation of the application).
While enterprise systems offer much promise in terms of efficiency improvements,
increased responsiveness, knowledge infusion, and adaptability, they have some significant
limitations as well, including the trade-off between standardization and flexibility, the
limitations of best-practice software, the potential for strategic clash, and the high costs
and risks of the implementation process.
Summary
Enterprise systems have traditionally focused on internal organizational processes. Conversely,
supply chain management applications have been introduced to enable interorganizational
business processes across the supply chain. Supply chain management applications have become
increasingly integrated in an effort to create efficiencies through tight relationships between
suppliers and customers.
CRM represents another enduring business trend of the last decade. We have defined CRM as a
strategic orientation that calls for iterative processes designed to turn customer data into customer
relationships through active use of, and by learning from, the information collected. While the term
CRM has lost much of its original meaning as of late, it is critical that you realize that CRM
initiatives are unique to the characteristics and objectives of the implementing organization. Thus
the set of technologies and applications the firm will use (i.e., the CRM infrastructure) to enable
both the operational and analytical aspects of its CRM strategy will vary dramatically.
Summary
Knowledge management is the set of activities and processes that an organization enacts to manage the
wealth of knowledge it possesses and ensure that such knowledge is properly safeguarded and put to
use to help the firm achieve its objectives. A knowledge management initiative evolves over three
phases: knowledge creation, capture and storage, and distribution. While knowledge management has
intuitive appeal, knowledge management initiatives are deceptively complex and prone to failure.
Seeking to understand the structure of information and extracting insight from observations are
decidedly human activities, not a new trend. Analytics has been a key concern of IS professionals
throughout the four main eras of data processing in business since the early applications of IT to
business in the 1950s. Most recently, analytics was embedded in business intelligence (BI) and big data
efforts. BI encompasses the set of techniques, processes, and technologies designed to gather and
interpret data about the business in order to improve decision making and advance the organization’s
interests.
Summary
BI has been one of the dominant trends in organizational computing over the last decade. It
encompasses the set of techniques, processes, and technologies designed to enable managers to gain
superior insight into and understanding of their business and thus make better decisions. A firm that
intends to engage in business intelligence needs to create a business intelligence infrastructure that
typically is centered on a data warehouse. Internal transaction processing systems and external
sources feed the data warehouse. Once the data have been structured for analysis in the data
warehouse or a data mart, they can be examined using analytical tools such as online analytical
processing (OLAP) and data mining.
Big data is the umbrella term under which the major recent trends converge. The impacts on decision
making and knowledge extraction are a paradigm shift in the way management and organizations have
traditionally made decisions. NoSQL databases represent a new breed of technologies developed to
overcome the limits of current data management approaches when dealing with big data.
Summary
Organizational applications are delivered to users through different computing architectures and
structures, either centralized or distributed.
Cloud computing has been a revolution in the software market, lowering the barriers to entry and
giving access to the benefits of enterprise class IT services to even startups and small organizations.
Virtualization and multitenancy are the basic technological bricks behind the cloud model.
Virtualization consists of creating a logical (virtual) version of the underlying physical infrastructure
(processing, storage, and networking), whereas multitenancy is a software architecture where a
single copy of the application is instanced and serves all users. Virtualization and multitenancy are
the root cause of the economies of scale and the defining characteristics of the cloud environment.
SaaS, PaaS, and IaaS are cloud delivery approaches in which a provider manages the application, the
platform, or only the infrastructure through
What we learned
• To categorize systems according to the hierarchical, functional, and process perspectives.
You will learn the rationale for each perspective and its limitations.
• To discuss the underlying principles and applications of business process reengineering
(BPR), as well as its advantages and disadvantages.
• To explain the genesis of the enterprise systems (ESs) trend and why so many companies
are employing or introducing them. You will also learn to articulate the principal benefits
and risks associated with these systems.
• To evaluate the integration trend and the role of integration principles in the modern firm.
• To explain enterprise resource planning (ERP) and discuss its main advantages and limits.
• To explain what is meant by supply chain management and the role that supply chain
management applications play in modern organizations.
• To explain what is meant by customer relationship management (CRM).
What we learned
• To clarify what is meant by knowledge management, categorize the different types of knowledge
commonly found in organizations, and explain why organizations feel the need to employ
knowledge management applications.
• To define the key terms analytics, big data, and business intelligence and define their underlying
trends.
• To clarify the evolution of business and organizational analytics over time, from the early days of
batch and transaction processing systems to the modern era of big data and advanced analytics.
• To evaluate the business intelligence (BI) trend and explain the components of the BI
infrastructure. You will learn how to identify and describe the role of the technologies that
compose a modern BI infrastructure.
• To evaluate the big data trend and gain insight on consolidated technologies, computing
architectures, and practices.
• To define the term cloud computing and be able to discuss its underlying delivery models: software
as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).