Information Systems Improving Business Efficiency

Introduction

Information has emerged as an essential agent of integration of corporate activities and also as enabler for enhancing the competitiveness of present day’s business houses in the domestic as well as international market place. However, the question that whether the shifts in the strategic planning methods are really supporting the new role and involvement of the information system and technology in increasing the efficiency of the organization still remains to be tested. This depends largely on the size and nature of the organization and the magnitude of the information the information systems are able to generate. A proper integration of the planning activities with the development and management of the organization through enterprise information resources which is capable of capturing information and data and characterize the enterprise will facilitate the reduction of the response cycle of the information system. Such integration may also even allow for an economic evaluation of the investment in the information system to assess the real benefits out of the information systems. For quite a long period, the senior management of the firms could not recognize the relationship between the utility of the information systems and the strategies evolved for the corporate growth. They thought the information systems to be synonymous with the data processing functions at the corporate level and treated the information systems as back-office support to the day-day routine acts. (Rockart, 1979) However there has been increasing realization of the need to evolve and adopt proper information systems as one of the strategic measures for overall improvement in the organization. Therefore the ‘Strategic information system planning’ has begun to be considered as a critically important issue in the functioning of any large business entity. In many of the surveys conducted on the information system strategies, improvement in the strategic planning of the information system has been considered to be the most serious challenge facing the Information system managers (Pavri and Ang, 1995, Beath and Orlikowski, 1994; Porter and Miller, 1985).

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Planning for the Information Systems

The planning for information systems just like any other system development starts with the identification of the basic needs of the organization. In order to be effective the development of any type of computer based information system should be a need based one irrespective of the fact that whether the system represents just the processing of transactions or a more complex information support system which aids the management decision making at senior levels. It is observed that the planning for the information systems follows the same procedure as that for strategic planning management. It is necessary that the information system projects must follow formalized objectives, priorities, and authorization in order to be effective.

The information system development plan should identify specific projects that are expected to be taken up in the future, the priorities fixed in respect of those projects and the allocated resources for the projects, general procedures being followed by the organization and the likely obstacles the systems may face. It is also equally important that the planning must be specific enough to ensure that all concerned understand the position of each application and also make them known the standing in the order of development. King (1995) identifies that a strategic capability architecture which is a ‘flexible and continuously improving infrastructure of organizational capabilities’ forms the basis for improvement in the sustainable competitive advantage of the firm. King (1995) has also stressed the need for the updating and improving the strategic capabilities of the system architecture on a continuous basis.

Functions of the Strategic Information System

Strategic information system planning represents the analysis of the information and processes based on the business information models along with the accompanying evaluation of risks, and current requirements of the firm. Battaglia (1991) points out that the result of such an analysis is a detailed action plan that exhibits the course of events which go to align the use and needs of the information systems with the strategic goals of the organization. Therefore, according to the author the information system planning is more a management function than a technical one. This view coincides with the distinction between both the traditional considerations of the information processing as data processing and the modern views of treating the information system as a strategic tool. Thus the strategic information system planning helps in identifying the best targets for acquisition and installation of new management information systems and thereby maximizes the return on the investment the firm has made on the information system. The basic purpose of the information system comprising of computer based applications is to help the organization in executing its strategic business plans and achieve its organizational goals. It has increasingly been recognized that the application and adoption of information technology systems to the strategic activities of the firms has the ability to tremendously improve the performance of the organization.

Different Perspectives of the Information Systems

John Ward et al (1990) have identified three different perspectives of the information systems during the past decades. They are; (1) Data Processing which represented the basic function of the computers which are remote and away from the users and was having the main purpose of cost reduction, developed and used during the 1960’s (2) Management Information systems which are basically user driven and comprises of distributed process, interconnected and regulated by management service having the objective of supporting the business. This view was adopted and practiced during the period from 1970s and 80’s. (3) During the period between 1980’s and 1990’s the information system has assumed a strategic role which was designed to include networks and integrated systems. These systems are mainly intended to support users to pursue the business strategies and are business driven and changes in the business strategies necessitate changes in the information system configurations.

Based on the above perspectives the application of the information systems should be planned on the basis of relative contribution of the data processing, Management Information system and the strategic information system to the existing and future business of the firm. The traditional information system models have considered the interrelationships in between themselves and the tasks they perform and did not look in to the business as a whole and its success. McFarlan (1984) considers the impact of the industry on the contribution of the IS/IT towards the existing and the future business.

Objectives of the Information Systems

Lederer and Gardner (1992) have identified five different objectives of a strategic information system model. They are:

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  • Identification of the information needs of the organization
  • Developing new opportunities for using the information generated to enhance the competitive advantage of the organization
  • Defining the overall IT strategy of the firm for the purpose of satisfying the IT objectives of the organization
  • Defining the data, applications, technology and the requirements of the organization for providing the necessary support to the overall IT strategy of the organization and
  • Defining the activities needed to meet these requirements and for the implementation of the overall IT strategy.

Value Chain

Vitale et al (1986) classify the Strategic information system planning methodologies into impact and alignment methodologies. The purpose of impact methodologies help the organization to create and justify new uses of IT for the business while, the alignment methodologies strive to align IS objectives with the organizational goals.

‘Vale chain’ is an impact methodology that helps the organization to create and use new uses of IT. Michel Porter (1984) has descried the concept of ‘value chain’. According to Porter (1984) “every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. All these activities can be represented using a value chain.” Porter further explains that the information technology is one of the important elements that support the value chain activities. “Information systems technology is particularly pervasive in the value chain, since every value activity creates and uses information. The recent, rapid technological change in information systems is having a profound impact on competition and competitive advantage because of the pervasive role of information in the value chain. Change in the way office functions can be performed is one of the most important types of technological trends occurring today for many firms, though few are devoting substantial resources to it. A firm that can discover a better technology for performing an activity than its competitors thus gains competitive advantage” (Porter, 1985).

Advantages of Value Chain

On the formation of the value chain it is easier for the executives can arrange the steps involved in the determination of the departments and functions that are important to the strategic objectives of the organization. As a subsequent step the interfaces between the primary functions along the chain of production and the support activities can be considered by the executives. This enables them to establish the critical points of inter-departmental cooperation. Thus value chain analysis:

  1. Enables the analysis of the business activity which breaks down activities of an enterprise in to different parts from which the information systems are derived
  2. Helps the organization devising the information system that enables the organization to increase the profitability of the firm
  3. Helps the organization, identify the potential for business advantages that may be available to the business can expect from other related activities. The advantages may from either from the same other related, industries and this information will be available from the information interchange.
  4. Concentrating on value addition to the business activities and is independent of the strengths of the organizational structure. Since the value chain concentrates on the value addition of different activities of the firm, it is able to pitch the information systems exactly to the area of value addition rather than cost cutting.

The other impact methodology is the ‘Critical success factor analysis which can be considered both as impact as well as alignment methodology. Rockart (1979) defines critical success factors as being “for any business the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization”.

The Alignment methodology include ‘Business System Planning’ developed by IBM, strategic system planner developed by Robert Holland, and Information Engineering developed by James Martin (1982)

Formulation of Strategic Information System Planning

Based on a study of the literature reviewed above and a study of the available methodologies certain general steps for the formulation of a strategic information system planning can be identified. These steps include:

  1. Study of the internal business environment

The study of the internal business environment is an essential prerequisite to the formulation of the strategic information system in any organization. This includes the study of the mission of the organization, the organizational objectives, strategies and plans, business functions and activities, organizational environment, core competencies, its critical success factor and the internal value chain.

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  1. Study of the external business environment

The study of the external environment helps the organization to concentrate its attention on the forces and pressure groups it encounters. The external forces have a lasting impact on the business strategies developed by the organization. The factors that need to be considered in the study of the external environment are the industry in which the industry acts, the critical success factor of the industry, the competitive position that the organization occupies and relationship the organization has with the major suppliers and buyers.

  1. Study of the IS/IT environment

This involves an analysis of the current and planned applications of the information systems that can support the business in achieving the objectives. The other aspects that need to be considered are the present IS organization, the skills, and attitudes of the organizational members, the existing IT environment and the allocated IS/IT budgets.

  1. Study of the External IS/IT environment

The study of the external environment of the IS/IT involves reviewing the available and the newly emerging technologies and the implications of these elements on the business. The main aspect of this study is to understand how the IT is being used by the competitors to enhance the value of their activities.

The entire process of the information system designing and implementation involves the following levels:

  • Planning level
  • Analysis and design level
  • Implementation level

Planning of a Comprehensive Strategic Information System for SAS Plc

Applying the above principles in establishing an efficient IS for the company SAS plc involves the following factors may be considered for the implementation of an effective and efficient IS.

Purchasing Function

The IS for the purchasing function should accommodate the following changes to provide comprehensive information for taking effective operational decisions:

  • A data base consisting of the complete list of suppliers, vendors, subcontractors and service providers need to be complied. This list should include the names, addresses, email ids, contact telephone numbers, and contact persons.
  • This data base should provide for the cross references for the various items that can be supplied by the respective suppliers. Alternatively the supplier data base should also be organised in such a way that there is the list of suppliers with all the relevant details about the suppliers that is presented on the basis of the materials and services. This database needs to be updated with each new vendor/supplier being introduced in to the buying system. All the suppliers may be provided with either a numerical or alpha numerical distinct identification number while storing the details and these details should be stored in a central file so that these will be available to all the buyers. One person in the IS/IT department should be made responsible for the updating the vendor status.
  • On the system for placing the purchase orders the ordering system should provide for the easy analysis of the competitive quotations received, the rate quoted by the selected supplier, the history of past supplies of the vendor, the total credit limit the company has got from the particular supplier, the amount of credit availed so far, the payment terms and the rating of the supplier in terms of quality and reliability of the supplier in terms of the timely delivery.
  • On the financial side the purchase requisition from the respective departments shall be identified as the starting point of the transaction. On the basis of duly authorized purchase requisition the purchase orders may be raised with a copy automatically provided to the goods receiving department in the stores.
  • As soon as the purchase order is raised (having a proper reference to the purchase requisition) all the relevant details must be entered in to the system with provision for entering details of physical receipts of goods, claim on the quality, deduction for quantity and cash discounts, claim for bad quality and return for inferior quality.
  • As soon as the goods are physically received in to the store, a Goods Received Note may be prepared having the references of the purchase order, suppliers’ invoice/delivery Chillan reference with the quantity ordered and received.

Production Operations

The strategic information system for the production department would involve the implementation of a comprehensive system comprising of the following considerations:

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  • The system should provide for the integration of the costing and production data and information so that a comprehensive product costing can be evolved.
  • The collection of costing information should be based on the six departments which are functional for the production of the furniture.
  • Each item of manufacture may be identified with a specific work order number, and a detailed job order costing may be put in place. The costs of the different departments including the fixed overheads may be accumulated and a labor hour rate may be arrived for charging to the final product.
  • The IS should be so designed that it captures the data for the collection of costing information online and arrive at the labor hour rate with every addition of cost information to the system.
  • To achieve the updating of the labor hour rate online it becomes necessary that there should be an integration of the financial and costing information.
  • The performance of each department can be compared against the production norms fixed in terms of labor hours for each department budgeted for each final product. The comparison should extend not only to the physical hours but also the hourly cost of production. The system should be designed in such a way that it facilitates a real time comparison for taking corrective actions instantaneously.

Warehousing and Distribution

The information system that caters to the warehousing and distribution assumes a greater importance in any organization especially so in a manufacturing organization. This is so because the system employed should have the capabilities to identify the slow moving items and on the basis of data and information being provided by this department production planning decisions can be taken or amended depending on the changes in the customer preferences. Another area where the system can contribute to the improvement of the organizational performance is the cost of logistics taking into account the possibilities of combining outbound shipments to various store or customer locations. Some of the considerations in information system implementation are:

  • A complete module of sophisticated inventory management system may be implemented which takes into account the insufficiency in stock levels, overstocking in respect of certain items, feedback on the items from the customers on the quality, storage space in respect of various items and insurance and financing charges. All these factors need to be integrated into the systems so that at one glance the complete information and data on any particular product may be made available.
  • The existing manual system of recording the movement of finished goods should be replaced by the comprehensive system of stock keeping, where the finished goods are codified for easy identification. The system should also provide for space for recording the complete information of the customer orders.

Marketing and Sales

The information system on the marketing and sales should provide for the interface of the market, the customers, and the company. The system may provide for

  • A sophisticated Customer Relation Management (CRM) package may be designed and implemented, which takes care of the complete customer order management.
  • This system will take care of the regional and national level sales targets – product group wise and customer wise – for each sales person with respect to any particular period.
  • The sales force may be provided with the inventory updates on a daily basis which is available online. This will encourage them to concentrate on those products where there is sufficient stock so that they may not have to face hard time with the customers for delay in delivery
  • Information on the price discounts, quantity discounts, and cash discounts on each product may be worked out and made available online so that decisions on the customer orders may be taken by sales personnel then and there without referring back to the office or superiors. This would greatly enhance the efficiency of the sales force. The compensation payable to the sales force in the form of sales commission may also be provided online which will be a real motivating factor for them.

Strategic Issues

Once the information system envisaged provides for the improvement in the efficiency of the individual departments, it will be lot easier for the compiling of the overall performance figures in terms of the profitability, customer service level, sales growth – product and region wise – and the efficiency in the management of inventory can automatically be presented to the top management for consideration in frequent intervals. The production efficiency of the different departments can be monitored online basis for effective improvements thereof. Thus the generation of internal information when channelized by an effective strategic information system will be of great help to the management in taking decisions with respect to the enlargement of production capacities and the overall profitability as a result thereof.

References

  1. Battaglia, Greg, “Strategic Information Planning: A Corporate Necessity,” Journal of Systems Management, 1991, pp. 23-26.
  2. Beath, C.M., and Orlikowski, W., “The Contradictory Structure of Systems Development Methodologies: Deconstructing the IS-User Relationship in Information Engineering,” Information Systems Research, Vol. 5, No. 4, 1994, pp. 350-377.
  3. King, William R., “Creating A Strategic Capabilities Architectur,” Information Systems Management,” v.12 (1995) p. 67-69
  4. Lederer, Albert L., and Gardiner, Veronica, “Strategic Information Systems Planning – The Method/1 Approach,” Information Systems Management, 1992.
  5. Martin, James, Strategic Data-Planning Methodologies, Prentice Hall, 1982.
  6. McFarlan, F.W., “Information Technology Changes the Way You Compete,” Harvard Business Review, 1984, pp. 98-105.
  7. Parvi, F., and Ang, J., “A Study of the Strategic Planning Practices in Singapore,” Information & Management, Vol. 28, Number 1, 1995, pp 33-47.
  8. Porter, M.E., Competitive Advantage, Free Press, 1984.
  9. Porter, M.E. and Millar, V.E., “How Information Gives You Competitive Advantage,” Harvard Business Review, 1985
  10. Rockart, J.F., “Chief Executives Define Their Own Information Needs,” Harvard Business Review, 1979.
  11. Vitale, M., Ives, B. and Beath, C., “Identifying Strategic Information Systems,” Proc. 7th Int’l Conf. Inf. Sys., San Diego, 1986, pp. 265-276.
  12. Ward, John, Griffiths, Pat and Whitmore, Paul, Strategic Planning for Information Systems, John Wiley & Sons, 1990
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