foundations of information systems

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MODULE 3MODULE 3

Business Information Systems

3.1 Business Information Systems

The subject FIN600 Financial Management introduces the concept of the

functional view of organisations. In this model, work is divided into

repeatable steps that are performed by specialist employees that are

organised into organisational departments. For example, Human

Resources, Accounts Payable, Information Systems and Marketing. The

functional view can be traced back to the turn of the 20th century with

famous sociologists such as Max Weber (1905), management theorists

such as Frederick Taylor (1911) whose influence have dominated

management thinking until the 1970s. We can even see remnants of this

thinking in the way that university degrees are structured; they seem to

want to turn you into a specialist!

To begin our consideration of the functional view, and to properly orient

our subsequent discussion, you should now read the first reading, first

published in 1969. Although the functional view of business is still very

much in action today, reading this article, it can be seen that even 50 years

ago management thinkers were attempting to shrug it off in search of

more agile methods of running businesses. Notwithstanding the push to

change, the article notes where the functional view is still useful, such as

where technological change is slow, relative to other industries. Keep the

ongoing call for agility in your mind as you learn the concepts in this

module.

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In our earlier discussions of systems, data, information, and knowledge,

we took an all-encompassing view, as if we could transplant that

understanding of data, information, and knowledge at any level in any

firm. At that point you might have considered that systems fit into the

firm, and indeed any firm in its entirety. In a way, taking the systems view

of organisations, that is true. But at the level that work gets done inside

firms, it was an impression that now requires clarification. The reality is

that there exist many different types of IS within firms and that each of

them has different objectives. For the firm to work efficiently as a whole,

the IS within it must integrate and this will be discussed later.

We will now discuss a range of business IS.

3.1.1 TRANSACTION PROCESSING SYSTEMS3.1.1 TRANSACTION PROCESSING SYSTEMS

We have already discussed a type of IS in this subject, a transaction

processing system. Recall the discussion about Woolies and, even earlier

this very module, Coles and Coles Express, that sells millions upon millions

of grocery items every day. Customers bring their purchases to the

checkout and, in the case of a manned station, a sales assistant scans the

barcodes of the groceries (or weighs the fresh produce) and the details of

the customer’s trolley is input into the register. This process recurs several

times throughout the day. To understand the process a little better we

need to define some key concepts:

transaction – any event that generates data that the business

considers important enough to capture and store in a database;

and

transaction processing system – supports or facilitates the

collection, processing and storage of transaction data and provides

input into corporate databases

Transaction processing systems (TPS) is the basis for accounting systems

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and are especially important since accounting and tax rules mandate that

businesses can account for each and every transaction in their business.

TPS can be either of batch or real-time systems. Batch processing means

that all of the transactions are processed in one processing operation,

typically overnight. A payroll system is an example of a TPS that runs in

batch mode. Real-time processing means that transactions are processed

as they occur. Current (non-payroll) TPS mostly offer real-time processing

capability.

In the case of Coles, as discussed earlier, there are numerous checkouts

and many people who will rely on the information generated out of the

transactional data. This means that the TPS must be protected from errors

that may originate in any single one of those checkouts or from

overlapping updates between them. Sometimes a customer may return to

the store with faulty merchandise and so the TPS must be capable of

reversing a transaction (i.e. to give the customer a refund). Importantly,

the TPS also must preserve an audit trail so that errors can be traced.

We now present IS for accounting and finance functions.

3.1.2 INFORMATION SYSTEMS FOR3.1.2 INFORMATION SYSTEMS FOR ACCOUNTING AND FINANCEACCOUNTING AND FINANCE

A responsibility of the accounting and finance function is to manage the

flows of money into and out of the firm. This is a hugely important

function since almost all of the operations of a business rely on there

being a steady flow of cash. The activities inform the firm on what funds

are needed and can include, among other things, information relating to:

stockholders;

bank loans;

transaction data;

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business intelligence;

budgeting; and

accounts payable and receivable.

Activities in the accounting and finance function include budgeting and

planning, managing financial transactions, managing investment activities

and control and auditing. In all cases the requirements for IS in this

function are that it facilitate some of the routine work. For example,

variances in budgeting or trends should be highlighted to the finance staff

so that errors can be quickly identified and corrected. Further, some

banking covenants (i.e. the rules governing the provision of a line of credit,

or other banking products) require special conditions to be met. An

example is that the accounts payable days does not exceed 90 days. IS in

the accounting and finance function must allow it to honour its banking

covenants by highlighting to management if accounts payable days are

approaching their covenant threshold.

Accounting IS such as MYOB, QuickBooks or Xero offer accounting

artefacts like ledgers, journals, and accounting statements to be managed

and produced. Systems for larger firms like SAP and Oracle also facilitate

these functions but do so while facilitating the increased complexity of a

larger firm. These systems track inventory levels, transact sales in multiple

currencies, perform month-end and year-end activities (closing the

accounting periods) and manage the collection and monitoring of

expenses. Once these activities are captured by accounting IS, the

function must also manage its operations for control and audit to protect

against fraud and to provide assurance to its owners that the business is

appropriately managing its finances. Therefore, accounting IS must also

facilitate budget control, auditing, and financial ratio analysis (these

details are covered extensively in the subject FIN600 Financial

Management).

We now discuss IS for operations management.

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3.1.3 IS FOR OPERATIONS MANAGEMENT3.1.3 IS FOR OPERATIONS MANAGEMENT

The collection of operations of any business is the collection of repeatable

processes by which it gets its core business done. The operations

management function is the ‘engine room’, which means that it is the

function that oversees the fundamental work of the firm. Whatever the

business does, the operations function is charged with ensuring that it is

done in the most efficient manner. Therefore, operations managers often

have a continuous improvement objective in their role so that they can

continuously get better and more efficient at delivering the product to the

customer. (The subject MGT603 Systems Thinking discusses the elements

of operations management while using a systems thinking lens through

which to view operations.)

One of the main pillars of operations management is the ordering,

purchasing, and managing of materials that the firm needs in order to

produce its product. It is up to the operations function to ensure there is

sufficient inventory to produce the products, while maintaining quality

and minimising spoilage or damage. Systems such as the following are

used to support the operations function:

materials resource planning (MRP) – deals with production

scheduling and inventory and can include planning for

manufacturing materials and labour requirements;

computer-integrated manufacturing (CIM) – provides input into

factory systems that manufacture complex products, such as a 3D

printer; and

product lifecycle management (PLM) – facilitates the design of new

products with external partners.

The consequences for mismanaging operations in any firm can be dire.

For example, having too few of a certain car component can disrupt the

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manufacturing for the Ford Motor Company, contributing to delays in

dealership deliveries. Too many will consume storage space in the

warehouse, creating additional overhead and safety concerns as well as

tying up cashflow. So, understanding the business requirements—even

for IS students—and ensuring operations managers have the information

they need to make efficient business decisions is a hugely important

consideration here.

We now present and discuss IS for human resources management.

3.1.4 IS FOR HUMAN RESOURCES3.1.4 IS FOR HUMAN RESOURCES MANAGEMENTMANAGEMENT

The human resources (HR) function is often charged with ensuring skilled

people, who are highly engaged and happy, are the ones working for the

firm. Payroll is an important IS used by HR and is an example of a TPS

discussed earlier. A payroll system is used to pay wages and salaries to

the people employed by the firm and it will be used to track things like

holidays, sick pay, entitlements, reimbursements and so on. Other

examples of systems used by the HR function can include:

recruitment – since the firm must find people who are skilled and

those who fit the culture of the firm, a recruitment system is often

used to facilitate staff recruitment. A recruitment system will be

used to store the résumés that are submitted to the firm and may

involve automatic screening for keywords; and

development – once staff are inside the firm, the HR function

facilitates setting objectives so that the people can be best set up to

be successful in their roles. People need to have challenging

objectives set and to be rewarded when those objectives are met.

Where they are not met, the HR function attempts to identify

development opportunities to help that person meet their

objectives.

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HR system often exist as portals so that they are easily accessible by

internal as well as external people. The HR systems will often also produce

information for management, such as how many staff were able to meet

their objectives and whether trends emerge in required training and

development. Having skilled and motivated staff is a key element to

running the business, after all!

Now that we have discussed various functional IS within the firm, we now

consider integrating the systems together.

3.1.5 ENTERPRISE RESOURCE PLANNING3.1.5 ENTERPRISE RESOURCE PLANNING SYSTEMSSYSTEMS

The functional view of business introduced earlier in this section of the

module demonstrated how work is divided into what are repeatable

cycles of work where the workers become specialised. There are obvious

advantages in this approach but there are disadvantages too. One

considerable disadvantage is that the functions can become insular,

considering anything outside of the function to be secondary or foreign to

the work they do. The following image illustrates the problem.

Figure 3.2: Silos on a Construction Site

Figure 3.2 shows a number of silos situated side-by-side on a construction

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site. This image is used as a metaphor for organisational functions. The

silos in figure 3.2 contain only one type of material and there is no

integration between the silos. The metaphor is used often in

contemporary firms as a pejorative because a silo mentality is used to

describe where functions operate in a vacuum, ignorant of how it fits into

the broader picture of the firm. As the organisational functions developed

the systems we discussed in the previous subsections, it is likely that they

were designed for use only within that function. Data is often not shared

between functions and this can result in reintroducing various

inefficiencies into the firm. For a firm to operate efficiently, there must be

cooperation and coordination between the functions.

Enterprise resource planning (ERP) systems were developed to integrate

the independent systems that exist within organisational functions.

Imagine, for example, that the operations function keeps a list of the staff

and their capabilities so that it can appropriately apportion the work. The

HR function also keeps a list of staff but for the purposes of setting

objectives and paying the wages each fortnight. It means that there are

potentially two or more records of staff that exist in the firm. This

duplication of data is inefficient as there can be errors, particularly if the

two records don’t exactly match. ERP systems are designed to consolidate

data resources and make them available across functions. ERP systems

therefore foster inter-functional collaboration.

You should now review reading 3.1.2 (a video) that explains and illustrates

how the various functional IS are brought together and integrated in an

enterprise. Note the term ‘islands of information’ used in the video and

how ERP centralises and streamlines the flow of information. Also note

use of the term ‘modern ERP’, which, since ERP has its origins in the 1980s,

hints at the evolution of ERP over the years and its ability to adapt and

integrate into other enterprise systems.

Obviously, ERP systems generate significant improvements to businesses.

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Some of the benefits include:

flexibility – ERPs break down the barriers that organisational silos

put up allowing the firm to react with flexibility and agility to the

vagaries of the markets it serves;

decision support – allows essential information to be generated

anywhere in the enterprise and to empower people in cross-

functional areas to make better decisions; and

quality and efficiency – the fuller and richer set of data allows the

firm to focus on data quality and, in turn, to serve customers to an

even greater standard

However, despite these significant advantages, there are some

disadvantages to consider in ERP. Foremost among these is that there is

often a prescribed set of business process that the ERP enforces on the

business. These are often explained to the business in terms of being ‘best

practice’ and its implementation means that the firm is then locked into a

certain way of operating with changes that are very difficult to adopt. In

addition to this, an ERP implementation is expensive—often spilling into

the millions of dollars—and risky where losses due to failure can cripple

or end a business are a real possibility.

The times when ERP implementations fail often are caused by

miscommunication between the IS people and the business people or the

IS people failing to understand the business requirements (be sure to

check out the subject MIS604 Requirements Engineering for more in-

depth discussion of this) or where the project or change management

process where not appropriately managed.

To round out this half of the module, you should now read the second

reading, published in 1972. This article demonstrates that also in the

vicinity of 50 years ago, leading thinkers were proposing the idea that

people are more than they have been defined. It foreshadows what would

come much, much later in the 21st century, the so-called ‘gig economy’

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and how the nature of work would be fundamentally changed. The

purpose of positing this reading so to bolster the notion that ideas we

might consider new and fresh today actually have their origins in times we

might consider to be out-of-date or out-of-touch. Au contraire, mon ami!

You will note that much has changed over these 50 years, only in the form

of what technology looks like and what it does, but the changes that have

occurred in the underlying economy as well. (In fact, the students who do

best in this subject will be those who observe the trends between the lines

rather than the surface-based observations you might be tempted to

recount in an assignment.) We mentioned the gig economy earlier as a

fundamental shift in work and careers; this is reflective of the overall

mobility of labour. Other changes include shorter product lifecycles, the

rise of mass customisation, the aging population, food and global security

concerns and outsourcing. These trends will be important considerations

in the next half of the module.

3.1 Readings

1. Whiting, RJ (1969) 'In Defense of Functional Organization [sic.]',

Management Review, 5858(7), pp.49-53, [onine], http://search.ebscohost.com.ezproxy.laureate.net.au/login.aspx?

direct=true&db=bsu&AN=6056876&site=ehost-live.

2. Arcus Universe (2015) 'What is ERP Software', Arcus Universe, [online] https://www.youtube.com/watch?v=6qys-562kp4.

3. Ramos, AG (1972) 'Models of Man and Administrative Theory',

Public Administration Review, 3232(3), pp.241-7, [online] http://search.ebscohost.com.ezproxy.laureate.net.au/login.aspx?

direct=true&db=bsu&AN=5668224&site=ehost-live.

3.1 Activities

Consider batch and real-time processing of TPS. Not using any reference

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material (i.e. do not yet go to the Internet, a textbook or other source you

would otherwise get the answer from), list as many advantages and

disadvantages for each approach as you can. Aim for 5 advantages and 5

disadvantages for each. When you have exhausted your own deductive

reasoning skills, you can consult reference materials. Drawing a line under

your own original deductions, be sure to catalogue the sources you used

for each of the ideas.

MobileFix Pty Ltd is a business that offers repairs for mobile devices and it

has a four retail outlets in each of the central business districts of

Adelaide, Melbourne, Sydney and Brisbane, Australia. The business model

is simple: customers bring a damaged mobile device into the store,

leaving their contact details and a pre-payment and then a service

professional attempts to repair the device. Repairs may include replacing

broken screens, drying from accidental water damage, or replacing

circuitry that has worn out. MobileFix has promoted its business well and

due to its prominent locations in the major capital cities, as well as the skill

level of its repair staff, its business is growing. MobileFix requires only the

storefront, mobile phone screens, circuitry and drying agents to run its

business and it takes a pre-payment from its customers, the balance being

payable upon picking up the mobile device. Your task is to research and

recommend an accounting IS that MobileFix can use. Start with MYOB,

QuickBooks, Xero and Reckon to determine which is the best solution for

MobileFix, making whatever assumptions you need to make to ensure you

deliver a seamless solution to the client. Post your thoughts on the

discussion forum and be prepared to critique the ideas of others and to

defend your ideas.

MobileFix continues to grow and has decided to open additional stores in

those capital cities in order to keep up with demand. It hires additional

support staff and repairmen and needs to increase the number and scale

of supplies for repairing mobile devices. It has also decided to increase the

scope of what it repairs to include tablets. Using your knowledge from the

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module so far, determine the system requirements for managing the

inventory, production scheduling and other operations planning so that

MobileFix can continue to repair devices most efficiently and continue is

excellent reputation. Using no more than one page, write a

recommendation to the management of MobileFix on what systems they

should adopt.

3.1 Reference

Taylor, FW (1911) The Principles of Scientific Management, Harper &

Brothers, New York, NY, USA.

Weber, MKE (1905) The Protestant Ethic and the Spirit of Capitalism,

Unwin Hyman, Berlin, Germany.

C L I C K H E R E T O R E T U R N T O M O D U L E T O PC L I C K H E R E T O R E T U R N T O M O D U L E T O P