MIS and its role in the decision-making process - Essay Example

?MIS and its Role in the Decision-Making Process Information systems have come a long way from the time electronic data processing (EDP) was introduced in the 1960s, moving out of the large super-cooled computer facilities that housed the macro computers, punched card readers and peripheral magnetic tape and drum readers, into the homes and even on the persons of ordinary people who need not understand the technical jargon to use them. With the huge advances in technology, the social development of digital communications have likewise transformed the way the typical consumer is regarded and related to by business organizations. Management information systems have enhanced this relationship bi-directionally, altering the ways businesses compete against each other for the customer’s attention and patronage. Today, the key to effective and successful competition lies no longer in corporate size and strength, but in the speed and agility with which firms take advantage of their information systems. This essay provides support to the idea that management information systems provide support to effective competitive strategy. The information requirements in an organization Before one may understand management information systems, it is important to understand “management,” specifically the information demands of various levels of an organization. There are three levels of information to provide the needs of three levels of management: Top management, which is concerned with strategic management, are served by the Decision Support System (DSS). The middle management (or tactical management level) is that which is supported by what is known as the Management Information System (MIS). Finally, lower management, which is in charge of the day-to-day operational management, is that whose informational needs are addressed by the transaction processing system (Doyle, 2000, p. 182). The three-level management hierarchy, with their respective functions and corresponding information needs, are depicted in the following figure. Source: Transport Scotland, 2011. The level of management is definitive of the scope of the MIS; the nature of the contribution of MIS to the competitive strategy of the organization, however, depends a lot on the attributes of the organization such as its size, form, and decision-making structure. For instance, if the organization’s overall decision-making structure is characterized by a high degree of centralization, then the IT structure will also tend to reflect high centralization, in comparison with organizations with a more disperse power structure. This tendency was established by the findings of several studies cited by Tavakolian (1989, p. 309). Organizational form is another variable affecting the responsibilities which the IT system is tasked to perform. There are two general organizational forms: the functional organizational form, and the product organizational form. The organization structured according to the functional form is one where the designation of departments, sections, or units are according to the business functions – i.e., marketing, accounting and finance, production and operations, human resources, and so forth. When the organization is structured according to the product form, the departments and other units are designated according to product or market lines. The form of the organization is seen in conjunction with the IT function and structure; generally, when activities are organized according to functions, IT structure is generally centralized, and for activities organized around products and markets, IT structure is decentralized (Travakolian, 1989, p. 310). Finally, organization size is a factor that influences IT structure. It was observed that size in terms of revenue is directly related to the degree of centralization of IT, although the number of employees appears to have no impact upon IT structure (Ein-Dor & Segev, 1982, p. 55). Categories of competitive strategies An IT system is generally successful if its activities support the firm’s particular competitive strategies. One system of classification is Miles and Snow’s typology (1978), which distinguishes strategies as either defenders, prospectors, analyzers and reactors. These are the basic strategy types for this theory, and they may be described as follows: (1) Defender – This is a conservative competitive strategy which undertakes little or no innovation, such as the development of new products or services. Defenders tend to rely on both centralized decision-making and autocratic leadership style. It is prone to structure its activities functionally, and it is generally oriented towards increasing savings and cost effectiveness. For defenders, and IT system that is likewise centralized will enable the firm to maintain centralized control and bureaucracy to maintain high quality and low prices for the products it sells. (2) Prospector – This describes an aggressive competitive strategy that makes a bid to pioneer in product or market development. This strategy tends to rely on both decentralized decision-making and participative management philosophy. It typically structures its activities around product and market divisions, and is oriented towards effectively making profits for the company. Decentralized control and information are necessary to institute rapid change in pursuit of changes in its products and markets with a bare minimum, even absence, of bureaucracy. (3) Analyzer – This involves a moderate competitive strategy that is less committed to stability than a defender, and makes fewer and slower product and market changes than a prospector. Analyzers tend to abide by a balanced decision-making structure, and for this reason mostly subscribe to a matrix form of organization. It is oriented towards a balance between efficiency (lower cost) and effectiveness (impact upon market). Its control and information structure is less centralized than the defender’s, and more centralized than the prospector’s. (4) Reactor – This involves no distinct competitive strategy. Decisions are made in random fashion, and actions are actually reactive to developments rather than proactive to meet forecasted situations. For this reason, IT is not really an issue in reactor organizations because they are in constant state of uncertainty. Competitive strategies support the development of competitive advantages that makes the organization better than its competitors. More precisely, competitive advantage that is self-sustaining and therefore continuing, is one that “arises from the inability or unwillingness of competitors to copy an innovation” (Dennis, Nunamaker & Paranka, 1991, p. 7). “A competitive advantage is sustained only if it continues to exist after efforts to duplicate that advantage have ceased” (Piccoli & Ives, 2005, p. 749). From a resource-based view, competitive advantage may be sustained only if competitors are unable to acquire for themselves the same underlying resource that creates the value behind the strategy. The IT system in general is capable of building several resources that enhance the organization’s competitive advantage. One such resource is organizational learning, which is the capacity or processes within an organization to maintain or improve performance based on experience” (Nevis, et al., 1995 as cited in Piccoli & Ives, 2005, p. 751). Another is the development of customer service processes that may not be duplicated by other competitors (Ray, Muhanna & Barney, 2005, p. 625). This latter pertains to the fact that the enhanced customer service process unique to the organization was made possible by the enhancement of shared knowledge within the firm with increased levels of IT use (Boynton, et al., 1994). Other sources of competitive advantage are the technical expertise of IT staff and personnel, generic information technologies, and the amount of IT spending as factors that further define shared knowledge (Ray, et al., 2005, p. 626). It is the four attributes of IT – capital requirements, proprietary technology, technical IT skills, and managed IT skills – which provide sustained competitive advantage from the viewpoint of resource-based analysis (Mata, Fuerst & Barney, 1995, p. 487). Types of IT activities Competitive advantages and strategies are supported by IT activities in different ways, depending on the type of activity. Several studies have identified three general types of IT activities (Lucas, 1982; Jenkins and Santos, 1982). These are: (1) Systems development and maintenance – These activities are required for the organization to develop new systems while maintaining those that are already in place. They include feasibility studies, systems analysis and design, programming, initiation and training of users, and systems evaluation and testing. (2) Systems operations – These activities are related to the implementation of systems already existing, including job scheduling, data entry, the production and distribution of output information, and database maintenance and operations. (3) Systems administration – These activities involve the management function of both systems development and systems operations. Included in this category are policy setting, implementation and monitoring; human resources development and management; and planning and control activities. The study by Travakolian (1989) found that IT structure, particularly the degree of centralization of IT activities, is significantly related to the organization’s competitive strategy, and the wrong choice of IT structure and activities can adversely affect the success of the firm’s competitive strategy if the two are not compatible (p. 314). Thus, the strategic design of information systems is undertaken in support of the business strategy of the organization in setting and meeting its goals (Chen, Mocker, Preston, & Teubner, 2010). In order to provide a concrete example of how information systems and specific IT activities support the higher organizational functions, particularly strategy formulation and implementation, the IS system of Scotland’s Transport organization is shown as sourced from their website and depicted in the figure following: Source: Transport Scotland, 2011. Role of information systems in the emergence of electronic business One outstanding capability of management information systems is its ability to perform multiple tasks simultaneously, increasing the efficiency with which a company may conduct several business operations at the same time. It allows for accurate and speedy decision making compared to conventional business without such capability. Another repercussion is the capability MIS provides to allow multiple users to gain access to the same content all the time without creating any discrepancies (Jahangir, 2005), thereby increasing the accountability from business operators at multiple points. This ability of MIS to safeguard accountability in decision-making is referred to as the “gate-keeping” role of MIS (Nowduri, 2011, p. 4). The access provided by electronic information systems to the business, from remote points and multiple users in order to accomplish multiple tasks have enabled the birth of e-commerce and e-business, in general. Electronic business, or e-business, slightly differs from e-commerce in that it embraces a broader range of activities. E-commerce refers to the buying and selling of goods over the Internet. On the other hand, e-business includes and transcends the mere buying and selling of the product good or service; it also involves collaborating with partners and affiliates, online shopping, salesforce automation, supply chain management, procurement, and other such undertakings in the course of doing business, but always through the use of computers and communication technologies (Bidgoli, 2010, p. 139). Many times, however, the terms e-commerce and e-business are used interchangeably without too much stress being given the fine points. From the perspective of e-commerce, the emergence of the Internet and development of new communication devices and protocols have made it possible for the multi-tasking, multipoint capabilities of the IS to be extended between businesses and their customers. This has provided a boom primarily to B2C, or business to consumers, operations, in its initial stages. However, because of the cost efficiency of this technology, the advantages to the firm of providing online sales channels for customers to access and transact from, have been eroded by the popularity with which the technology has been adopted. When all competitors in the industry have the same capability, then it ceases to become a competitive advantage to any one firm. For the firm’s IT competence in e-business to be converted into a competitive advantage, it should be “inert, differentiated across firms, and extremely expensive to replicate” (Barney, 1991, p. 99). One such resource of great importance stems from the experiential-based skills and knowledge in the management of an Internet-enabled business. On the average, empirical evidence suggest that a firm requires three years to design and develop web sites that sufficiently respond to customer needs (Poole, 2001, p. 77), pointing to “learning effects” as a cornerstone of Internet-based competitive advantage. Such learning effects must, however, be supported by slack resources to support innovation; it is the combination of the learning effects of experience and the availability of the necessary resource allocation that crucial e-commerce/e-business competencies become possible (Wheeler, 2002, p. 125). For some observers, learning effects and resources are but the foundation upon which competencies rest; the resource-based view falls short of identifying the goal or target that must be attained for the firm to achieve a clear distinction among its competitors. In this case, e-commerce/ e-business competency must succeed in creating customer value for the customers. “Customer value represents the net worth to customers from buying and using a seller’s products” (Saeed, Grover & Hwang, 2005, p. 226). This is evident in the manner companies extend superior pre-sale and post-sale services to the customer as a vital and integral component in their transaction. These add to the benefits received by a customer in terms of reduced nonmonetary cost in time, effort, and mental stress. One such example of this is the proprietary protocol developed by Hilton Hotels Worldwide, referred to as the OnQ™ customer information system. Hilton Hotels spent $50 million on the development of an information system that not only provides management the needed information for decision making, but moreso connects with the customer in a way that enhances the value of their relationships with the hotel chain. The OnQ system links more than 2,100 hotels worldwide, and provides each of these locations access to customer information from anywhere in the world. What this means for the customers is that once they have been guests in any one of the Hilton hotels, information as to their preferences concerning their stay is available at any other Hilton hotel they may decide to visit. More than that, the customers are provided access to the OnQ through the Internet or any of Hilton’s information kiosks located at airports and similar strategic points. Through this access, customers can indicate their reservations even en route, and provide advance instructions for when they reach their hotel destination, concerning their rooms, meals and other information. Through all this effort, the point the organization gets across to its customer is exactly what its strategy is about, that “Customers really matter” (Shein, 2003). The process flow of the OnQ project development is provided in the following figure. Sourced from http://www.docstoc.com/docs/24967718/Onq-process-flow-diagram_generic-project Analysis and Conclusion This essay set out to describe how information technology in general and management information systems in particular assist in the strategy implementation of a business. Basically, IS provides timely, relevant and accurate information in useful form that supports management decision. However, the degree to which this could be accomplished depends much upon the organization itself – its form, structure, size and other attributes – the type of strategy the organization decides to undertake, and the IT activities it decides to undertake them with. A mismatch in the combination of these elements is highly determinative of how successfully an information system will support an organization’s strategy realization. Therefore, much still depends upon the skill and insight of management at its own business and how it relates to technology. Having an effective IS in place enhances the power electronic business may add to the organization by way of increased value to the customer, thereby creating a competitive advantage on which to build the firm’s overall strategy. 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