Strategic Management of Information Systems - Essay Example

Information systems derived out of investments in information technology are supposed to improve organizational performance. Every department in an organization relies heavily on information for speed, accuracy and efficiency. Information helps develop other resources. Globalization and ever-changing environment emphasizes the need for accurate information at all levels of management. Any manager, before making IS investments, has to ensure maximizing the value and consider the risks of incorporating the information systems. Identifying and analyzing the risks and returns before investment is crucial. Investments in the information system alone cannot reap benefits. The process has to be understood and integrated into the corporate strategy to maximize benefits. This paper will evaluate the evidence of managerial satisfaction in respect of their IS investments. The way information can be captured, stored, processed, disseminated, and used, changes with advancements in technology. Information is intangible but holds an organization together. Crucial management decisions are based on information. According to Langemo (1980), the role of a manager in charge of information systems includes creating, maintaining, retrieving, and making immediately available the right information, in the right place, at the right time, in hands of the right people, at the lowest cost, in the best media, for use in decision making (cited by Adeoti-Adekeye, 1997). Information system is a system where raw data is accepted/collected and through a process, generated into information that is used for decision-making. It is essential to evaluate the investments in this information system. Information retrieval is a challenge for the information systems managers and developers. It is important how the information is presented to the end users. Investments in IS means investment in technologies, which form a large part of the capital expenditure and hence managers have to justify this expenditure. It is often difficult to quantify the benefits of investment in IS and past research has revealed inconsistent and inconclusive results. IS success cannot be measured merely at the managers level. It is a multi-level phenomenon comprising of the technical level, the semantic level, and the effectiveness level (Byrd, Thrasher, Lang, & Davidson, 2006). The technical level determines the efficiency and the accuracy with which the information is disseminated by the system, the semantic level determines how successfully the intended meaning has been conveyed, and the effectiveness level determines the effect of the information on the receiver. The success of IS implementation lies in proper planning and user involvement. Zara, a leading Spanish Fashion clothing company, is a classic example of having an unorthodox and cutting edge approach in the supply chain management. Zara has attained the distinction of being a global brand having its presence in 60 countries with over 858 retail shops in big cities of the world (Inditex, n.d.). Zara uses all the data on a daily basis and not on a monthly or weekly basis as do its competitors. Zara uses IS for planning, sourcing, manufacturing and delivery. Two supporting technologies in globalization have been used – data mining and data warehousing. Its data warehouse consists of only current data from present sources. It does not utilize past data to predict demand. It uses data mining for trend analysis. Merely obtaining the data is not sufficient. This information has to be shared effectively with all the partners in the supply chain. The most important information from the important sources has to be identified and tested to improve the performance of the supply chain (Lakervi & Kaipia). All the information need not be shared but the information that is shared should be meaningful. Zara has been successfully integrating the demand data into its operations across various stages in its supply chain. It uses the proprietary information technology to shorten the production cycle. To identify a new trend, produce and deliver, it takes just a few weeks against the industry average of nine months to a year (Wipo). This is possible because it receives constant messages from the store managers who signal the new trends, fabrics, and cuts. Accenture (2006), a consulting group, analyzed the Supply Chain Mastery. They discovered while operating models vary significantly from industry to industry, they always incorporate world-class business processes. According to them Zara uses proprietary information system to connect its stores to its headquarters. Zara employs specially designed hand-held devices or PDAs at all its stores, which facilitates rapid and accurate exchange of market data. Through this they keep track of the total order fulfillment process – plan procurement and production requirements, monitor warehouse inventories, allocate production to various factories and other suppliers, keep track of shortages and oversupplies (Ferdows et.al.,2003). The managers use the hand held device to send customer feed back to the 200 odd in-house designers. This keeps the production group and the designers abreast of the latest trends and changing customer demands. This operating model of using the Information system helps Zara to respond to changing customer preferences ahead of its competitors. Zara also use the internet to collect information on the changing tastes and needs of the customers (Deloitte, n.d.). This information would have been of no use to the company had it not taken complete control over the supply chain. The Deloitte report discusses the digital loyalty network that has been created by companies who link their supply chain and customer relationship management activities. They are linked through the digital or information technology and the network links all the operations, which results in higher customer loyalty and profitability. The Information System further helps in minimizing bureaucracy, speedier decisions, shortening the delays, lessening the impact of changes in circumstances (Strategic Direction, 2005). The risk is minimum as there is no over production. Zara does not utilize 100% capacity, as this would leave no scope to react to changing demands of the customers. It hardly has any sales returns and enjoys higher profits than competitors enjoy. The company’s abilities to introduce three to four new product lines every fashion season allows it to charge a higher price (Deloitte). To maximize benefits from information systems, the company must align the system with its key decision. This can help the company improve its decisions. Wal-Mart was struggling to increase its sales in mass-market discount stores (Forsyth, Galante & Guild, 2006). Market research could not identify the reason or the problem. The managers then integrated point-of-sale date with an online survey on shopping behavior in stores and general customer interests. This revealed that a large number of people who purchased TV from Wal-Mart were interested in watching sports. This information was effectively used by the organization and they immediately introduced features which sports-minded people enjoy - picture-in-picture capabilities, digital connections, and plenty of audiovisual ports. Thus, merely generating information is not enough; the satisfaction can be derived when the information can be used for enhancing performance. Tremendous benefits have been derived out of investments in customer relationship management (CRM) applications software and services (Agarwal, Pietraszek, & Singer, 2006). This has resulted in reduction in costs at various points, like sales, marketing, and customer service, apart from boosting revenue and enhancing customer experience. A wireless company developed new techniques to generate customer leads through its website. Out of 5,000,000 consumers who visited the company website each month, 10,000 were translated into sales. Further information from the website revealed that 27,000 consumers who started purchase, abandoned it mid-way. When this information was passed on to the sales team they could follow-up and bring in another 8,000 sales per month. Additionally, more than 20 percent who did not make any purchase, did leave their contact details behind. This information too was used and through mass campaigns like email, direct mail, and outbound calling, the company could add another 35,000 subscribers per month. Hence, investments in CRM or IS has helped companies across industries and nations to reap benefits. Apart from CRM, other information systems include the Radio Frequency Identification (RFID) technology and the Enterprise Resource Planning (ERP). RFID tags when attached to the product, tool, and material handling equipment would give the manufacturers demand signals from the customers and the market. Small electronic tags transmit data via a radio signal to RFID readers and related hardware and software infrastructure. When the information on the tags passes by a reader, the movement is captured and managed by the infrastructure. Without any human interaction, the organizations can link the physical world to the digital world. Wal-Mart has adopted this technology and it is estimated that they could save $8.35 billion annually (AME, 2005). It helps the company to track what shipments are arriving at the store and what sales are leaving the door. It knows what inventory it has in each store and without RFID they are unable to find out what is in the back room and what is in the front. Gillette uses RFID-EPC (Electronic Product Code) data to ensure that products reach the stores before the promotions run (Murphy, 2005). This technology helped them to reduce thefts of their products, apart from obtaining proof-of-delivery, inventory reduction, and promotional performance. RFID tag helps Levi Strauss take full inventory every morning in about 30 minutes. This has helped them to reduce out-of-stock situations and enhanced customer satisfaction. Managers in charge of the information system have to be technically sound so as not to be lured by software developers into believing in unrealistic figures in savings. Informed decisions have to be taken even though it is very difficult to ascertain the benefits. Political and organizational reasons may prevent the managers from fully understanding the cost implications. To gain acceptance for their proposal from their seniors, they may overlook certain aspects intentionally. Managers normally inflate the benefits while suppress certain costs, usually indirect costs, which may surface at a later date. This may result in prolonged period to attain the desired results. The reasons for failure in incorporating the management information systems vary across nations and organizations but generally, it includes lack of management involvement with the design of the information system, narrow emphasis of the computer system, concentration on low-level data processing applications, and lack of top management support. Communication between the management and the information professionals is vital for the success of the information system. Those in charge of operations require an awareness and proper understanding of the key functions of the system. This would aid in taking informed decisions. ERP integrates all organizational processes into one single unified system. It uses a single unified database to store data for various system modules. Its applications include manufacturing, supply chain, CRM, human resources and warehouse management. ERP has helped to standardize and reduce the number of software specialties required within larger organizations. ERP had faced problems of failure but today companies are effectively deriving benefits out of it. Top management support is essential for this as it is to be treated as a business project and not as a project of the IS department. It helps increase productivity and cut operational costs. Continuous training sessions helps the users to understand the benefits and functionality of ERP, according to Pfizer and Goodlass Nerolac uses ERP to maintain strong communication channel with every employee (Pereira, 2001). It can thus be seen that managerial satisfaction has been experienced by various companies following investments in IS. Technologies like data mining, data warehousing, CRM, ERP, have all been beneficial to organizations across nations. What is important is to be able to use information productively, which requires proper awareness, training and top management support. Failures too are encountered but most often these are not due to technology failures but due to errors in implementation. Besides, it takes some time for the investments to reap benefits. Companies should not start expecting to see tangible results immediately. So as not be swayed and to be able to make informed decisions, the manager in charge of IS investments should be well versed in the system and what the company wants to achieve. Strategic decisions have to be taken by the IS managers. Alignment of goals with the information system alone can bring the benefits that an organization expects. References: AME (2005), How RFID can help optimise supply chain management, 24 Aug 2006 Accenture (2006), Creating and Sustaining High-Performance Business, 24 Aug 2006 Adeoti-Adekeye, W. B. (1997), The importance of management information systems, Library Review, Vol. 46 No. 5, 1997, pp. 318-327 Agarwal, A. Pietraszek, W. E. & Singer, M. (2006), Connecting CRM systems for better customer service, The McKinsey Quarterly, 24 Aug 2006 Alshawi, S. Irani, Z. & Baldwin, L. (2003), Benchmarking information technology investment and benefits extraction, Benchmarking: An International Journal Vol. 10 No. 4, 2003 pp. 414-423 Byrd, T. A. Thrasher, E. H. Lang, T. & Davidson, N. W.. "A process-oriented perspective of IS success: examining the impact of IS on operational cost.( information systems (IS) research )." Omega 34.5 (Oct 2006): 448(13). British Council Journals Database. Thomson Gale. 24 Aug. 2006 Deloitte Research (n.d.), Consumer Business, Digital Loyalty Networks, 24 Aug 2006 Ferdows, K. Lewis, M. & Machuca, A. D. .J. (2003), Zara, Supply Chain Forum, Vol. 4 No. 2 pp. 62-67 24 Aug 2006 Forsyth, J. E. Galante, N. & Guild, T. (2006), Capitalizing on customer insights, The McKinsey Quarterly, 24 Aug 2006 Inditex (n.d.), 24 Aug 2006 Lakervi, H. & Kaipia, R. (n.d.), Information sharing in Supply Chains, 24 Aug 2006 Murphy, C. (2005), Real-World RFID: Wal-Mart, Gillette, and others share what theyre learning, 24 Aug 2006 Pereira, B. (2001), ERP: Striking it right, 24 Aug 2006 Strategic Direction, How Zara fashions its supply chain, Strategic Direction; Volume: 21 Issue: 10; 2005 General review Wipo Magazine May-June 2005,Intellectual Property in the fashion Industry, 24 Aug 2006 Read More