The Added Value of Computer Based Information Systems in Organisation - Case Study Example

How can an organisation ensure that its computer based information systems deliver added value rather than simply be a drain on the organisation? Contents Contents 1 1. Management Summary Information systems alter the way organizations operate and the way businesses compete in the market. Therefore information systems are considered as a vital investment by the organizations of today. The companies that do not deploy effective information system are left behind to cater to the fast pace needs of the consumers in the market. Information systems are of different systems and thus prove to be useful to organizations in different modes. The basic information systems provide the infrastructure; which automates the policies and procedures of the organization thereby reducing their manual work. Information system acts like the hub of all relevant data of the organization but the key is that the data should be accurate, up-to-date and consistent. The system cannot be defined as being useful to the organization unless these data characteristics are not met. The strategic information system helps organizations gain an overall direction of their business and thus products. There are mainly three types of decisions that take place in the organization, which can be made by the data provided by the strategic information systems. The three levels of decisions can be classified as corporate level decision, business level and operational level decisions. This system evaluates the business and the industry in which the organization is involved, gives assessment regarding the competitors in the market. It provides goals and strategies which can be used to overcome any competitive threats that might exist for the company. These strategies can be reassessed after regular intervals of time to keep pace with the changing needs of the market. New ventures and businesses can also be launched with the help of these strategies and objectives. Organizations can analyze the buying trends and customer requirements, and thus step into a new direction of business that has not been explored by other companies. 2. Introduction The world has become a global village; thereby increasing the competition for companies all around the world. In the highly competitive world of changing trends, a company needs to be equipped with the effective planning tools and information to facilitate business decisions. The advent of computer technology has changed the processes for almost every field known to mankind; effective decision making for businesses is no different. Information systems provide the foundation on the basis of which business operations can be performed and data can be extracted for analysis and other purposes. Another type of information system; strategic information management systems were developed to help companies in functioning effectively and manage costs of their business for their survival and success. Lederer et al (1996) stated that strategic information systems can be defined as a set of modules or applications that helps an organization in the execution of its functional plans and thus business objectives. Strategic management information helps the decision makers of the organization to make effective plans and thus align their business processes according to the business and customer needs. There are other kind of systems that help in the financial factors of the business, they are called financial accounting systems and constitute a part of the whole MIS structure. 3. Overview History shows that the connection between information systems functions and business strategic decisions was not very strong and the top executives never gave this element much focus. Rockart (1979) concluded in one of his articles that information systems were thought to be meant for only organization data processing and executing routine processes in the company. It was around two decades back that an awareness was created in this respect and companies starting realizing the need for efficient information systems to facilitate strategic decisions and develop a consistent direction for their business. It is due to this evolution, that companies nowadays invest a great number of their resources to implement and maintain strategic management systems to provide with a competitive advantage and many other factors. They invest their time and resources to develop an information system that would cater to their unique requirements efficiently. The most important thing for an information system and thus a strategic management system is that it should be according to the unique needs of the organization. The process of developing the system should begin after a clear understanding is achieved about the business needs, it should be a response to need. This implies for all information systems; may it be a transaction processing system or to support decision for the higher management. Pant et al (1995) pointed out that the company’s objectives, priorities and future goals should be kept in mind. The future of the company should be given importance so that the system is flexible enough to cater to the future needs of the company and therefore does not have to be changed frequently. Incase of failure of such basic knowledge about the company the system will not provide desired value added services to the organization. The main aim of the strategic management system will not be catered correctly and value added services cannot be expected from the system. 4. Management Information System and its value added outcomes It is common for some to confuse the part that these above mentioned systems play in the organization. Management information systems provide the basic infrastructure in the organization; ensuring businesses processes are executing effectively and efficiently. They do not play a part in increasing profitability for the organization but only formulate the whole process of business operations. Leopoldo (2009) stated that they are also used to provide the organization with authentic and reliable data to keep the business running smoothly. They are meant for analysis purposes to plan the future of the company. However, strategic information systems become a very vital part of the business. Leopoldo (2009) further wrote that they directly affect market share, revenues and profits and thus customer loyalty. These systems influence the competition in the market and may launch new products, initiate step in new markets and introduce new modes of doing business. 5. The Role of Information Systems in Organizations It is a common desire for business owners to maximize their revenues and to obtain as much benefit as they can from their resources. They also try to reduce as many risks as they possibly can so that their resources are utilized effectively and efficiently. A company tries to analyze the information regarding the market status so that strategies are developed accordingly. Robson (1997) discussed that the following goals are desired to be accomplished in an organization after successful implementation of an information systems: Increase the level of communication amongst the employees. Deliver authentic and updated data throughout the organization. Provide an effective system for cumulating and recording of data. Reduce labor costs in the organizations by automating operations. Provide and support the strategic goals and direction of the organizations. The roles performed by different information systems to benefit the organization are: 5.1 Operational System Operational Systems help maintain the routine processes of the organization so that they continue operating in a smooth manner. These kinds of systems are unique in every organization since every organization has different policies and procedures. Although most of the operational systems are mundane and routine-based, some of them have a strategic perspective built into them which can add more value to its services. They can be equipped to handle inventory in a way that would impact on the profitability of the organization. 5.2 Financial System Financial systems provide the basis for handling of accounts, budgets and finance operations. These are moreover similar in nature in other organizations because computers tend to provide an ideal mechanism for handling finance operations. A company can be ensured that an effective financial system is in place if the organizational planning process is linked to this system. Strategic systems make use of these systems for quick and easy retrieval of data for analysis and hence decision making. 5.3 Strategic System Robson (1997) explained that if an appropriate strategic information system is implemented then these planning techniques might be helpful making the business model of the organization. The business model provides a basis for the decision makers of the organization; it simulates a situation or a real life problem in many possible ways. This gives the management to visualize the effects of solution to a problem. It simulates a situation in seconds rather than years in real life. Variables can easily be changed easily in the business model as they cannot be changed in real life; providing the executives to derive better and efficient solutions. Turban (2005) stated that another use of the business models can be through the application of what-if analysis to calculate the amount of risks in a certain task or investment. 6. Different types of Decisions in an Organization Goldberg (2008) categorized business decisions into three types; they are classified on the basis of decision volume and its respective value. The three categories are: High Value and Low Volume Decisions Osborne et al (1994) stated that these constitute the corporate level decisions regarding the business the organization should run, where should the capital investment be done, What new products and services should be launched, decisions about strategic management etc. Medium Value and Medium Volume Decisions Osborne et al (1994) further explained that this type involves the business level strategy that focuses on decisions about how the individual business entities will be run and how they will compete in the market with other products, product development and pricing, consumer segmentation and targeting etc. Low Value and High Volume Decisions Osborne et al (1994) also stated that this type constitutes the functional level decisions and strategy which shall focus on the execution of the strategic decisions. These kinds of decisions determine as to which most effective way will be adapted to implement the corporate and business strategies. Fig.1: Goldberg (2008) Comptroller’s Handbook (1995) explained that an effective information system and thus a strategic information system, will directly or indirectly effect the decisions that are stated and provide a comprehensive support mechanism for the top management executives. An effective information system will also reduce operational costs of the company by automating most of the routine based processes. 7. Five Elements to Ensure Effectiveness of Information Systems Comptroller’s Handbook (1995) further discussed the five elements that reflect the degree of usefulness of MIS in an organization. If these five elements are present in the prevailing information system of the organization then the organization can be assured that their system is working towards providing them value added services. The usefulness of the system may be affected if even one of them is compromised. 7.1 Timeliness An information system should be coupled with current information so that it can be distributed to the appropriate users when required. University of Missouri-St Louis (2009) stated that if the system does not possess timely information then the results and decisions will not be accurate. The system should be capable to summarize results and provide them in the most legible and comprehensive manner. This is one of the elements to be checked when evaluating a system for its usefulness and it is considered to be a vital aspect of any system. 7.2 Accuracy Controlling and monitoring activities must exist during all the procedures of the system so that information can be edited, balanced etc to make it authentic and appropriate for analysis. An internal and external audit program should be introduced to ensure that the controlling activities of data are good enough for authenticating purposes. If the data is accurate then the organization can be assured that the system is adding value to their decisions and procedures. 7.3 Consistency Another need of good quality systems is that the data should be processed and gathered uniformly. If there is no consistency in the data collection and reporting methods then a distortion might be found in the trend analysis. The system should also be flexible enough to cater to the changes in data collection methods that might come with the passage of time. The system can prove to be very useful to the users if the procedures and processes of the system are well documented and communicated to all the concerned employees. 7.4 Completeness A system should be evaluated for the way the information is being summarized and thus presented to the decision makers. All the important aspects of the data should be included in the report. However, the reports should be designed to avoid any ‘information overload’ which will not be helpful in identifying the main points during any trend analysis of data. 7.5 Relevance The level of detail of the reports should be carefully chosen so that the reports only have the relevant data displayed in a comprehensive manner. An efficient system will provide the most relevant detail of the data that will directly relate to the needs of the board of directors, top management or business managers. Unrelated data may hide the important required details about the important factors; therefore such data should always be avoided. If these five elements are present in an information system then it can be assured that the system is functioning effectively and efficiently. As stated earlier, that all these five factors should be found in the system for a complete and reliable data analysis and thus decision making by the management executives. 8. Other Factors to ensure Usefulness of Information System 8.1 Competitive Edge for the Organization Gregus et al (2006) stated that strategic information systems are primarily used by organization to help them an edge over their competitors in the market. They can achieve this by making strategic decisions on the basis of accurate and consistent data extracted from the systems. Without the help of these systems, their decisions might be based on approximate guesses and census. FAO Corporate Document Repository (1997) explained that one can be assured that an effective information system is implemented in their organization if the strategic information system provides them with the following advantages: Gain competitive advantage in the market Provides a strategy to reduces a competitive disadvantage Provides aid to accomplish other strategic enterprise objectives As it can be seen from the advantages described by FAO Corporate Document Repository (1997); not only competitive advantage can be achieved but weaknesses present in the business can also be overcome with the strategic information. 8.2 Reduce Cost for the Organization A key indicator of an effective information system is that it will reduce the labor costs in an organization since much of the work will be automated. Organizations which have reliable information systems tend to follow systems and procedure than the conventional ones, because most of their work is done according to a programmed routine by the system. There is less chance of errors since manual work has been reduced. 8.3 Ensure Trained Personnel Operate the System It is commonly found that the personnel in the organization are not trained to operate the information system due to which they are not able to utilize its real benefits. Therefore it is very important to ensure that the employees who shall be operating the system are well-equipped with the technical knowledge to get the required results from the system. 9. Case Study The company that has been chosen for the analysis of information systems is Maersk Shipping Line. 9.1 Company Portfolio The A.P. Moller - Maersk Group (2009) is a worldwide organization with about 120,000 employees and offices in around 130 countries – with global headquarters in Copenhagen, Denmark. In addition to owning one of the world’s largest shipping companies, it has also gained a name in oil and gas exploration around the world. Following are two of the information systems that are used by the company to automate their processes and provide them strategic decisions about their business direction. 9.2 MARS MARS (Maersk Automated Routing System) is one of the most important systems of the organization as it provides all the routes on which the company supplies goods. Typically, every route has its own duration, price, number of stops along the way fed in the system. All these routes and calculated prices are saved in the system; for e.g. the route from Tokyo to China will have all the intermediate destinations added in the route along with the individual stop and whole route costs. Usefulness of the Information System Revenue Generation The sales employees are dependant on this system for their sales deals as it enables them to give their customers correct and timely information regarding all the possible routes around the world. The real-time information helps them in making more sales and thus generates revenue for the company. It also has the amount of price advantage that they can give to their preferred customers to gain more business from them. Cost Cutting in doing business The automated system already has all the calculated data fed in it; regarding all the freights and custom duty charges etc. If this system was not deployed in the company then, employees would have to work with the figures and intermediate destinations on every sales deal. This reduces the man-hours of the company and hence cuts cost. As soon as a sales deal is entered in the system; an automated assignment of vessel takes place ceasing any requirement of manual work. Since the employees are able to close sales deals quickly, they can cater to more clients and earn more business. 9.3 Foresight Foresight can be termed as a strategic information system which acts as a sale projection tool for the company. It helps in projecting and estimating the amount of vessel space required by each region within a certain period of time (e.g. months). Each region issues a request for the amount of space in the vessel that they aim to achieve in the months ahead. The decision makers at Maersk Headquarters at Copenhagen, Denmark; analyze all the requests from their different regional offices and grant their requests in such an approach that they would generate maximum profits but at the same time fulfill the region’s requests in an efficient manner. This information will also give them the information about the areas where their competitors are doing more business and strategies to overcome their weakness in a specific region. Usefulness of the Information System Revenue Generation The top executives will analyze the data from the system and issue more vessel space to the regions which are forecasted to bring more profits. Those requests will not be catered where their regional offices have failed to meet their earlier targets. The organization can even adapt a strategy of conquering the markets where the competitor is weak and hence earn more business there. Cost Cutting in doing business Every region is granted a specific amount of vessel space according to their respective need; in this way all the vessel space is utilized in an optimum manner rather than wasting cost of the vessel space. The management will have the record of business from each regional office and if they were able to meet their targets. Considering the prior reputation of these offices, the management can decide to allocate small spaces to them to reduce any risks. 10. Conclusion After an extensive study on the usefulness of the information systems for an organization, it can be concluded that these systems can be considered as a beneficial investment by any company. These systems provide strong infrastructure where risks are reduced due to work automation and provide a centralized place to maintain consistent and accurate data. Information system and its different types can help the organization compete in the constant race of market and consumer behavior’s changing trends. Not only it helps in the decisions involving the overall direction of the business, it also manages the internal side of the organization ranging from policies and procedure to automation of routine work. Increases level of communication throughout the employees of the company and facilitates a smooth flow of information between them. 11. Bibliography Rockart (1979) proved to be a good source as it entails the requirements of top management executives from an information system. This kind of knowledge has been useful to produce a guideline for the requirements of a strategic information system, which can then be used for evaluation of the system. Comptroller’s Handbook (1995) has been one of the most useful sources, as it explains the guidelines and elements that should be checked for the usefulness of a specific system. It focuses on information systems and thus how strategic information systems are used to provide an overall direction to the business of the company. University of Missouri-St Louis (2009): A lecture has been chosen that was given in the University of Missouri-St Louis, it focuses on the components of the information system and how data is maintained in it. Such information has been useful to understand the components and mechanism of the system, so that the concept of strategic planning can be visualized. FAO Corporate Document Repository (1997); This paper was chosen for my research because it gives one an insight of what managers really do with the information from the strategic information systems. It focuses on the different type of decisions they have to take to achieve competitive edge in the market. It also defines some guidelines on the basis of which it can be judged if an information system can be termed useful for the organization or not. Gregus et al (2006) has taken an organization as an example and explained the effects of the steps taken to implement an information system in the company. It also conveys the issues the company faced during the implementation of the system and then later what productive outcomes were witnessed. This paper provided an opportunity to study the real outcomes of using an IS in an organization. Osborne et al (1994) has chosen a government sector for analysis and conducts a comprehensive study about the requirements of the respective organization. It enables the reader to grasp knowledge about how information should be collected for the requirement of an information system. It gives guidelines regarding the key points that should be catered when an information system is being deployed in an organization. References Lederer, A. L., Sethi, V., (1996), Key prescriptions for strategic information systems planning, Journal of Management Information Systems: JMIS v13n1, p.35-62 Rockart, J.F., (1979), Chief Executives Define Their Own Information Needs, Harvard Business Review, March-April 1979. Pant, S., Hsu, C., (1995), Strategic Information Systems Planning: A Review, Information Resources Management Association International Conference, May 21-24, Atlanta, Georgia Leopoldo, (2009), Characterization of strategic information systems, http://www.monografias.com/trabajos7/chaof/chaof.shtml Robson, W., (1997), Strategic management & information systems, Second edition. England: Person Education Limited. Turban, E., Rainer, R., Potter, R., (2005), Introduction to Information Technology. USA: John Wiley&Sons Goldberg, L., (2008), Strategic Decisions, Knowledge Partners International, http://www.bpminstitute.org/articles/article/article/strategic-decisions.html Comptroller’s Handbook, (1995), Management Information Systems University of Missouri-St Louis, (2009), Fundamental Concepts of Information Systems, http://www.umsl.edu/~joshik/msis480/chapt02.htm A.P. Moller - Maersk Group. (2009). About Maersk http://www.maersk.com/en/Pages/Welcome.aspx FAO Corporate Document Repository, (1997), Marketing research and information systems, http://www.fao.org/docrep/W3241E/w3241e0a.htm Gregus, M., Benova, E., (2006), Strategic Information Management, E-Leader, Slovakia 2006, http://www.g-casa.com/download/Gregus_Strategic_Information_Management.pdf Osborne, D., Gaebler, T., (1994), Improving Mission Performance through Strategic Information Management and Technology, http://www.gao.gov/special.pubs/ai94115.pdf Read More