Chapter 14 Value Of Information Systems To An Organization

Chapter 15 Value of Information Systems to an Organization

1. Objectives

1.1 Understand the value of information as an asset of an organization.

1.2 Recognise how information systems can promote competitive edge of an organization.

1.3 Aware how information systems can contribute to the success of strategy implementation in an organization.

1.4 Acquire an understanding of different types of information systems that can add value of an organization.

2. Value of information to an organization

2.1 /

DEFINITION

(a) An information system (IS) can be described as the system with elements of people, data, records and activities for the purpose of capturing, manipulating and distributing the data and information that are necessary to perform the activities in an organization.

(b) Information is data that has been processed into a meaningful format for use by decision makers within an organization.

2.2 Information should have a value to the user over and above the cost of obtaining that information. Information is a key resource to an organization and can serve organization’s information needs in the following aspects:

(a) planning and corporate strategy development for management.

(b) control and monitoring performance to ensure that work has been carried out as planned.

(d) recording and processing transactions that can affect significantly the working relationships within an organization.

(e) communication of information within an organization and with external parties.

(A) Planning and corporate strategy development

2.3 The planning process incorporates several stages, all of which require information. The stages of developing corporate strategy and plans are as follows:

(a) Establish mission based on the culture and developments in an organization’s environment.

(b) Perform background situation analysis based on results of past activities that contributes to evaluate different alternatives.

(c) Set measurable objectives by converting the results of background situation analysis into company’s financial standards and requirements.

(d) Develop strategies (策略) define the long-term ways of achieving the objectives. Information required for developing strategy covers a wide range of subjects, but not in detail.

(e) Develop tactics (戰略) based on the directions provided by corporate strategy. Tactics are short-term ways to achieve success with the strategies. Information required for developing tactics is more detailed and specific than strategic information.

(f) Develop operational plans for managers of different functional areas. Operations plans are detailed and specific and show the ways that the tactics will be carried out. They define who is responsible for implementing the plan, and when each operation will be completed.

For example, production managers require information such as expected sales, cost of prime costs and overheads, lead time of raw materials for preparing production budgets and production schedules.

(B) Control and monitoring

2.4 Information will be needed to ensure that each aspect of the plan has been successfully carried out, and so it is important to gather this information.

2.5 For example, technique for responsibility accounting system can be used by operation manager to measure performance by tracing unfavorable performance to the department or individual that causes the inefficiencies.

(C) Recording and processing of information

2.6 Business processes are directly associated with providing goods and services to customers. Managers obtain information from an information system to help them manage the business processes.

2.7 Therefore, an information system must be able to capture and record business activity data, to process data, to store and maintain data, and to report information to management.

2.8 For example, a data warehouse obtains information from various processing systems and external sources and place data into the warehouse, and then the data that extracted from the data warehouse can be analysed using reporting and query tools to produce specific management reports.

(D) Communication among people

2.9 The introduction of intranet system has enabled organization to contribute to communicate vast amounts of information to its workforce and among people.

2.10 Electronic communication systems have permitted many organizations to develop a management structure that provides a wider span of control (管理幅度).

(亦稱控制幅度（span of management）或監督幅度（span of supervision）。是指一位主管能夠有效直接監督幾個部屬，或向同一位主管直接報告的部屬人數。一位主管監督部屬人數愈多，控制幅度就愈大；反之，監督部屬人數愈少，控制幅度就愈少。一位主管之控制幅度應該多大，學者們一直未能達到共識。主管的控制幅度愈大，其底下管理階層愈少，可以降低成本、縮短溝通路線。但是幅度過寬時，主管在其管理的極限下，難以有效地監督其底下的每一位管理者。因此，最理想的控制幅度應該是能夠有效運作所有的人力資源。)

2.11 The development of communication links, wide area networks, and digital telephone lines has led to encouraging employees to communicate not only at office, but also at home. The enhancement of communication in the workplace can make the business processes more efficient.

2.12 /

KEY POINT

Information is valuable strategic resources for:
(i) the use of decision makers;
(ii) communicating with others;
(iii) serving the information needs; and
(iv) gaining competitive advantage.
2.13 /

Test your understanding 1

Information is a key resource to an organisation and can serve its information needs in the following respects:
1. Planning and corporate strategy development for management.
2. Control and monitoring performance to ensure that work has been carried out as planned.
3. Decision making for managers at different levels.
4. Recording and processing transactions that can affect significantly the working relationships within an organization.
5. Communication of information within an organisation and with external parties.
An information system of an organisation supplies relevant information and compiles appropriate analysis for the purpose of providing assistance to management in developing and implementing corporate strategies.
REQUIRED:
(a) List the SIX stages of developing corporate strategy and plans.
(6 marks)
(b) How do information systems contribute to the success of the implementation of corporate strategy? (4 marks)
(Total: 10 marks)
(HKIAAT Paper 8 Principles of Auditing and Management Information Systems Pilot Paper B3)

3. Strategic Significance of Information Systems in Enhancing Competitive Advantages

3.1 The overall objective of most companies is to create value. Organization and individuals that provide goods and services their value will survive and grow while those who do not will shrink.

3.2 Information systems are increasingly being utilized to develop a strategy that gains competitive advantage for a company.

(A) IS as a tool to enhance competitive advantages

3.3 Information system serves as a tool to enhance competitive advantages of an organization in the following ways:

(a) Enhance efficiencies and effectiveness of business processes:

(i) The adaptation of just-in-time (JIT) systems to enhance efficiencies by reducing the number of staff required to deliver the same service or by speeding up the service delivery.

(ii) Bank increase the opportunities of providing services to customers through the use of e-banking and ATMs in locations where there is no branch.

(b) Formulate appropriate corporate strategy to maintain market position

(i) Once a customer has established a familiarity with one system of e-banking system, gaining advantage from it, there will be switching costs to switch to another system.

(i) Some companies may be more successful at creating value because they elicit quality responses from their customers and use the feedback to quickly change or upgrade their products.

(ii) The implementation of electronic data interchange (EDI) systems is beneficial to a company reduced delivery times and increased accuracy of information.

3.4 /

KEY POINT

IS as a tool in enhancing competitive advantages so as to add value to an organization in terms of:
(i) reducing costs by improving efficiencies and effectiveness of business processes;
(ii) enhancing market position by implementing an appropriate business strategy, and
(iii) promoting customer relationship.

4. Types of IS to Enhance Value of Information

4.1 Quite a number of information systems can enhance the value of information in contemporary organization, for example:

(a) knowledge management system (KMS),

(b) business intelligence system (BIS),

(d) data mining (DM),

(e) online analytical processing (OLAP), and

(f) artificial intelligence (AI).

(A) Knowledge management system (知識管理系統)

4.2 /

DEFINITION

Knowledge management system is a system that comprises a range of practices used in an organisation to identify, create, represent, distribute and enable adoption of what it knows, and how it knows it.

4.3 Knowledge management programs are typically tied to organisational objectives such as improved performance, competitive advantage, innovation, developmental processes, lessons learnt transfer (for example between projects) and the general development of collaborative practices.

4.4 Knowledge management is frequently linked and related to what has become known as the learning organisation, lifelong learning and continuous improvement.

4.5 Knowledge management has always existed in one form or another. Examples include on-the-job peer discussions, formal apprenticeship, discussion forums, corporate libraries, professional training and mentoring programs. However, with computers becoming more widespread in the second half of the 20th century, specific adaptations of technology such as knowledge bases, expert systems, and knowledge repositories have been introduced to further enhance the process.

4.6 Benefits:

(a) Sharing of valuable organizational information.

(b) Improved communication among people.

(d) Avoiding re-inventing the wheel, reducing redundant work.

(e) Retaining intellectual property after the employee leaves if such knowledge can be codified.

(f) Decreasing turnover by lessening employee frustration.

(g) Providing consistent service to internal and external customers.

(h) Providing employees with potential for increased success, and give employees more time to be innovative and proactive.

4.7 Limitations:

(a) Inefficient processes for capturing knowledge – data on knowledge can be difficult to obtain or simply captured but not adequately cross-referenced.

(b) Failure to appreciate the knowledge – If a knowledge worker is unaware of the existence of this data then will not be used. Some form of central knowledge registry may be required to keep track of all of the organization’s knowledge.

(c) Difficulty of measuring intangible benefits – measuring the costs of implementing a new information system is relatively easy, as the costs tend to be tangible. However, many of the benefits, especially in the area of increased product quality or better customer service, tend to be intangible.

(d) Information overload – care is need in planning information systems to ensure that only the required ‘quality’ output is produced, rather than producing reports simply because they are available resulting in information overload for the recipient of that information.

4.8 /

Test your understanding 2

(a) Briefly describe KMS. (3 marks)
(b) List two benefits of KMS. (2 marks)
(c) List two limitations of KMS. (2 marks)
(HKIAAT Paper 8 Principles of Auditing and Management Information Systems Pilot Paper C3(g),(h)&(i))

(B) Business intelligence system (商務智能係統)

4.8 /

DEFINITION

BIS refers to technologies, applications and practices for the collection, integration, analysis, and presentation of business information and sometimes to the information itself.

4.9 Types of business intelligence applications include functions of analyzing performance, projects, or internal operations; storing and analyzing data; and analyzing or managing the “human” side of businesses, such as Customer Relationship Management (CRM) and marketing tools and human resources.

4.10 For example - Oracle Business Intelligence System 11i

4.11 Benefits:

(a) improve the timeliness and quality of information and enable managers to better understand the position of their firm in comparison to its competitors.

(b) have accurate up-to-date information and analyze market position in terms of changing trends in market share, changes in customer behavior and spending patterns, customers’ preferences, company capabilities and market conditions.

(c) develop consistent and “data-based” business decisions and enhance communication among departments, coordinate activities, and enable companies to respond more quickly to changes.

(d) be better informed about actions that a company’s competitors are taking.

(e) help companies share selected strategic information with business partners, for example, suppliers.

(f) provide managers with information on the state of economic trends or marketplace factors, and in depth knowledge about the internal operations of a business.

(g) serve their customers better, for example, analysis of buying trends can improve sales forecasting and also optimize inventory levels.

4.12 Limitations – for BIS to work effectively, companies address the need to have:

(a) a secure computer system which can specify different levels of user access to the data, depending on whether the user is a junior staffer, manager, or executive.

(b) sufficient data capacity, a plan for data retention.

4.13 /

DEFINITION

Data warehouse pools the data from separate applications into a large, common body of information that are collected during the conduct of normal operations and daily activities of an organization.
From the warehouse, the data can be analysed using reporting and query tools to produce specific management reports.

4.14 The diagram below illustrates the general flow of data from a source system through the data warehouse's processing and on to users via dedicated reporting software.

4.14 For example, in recording a sale, an accounting information system collects data about the customer, the product, the timing of the sale, and so on. Sale transactions that create data that help management make decisions about production, cash availability, and so on.

4.15 Benefits:

(a) provide detailed historical information

(b) be used for extensive querying and reporting without affecting or being affected by the operational system

(d) enhance ability to answer complex questions such as potential return on investment.

(e) makes an improved data resource available to users and that enable users to manipulate and use the data in intuitive ways.

4.16 Limitations:

To be useful, the data warehouse should have characteristics that the data are free of errors, are defined uniformly, are stored in several databases, span a longer time horizon than the company’s transaction system; and the data relations are optimized for answering complex question. In this sense, developers of data warehouse have challenges of:

(a) deciding what data to collect, how to standardize and clean the data to ensure uniform accuracy and consistency, how to deal with computer records that typically begin in non-normalized form so as to minimize redundancies.

(b) determining data standards for data of different forms and varying frequencies.

(D) Data mining (資料開採)

4.17 /

DEFINITION

Data mining uses the historical information to try to discover hidden relationships. The data to be mined will normally be in a database. The analyst may need to select, sample, aggregate filter, cleanse, and transform data in preparation for mining.

4.18 When mining is complete, mining results can be exported to the user’s preferred analysis tools, such as spreadsheets or user-orientated databases. Data mining software programs will contain various features to extract data from databases and support the following outputs: