Why are information systems typically used at the operational level

How do systems that serve different management groups in a business and how do systems that link the enterprise improve organizational performance?

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There is no one single information system that will satisfy all of the needs of an organization. At first glance it can be difficult to comprehend all the different systems in a business, and even more difficult to understand how they relate to one another. You’ll learn the integral role each type of system plays - from determining which kind of product to make (strategic level systems); to how many people the company will need to make the product (management level systems); to tracking customer orders (operational level systems) at the end of this discussion. Within these three levels we’ll discuss the four major types of systems typically used to make an organization successful.

The transaction processing system (TPS) records the data from everyday operations throughout every division or department in the organization. Each division/department is tied together through the TPS to provide useful information to management levels throughout the company. The operational level of an organization includes various units such as order processing, material movement control, payroll, accounts payable, and employee record keeping. This level is responsible for daily operations.

Businesses and organizations collect billions and billions of pieces of data on everything from customers to suppliers to business partners. Collecting the data is the easy part – almost too easy. Once the data are collected, it's much more difficult for managers and executives to actually use them to make smart decisions. That conundrum has given rise to business intelligence software applications that help users make sense of all that data. Decision makers can discern hidden patterns and trends in the data and use the information to the organization's benefit.

Management information systems (MIS) are designed to produce information on a periodic basis instead of on a daily recurring basis like those using a transaction processing system. Managers also require information on an exception basis. That is, they need to know if production is higher or lower than the targeted rate or if they are over or under their budgets. They also need to know about trends instead of straight numbers. A management information system is used by managers throughout the organization to help them in directing, planning, coordinating, communicating, and decision making. The MIS will help answer structured questions on a periodic basis.

Decision-support systems (DSS) also serve the management level of an organization, but in a somewhat different way from management information systems. MIS use internal data to supply useful information. DSS use internal data but also combine it with external data to help analyze various decisions management must make. Decision-support systems are used for complex “what-if” questions that require internal and external data. Decisions at this management level are mostly semi-structured so the information system must respond to the unique requirements of the executives.

Executive support systems (ESS) are used at the very upper echelons of management. At the strategic level, the typical decision is largely unstructured. Executives require summarized, historical information gleaned from all other levels of the organization, coupled with large amounts of external data gathered from many sources. The executive support systems use digital dashboards to make the system easy to use and provide information in a real-time mode. In sum, they help managers make strategic decisions affecting the entire company. The decisions use internal and external data to give executives the information they need to determine the proper course of action in unstructured situations.

It’s not unusual to find an organization with three or more different information systems that act as islands. The systems don’t exchange information very well, if at all. Accounting and finance may have a system that serves their needs very well, but it can’t collect information from the system used by manufacturing and production. Sales and marketing is doing its own thing with its system and losing valuable information from the other systems, which could help it do a better job. These kinds of problems gave rise to enterprise applicationsthat share the same data anywhere it’s needed in an organization. As networks of all kinds take hold, from the Internet to intranets to extranets, Web-based enterprise applications are increasingly widespread.

The four major enterprise applications are: enterprise, supply chain management, customer relationship management, and knowledge management systems.

Enterprise systems (also known as enterprise resource planning (ERP) systems) are used to bridge the communication gap between all departments and all users of information within a company. Enterprise systems truly allow a company to use information as a vital resource and enhance the bottom line. The greatest enticement of enterprise systems is the chance to cut costs firm-wide and enhance the ability to pass information throughout the organization. The biggest drawbacks to building enterprise information systems are time, money, and people. Because the installation of the system is so invasive, it takes a tremendous amount of time to install the hardware and software, train people to use it, and rework business processes that will then inevitably change. Many companies find it more trouble than they care to handle.

Supply chain management systems offer new opportunities for companies to integrate data and information with their suppliers and customers and ultimately, lower costs for everyone. Even if you properly manage your processes, wring out excess costs from every corner of the organization, and above all, have the best products at the lowest cost, if you can’t get your products to the right customers at the right time what good is all the rest? Managing your supply chain and getting products or services to customers efficiently and effectively is the real key to success.

Do you wait for the customer to complain about your poor service before you take a critical look at your business processes? Do you spend more time and money acquiring new customers than you do in keeping your existing ones? Does each functional area of your organization have a completely different and separate viewpoint of your customers? Does your sales and marketing department make promises to your customers that manufacturing and production can’t possibly keep? If you answered yes to one or more of these questions, you’re in serious need of a good customer relationship management system. CRM systems involve business processes in all the functional areas and every management level of a firm. The ideal CRM system provides end-to-end customer care from receipt of order through product delivery.

A knowledge management system (KMS) is an integral part of the overall information system of an organization. Most of the other systems have been recognized for many years, but this one may be thought of as relatively new. Knowledge management systems enable organizations to better manage processes for capturing and applying knowledge and expertise.

Enterprise applications are often costly to implement. Companies that don’t have the resources to invest in enterprise applications can still achieve some measure of information integration by using intranets and extranets, which use Internet technology and standards to assemble information from various systems and present it to the user in a web page format. Extranets make portions of private corporate intranets available to outsiders. Both of these tools make it easy for companies to disseminate information through a standard platform that requires very little work to maintain. It’s a low-cost way to connect internal employees with each other or external users to company information.

The Internet, extranets, and intranets offer new opportunities to do business in cyberspace. The amount ofelectronic commerce and electronic business conducted online continues to grow exponentially year after year without any signs of slowing down. The two terms, e-commerce and e-business, are often confused with one another. E-commerce is limited to the buying and selling of goods and services on networks. E-business encompasses not only e-commerce but a broader range of tasks like coordinating training seminars for customers.

The electronic delivery of government services via the Internet has been fairly successful. Citizens have easy access to forms necessary in many e-government programs such as tax payments. Rather than waste time standing in line for vehicle registration and licenses, people can complete these kinds of tasks on the Internet. Perhaps most importantly, e-government has opened the lines of communications between citizens and elected officials and made information access easier and timelier.

Integrating functions and business processes cut costs and allow systems development that involves the whole firm or industry. Customer resource management and supply chain management give a company the added advantages of end-to-end customer care. Enterprise systems have many challenges but the benefits, when executed properly, are enormous. Knowledge management systems allow an organization to fully integrate their newly acquired knowledge into the current systems.

Discussion Questions:

1. How can a transaction processing system help an organization’s management information system and decision-support system?

2. Which of the four major types of information systems do you think is the most valuable to an organization?

3. Discuss the benefits and challenges of enterprise systems and explain why a firm would want to build one

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