Fundamentals of Information Systems - Module 2: Organizational Strategy, Competitive Advantage, and Information Systems

Learning Outcomes and Introduction to Information Systems

• Business processes enable functionality within single functional areas and across cross-functional processes.
• Business Process Reengineering (BPR), Business Process Improvement (BPI), and Business Process Management (BPM) are distinct methods for organizational change.
• Information Technology (IT) provides specific responses to various business pressures.
• Organizations adopt specific strategies to counter Porter’s five competitive forces.
• Kolehiyo ng Lungsod ng Dasmarias (KLD) is an official member of the Association of Local Colleges and Universities (ALCU).

Understanding Business Processes

• A business process is a continuous series of related tasks or activities that collectively produce a product or service of value to an organization, its customers, and its partners.
• It is essentially a series of steps that turns inputs into valuable outputs.

Key Elements of a Business Process

• Inputs: Materials, services, or information that enter the process and are transformed through various activities.
• Resources: The people, equipment, and information systems that make the work possible and are involved in performing the process tasks.
• Outputs: The final products or services delivered by the process to meet business or customer needs.

Types of Customers

• Internal Customers: Individuals within the organization, such as a manager receiving an internal report.
• External Customers: Individuals or businesses outside the organization purchasing products or services.

Measuring Process Performance

• Efficiency: Measures how well the process operates, focusing on minimizing delays, costs, and resource usage. For example, a factory reducing production time for $100$ items from $8 \text{ hours}$ to $6 \text{ hours}$ using the same number of workers and less material.
• Effectiveness: Evaluates whether the process delivers the desired outcomes and value to the customer. For example, ensuring items produced are of high quality and satisfy customer needs.

Functional and Cross-Functional Processes

• Functional Processes: These are limited to a single department. An example is payroll processing within a Human Resources (HR) department.
• Cross-Functional Processes: These span multiple departments. Product development is a primary example. Business information systems are often most critical at the handoff points between departments where delays, duplicate data, and unclear ownership may occur.
• The handoff sequence often follows: R&D (idea) → Engineering (design) → Manufacturing (build) → Marketing (demand) → Distribution (deliver).

Examples of Business Processes by Functional Area

Accounting

• Managing accounts payable and accounts receivable.
• Managing invoice billings and petty cash.
• Reconciling bank accounts and managing cash receipts.
• Producing month-end and virtual closes.

Finance

• Managing account collection and bank loan applications.
• Producing property tax assessments and business forecasts.
• Managing stock transactions and generating financial cashflow reports.
• Applying customer credit approval and credit terms.

Marketing

• Managing post-sale customer follow-up and handling customer complaints.
• Collecting sales taxes and handling returned goods.
• Applying copyrights and trademarks.
• Producing sales leads and entering sales orders.
• Using customer satisfaction surveys and training sales personnel.

Production/Operations Management

• Processing bills of materials and manufacturing change orders.
• Managing quality control for finished goods and auditing for quality assurance.
• Managing master parts lists, files, and physical inventory.
• Receiving, inspecting, and stocking parts.
• Managing packing, storage, distribution, and freight claims.
• Handling vendor selection and inspections.

Human Resources Management

• Applying disability policies and health-care benefits.
• Producing performance appraisals and salary adjustments.
• Managing hiring, resignations, and terminations.
• Handling employee orientation and training/tuition reimbursement.
• Managing files, records, travel, entertainment, and payroll.
• Overseeing workplace safety and rules.

Management Information Systems (MIS)

• Antivirus control and electronic mail policy application.
• Reporting computer security incidents and generating internet use policies.
• Training computer users and staff.
• Managing service agreements and emergency services.
• Applying user workstation standards and disaster recovery procedures.
• Managing the use of personal software.

Process Documentation and Map: Case Study

• Processes can be assets (innovating faster, efficient, reliable) or liabilities (outdated steps, slow handoffs, inaccurate data).
• Documentation involves a process map to see the ‘as is’ version before designing the ‘to be’ version. This includes outlining steps, identifying inputs/outputs, listing resources, and finding delays.

Business Process Map: Ordering an E-Ticket

1. Traveler plans a trip and checks flights on the airline website.
2. Airline website confirms seat availability. If seats are not available, it notifies the traveler.
3. Traveler reserves seats and submits the ticket order.
4. Payment Choice:
   • If using a credit card: The website checks if the charge is okay. If not, it notifies the traveler. If yes, it confirms flights and issues the e-ticket.
   • If using frequent flyer mileage: The website checks if mileage is sufficient. If not, it notifies the traveler. If yes, it subtracts mileage, confirms flights, and issues the e-ticket.
5. Traveler receives the e-ticket.

Improving Processes and Process Excellence

• Process excellence is the foundation of strong competitive performance.
• Customer Satisfaction: Improves when processes align with customer needs (e.g., a restaurant taking correct orders and serving on time).
• Cost Reduction: Optimization of internal operations and supplier interactions (e.g., a restaurant improving inventory to reduce vegetable waste).
• Cycle Time: Reductions achieved through streamlining logistics (e.g., reducing a supermarket stock order cycle from $7 \text{ days}$ to $3 \text{ days}$).
• Quality: Refined product design and production (e.g., using standard recipes so chicken tastes the same every time).
• Productivity: Boosted when individual work processes are optimized.

Business Process Reengineering (BPR)

• Definition: A radical redesign (‘clean slate’) to make big leaps in performance.
• Goal: Completely rethink and restructure processes rather than polishing existing ones.
• IT Role: Automates work, standardizes operations, and reduces communication errors.
• Example: Replacing manual school enrollment lines with a single online enrollment system.

Business Process Improvement (BPI)

• Definition: Incremental improvement focused on finding root causes of variation or defects.
• BPI is popular because it has lower risk, lower cost, and faster implementation than BPR.
• Example: Using one digital patient record in a hospital to prevent patients from providing the same information at multiple departments.

Six Sigma and BPI Methodology

• Six Sigma focuses on using statistical analysis to reduce defects and improve customer value.
• A classic Six Sigma target is between $3$ and $4$ defects per million opportunities (specifically $3.4$).
• BPI Teams include:
  • Process Owner: The manager responsible for the process.
  • Employees: The people who perform the actual work.
  • Customers/Partners: Those who receive the product or service.

The DMAIC Cycle

1. Define: Create a graphical view of the current ‘as is’ process and identify the problem.
2. Measure: Choose metrics (cost, time, errors) and collect data.
3. Analyze: Use data to locate inefficiencies and bottlenecks using simulation tools.
4. Improve: Develop solutions, remove non-value-adding activities, and reorder steps.
5. Control: Establish metrics to monitor results and ensure the process remains stable (e.g., monitoring that hospital registration stays reduced from $40 \text{ minutes}$ to $15 \text{ minutes}$).

Business Process Management (BPM)

• BPM sustains BPI by managing and monitoring core processes continuously.
• Process Modeling: Creating graphical maps including people, systems, information, and task dependencies.
• Business Activity Monitoring (BAM): Measuring and managing processes in real-time to identify failures or exceptions immediately.
• BPMS (Business Process Management Systems): Integrated software tools like Appian or Camunda used to store maps, model processes, and execute workflows.

Business Pressures and IT Responses

Market Pressures

• Globalization: Enabled by IT, it increases competition by allowing businesses to operate beyond geographical boundaries.
• Changing Workforce: IT helps integrate a diverse workforce, including women, remote workers, and persons with disabilities.
• Powerful Customers: Organizations use Customer Relationship Management (CRM) tools to enhance customer intimacy and satisfaction.

Technology Pressures

• Technological Innovation and Obsolescence: The need for constant updates. Policies like Bring Your Own Device (BYOD) increase productivity but raise security risks.
• Information Overload: Managers use tools like search engines and data mining to navigate the explosion of available data.

Societal, Political, and Legal Pressures

• Social Responsibility: Focus on green IT (environmental sustainability) and addressing the digital divide.
• Government Regulations: Compliance with laws such as HIPAA (Health Insurance Portability and Accountability Act) adds operational costs; IT systems help manage these requirements.
• Terrorism and Security: IT supports security systems and biometric identity verification.
• Ethics: Protecting privacy and organizational reputation is critical; mishandling IT ethics leads to a loss of trust.

Organizational Strategic Responses

• Strategic Systems: Systems designed to give competitive advantage, increase market share, and negotiate better with suppliers.
  • Example: Amazon’s personalized recommendations based on past purchases.
  • Example: Dell’s interactive system for customizing computers.
• Make-to-Order and Mass Customization:
  • Make-to-Order: Tailoring products to individual specifications.
  • Mass Customization: Combining mass production efficiency with customization at scale (e.g., NikeID where customers design their own shoes).
• E-Business and E-Commerce:
  • E-Commerce: Online buying and selling of goods and services.
  • E-Business: Includes e-commerce plus customer service and collaboration with partners.

Competitive Advantage and Porter’s Five Forces

• Competitive Advantage: Outperforming rivals in cost, quality, speed, service, or innovation.
• Porter’s Five Competitive Forces:
  1. Rivalry: Competition among existing firms.
  2. Threat of New Entrants: New competitors entering the market.
  3. Threat of Substitutes: Alternative products/services.
  4. Supplier Power: Power over prices or terms.
  5. Buyer Power: Customer power and demands.

Porter’s Value Chain Model

• A value chain is a sequence of activities transforming inputs into more valuable outputs.
• Primary Activities: Directly involved in creating and delivering products.
  • Inbound Logistics: Receiving and storing inputs.
  • Operations: Transforming inputs into products.
  • Outbound Logistics: Packaging and distributing to customers.
  • Marketing & Sales: Creating demand and selling.
  • Service: After-sales support (warranties, repairs).
• Support Activities: Indirectly contribute to helping primary activities.
  • Firm Infrastructure: Administration, legal, finance.
  • Human Resource Management: Recruiting and training.
  • Product and Technology Development: R&D, design, engineering.
  • Procurement: Supplier management and purchasing.

IT Opportunities in the Value Chain

• Inbound Logistics: Automated warehousing.
• Operations: Computer-controlled machining.
• Outbound Logistics: Automated shipment scheduling.
• Marketing & Sales: Targeted marketing and computerized ordering.
• Service: Customer Relationship Management (CRM) systems.