Chapter 3: Information Systems as Aids of Managerial
Decision Making
3.1. A Priori Assumptions
This perspective is based on the following assumptions:
•
the effectiveness of an organisation is determined by the quality of decisions made;
•
the quality of decisions depends on the availability of necessary information;
•
in organisations managers make the decisions;
•
the mission of information systems is to supply managers with the information
necessary for making their decisions.
The managerial decision support perspective was born at the beginning of the 1970’s, and
has probably been the most popular one until the present day. Its success is shown by the
widespread use of the expression ‘MIS’, as referring to a field of research, to the
information systems department of companies, to information systems management
courses etc.
3.2. Literature Review
It seems logical that a comprehensive analysis of the nature of managerial decisions
provided the basis for the development of the first information systems aiming at the
support of managers. In reality, this happened just in reverse order. In their exceptionally
famous study, Gorry and Scott Morton claimed that the failure of the first projects in
managerial information systems was caused by a wrong approach to the work of
managers and a misunderstanding of the nature of managerial information.
It fact, until the end of the 1960’s only rather stereotype answers existed about the
required characteristics of managerial information. Just to mention a few, they were
expected to be relevant, current, and reliable. This made many researchers and specialists
think that it was sufficient to collect information from every department of the company
to one central place for the managers to make correct decisions. However, Gorry and
Scott Morton called attention to the fact that the information produced in elementary
transactions is relevant only for a few types of decisions, in other cases they are
completely useless. Based on Anthony’s (1965) model 1, they used opposites to determine
the characteristics of ‘good information’ related to the operational and strategic
planning/control activities of a company (see Figure 6). From this, they could get a
picture of the information requirements of tactical planning and control tasks too.
Characteristics of
information
Operational planning
and control
Tactical planning
and control
Strategic planning
and control
Source
largely internal
external
Scope
well defined, narrow
very wide
detailed
aggregate
historical
future
highly current
quite old
high
low
very frequent
infrequent
Level of aggregation
Time horizon
Currency
Required accuracy
Frequency of use
Figure 4: The required characteristics of information in different planning and control
activities (Gorry – Scott Morton, 1971; Gorry – Scott Morton, 1989)
The authors also analysed managerial decisions according to Herbert Simon’s (1960)
‘structuredness’ dimension2, during which they introduced the category of semi-structured
decisions (problems).
1
Gorry and Scott Morton interpreted Anthony’s planning and controlling categories in the following way:
• strategic planning and control: decisions on the objectives of the organisation, on changes in these
objectives, and on the resources used to attain these goals;
• tactical (or managerial) planning and control: decisions that assure the effective and efficient supply and
usage of the resources in the accomplishment of organisational objectives;
• operative control: decisions that assure the effective and efficient execution of specific task.
2
The ‘structuredness’ dimension can be understood on the basis of another model of Simon, namely the
model of the decision making process. According to this, decision making has several stages:
• intelligence: revealing the characteristics of a problematic situation (or of a favourable opportunity);
2
Their conclusions are the following:
•
Different types of decisions can be supported efficiently by different types of
information.
•
The different types of information can be provided by different types of information
systems.
Followers of Gorry and Scott Morton tended to connect planning and control activities, as
well as unstructured decisions with the top of organisational hierarchy, while linked
structured decisions to the bottom level. This lead to the emergence of the so-called
pyramid models, which can be considered as the ‘emblems’ of this perspective. In the
pyramid models, the different levels of organisational hierarchy are supported by different
types of information systems.
The pyramid models have strong roots in reality as hierarchical levels indeed separate
several corporate IT applications. Moreover, information systems are often isolated by
functional boundaries as well, which results in ‘islands of systems’ – the typical
architecture of the second half of 1980’s. Finally, the pyramid model seems appropriate
also because in most of the cases it is really the lower level systems that provide the
necessary inputs of the higher levels.
•
•
design: modelling the problem, then finding, elaborating and evaluating alternative solutions (series of
actions);
selection: choosing the most appropriate alternative.
A decision (problem) is said to be structured if all the three stages of the decision making (problem solving)
process are structured. A stage is structured, if its procedures are standardised, its objectives are clear, and
its inputs and outputs are defined.
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EIS
Executives
Analysts, experts
Functional middle managers
Employees charged
with operative responsibilities
DSS
MIS
EDP/TPS
DSS
MIS
EDP/TPS
DSS
MIS
EDP/TPS
Figure 5: A typical information system pyramid of leading companies in the second half
of the 1980’s.
Although there is certainly a need for input-output relations in the horizontal direction as
well, pyramid models do not really emphasise them.
A good illustration of the horizontal and vertical segmentation of corporate information
systems as well as their vertical interdependence is given by a computer-aided cash desk,
which registers payments in a special computer application. The system, similarly to other
data processing applications, provides inputs for a program, which creates corporate
financial reports. The head of the financial department operating this reporting tool then
downloads some data into a spreadsheet, from which he prepares cash-flow forecasts and
liquidity calculations. His results, together with aggregated information from the other
functional departments, are finally sent to the computer of the chief executive officer.
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3.3. Related System Categories
The typical pyramid model exhibiting the vertical and horizontal segmentation of
information systems is shown on Figure 7. The types of information systems displayed in
the model can be defined as follows:
•
The EDP/TPS systems have already been defined in Chapter 2. The diagram clearly
shows that they do not play a direct role in supporting managerial work.
•
MIS (Management Information Systems) aim at providing information for middle
managers. They present regular reports in standard form with a certain functional
focus. MIS can also be used for solving simple optimisation problems in a noninteractive way (e.g. production planning).
•
DSS (Decision Support Systems) are designed for problem modelling, simulation, and
statistical analysis in semi-structured decision making situations. DSS are
characterised by interactivity, a user-friendly environment, and a graphic user
interface. It is important to mention that within the broad category of managerial
decision support DSS includes group decision support applications and expert
systems as well3.
•
The most aggregated information is provided by EIS (Executive Information
Systems). At the end of the 1980’s only a few top executives used these systems,
which required huge hardware and personnel apparatus. Early EIS mostly gave critical
information on the internal performance of the organisation.
3
Group decision support systems as well as expert systems have been discussed in the doctoral dissertation
of the Author in detail and especially from the perspective of managerial decision support (Drótos, 1991).
Therefore, in this study no further analysis is provided.
5
DATA
Executives
WAREHOUSE
AND OLAP
Analysts, experts
Functional middle managers
ENTERPRISE RESOURCE
Employees charged
with operative responsibilities
PLANNING (ERP) SYSTEM
Figure 6: A typical information system pyramid of leading companies in the second half
of the 1990’s.
By the second half of the 1990’s, this strong vertical and horizontal segmentation has
already disappeared in many organisation. A new structure emerged with only two
vertical levels and with horizontally communicating functional elements (see Figure 8).
ERP systems (discussed partly in Chapter 2) form the basis of the new pyramid.
Horizontally, an ERP system comprise several functional and business areas, while
vertically they cover the levels of EDP and MIS.
The dotted vertical lines indicate that ERP systems still retain some functional
specialisation, although this segmentation is much less rigid than before. The different
modules are interconnected, share their database, and business processes can be traced
along in them. It can be claimed that in the vertical direction EDP and MIS have almost
completely integrated. Every time an elementary data is recorded, each report using this
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data is overwritten automatically, unless purposely limited.4 Separate data processing
systems beside ERP are operated only in special cases. 5
However, in their original form ERP systems could not fulfil the requirements of top
managers and business analysts whose demands go beyond simple predefined reports.
The reasons for this failure are the following:
•
in ERP systems ad hoc analyses would take up too much of the hardware’s capacity
which is fitted to the predicted number of business transactions;
•
even if the capacity of the hardware is adequate, ad hoc analyses usually require a lot
of programming in ERP systems, and some complex inquiries cannot be conducted at
all;
•
comparisons, which are especially interesting for managers, are not always available
because ERP systems often do not contain the necessary plan and historical data, only
the actual results;
•
even if the ad hoc analysis is successful, the performance of the ERP systems are
often modest concerning their graphic display, speed, and available statistical
instruments.
It seems that it is the OLAP (On-Line Analytical Processing) technology that remedies the
above problems best. As a core function, the OLAP technology enables complex, quick,
and user-friendly inquiries on the databases of ERP and other transaction processing
systems. In one form of OLAP systems data are stored in relational databases (relational
OLAP or ROLAP), while in an other form data are converted into multidimensional data
cubes to prepare the analysis (multidimensional OLAP or MOLAP). These data cubes can
be updated every month, every week, or in some special cases every day (in finance, for
example).
4
For example, in some companies actualisation of the ledger takes place only at fixed intervals because of
security reasons.
5
The most frequent reason is an industry- or company-specific activity, which is not covered by standard
ERP system modules.
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Closely related to OLAP technology there is another fashionable concept, called data
warehouse. The data warehouse is an organised collection of data, which also store
information about the relationships existing among primary data. The storage can be
physical or logical; in the latter case, the data warehouse refers only to the source of data.
The standard features of OLAP applications are the following:
•
multidimensional analysis, building on existing corporate databases;
•
standard (regular or irregular) reports;
•
user-driven ad-hoc analyses through the combination of the available dimensions
(slice and dice);
•
what-if simulations and goal-seeking;
•
exception reports, automatic alarm if pre-set tolerance is exceeded;
•
drill down (breaking down of aggregated data into their components);
•
commentary on data;
•
individually designed user interface, advanced graphical display.
In the last few years developers of ERP systems started to extend their services to the
whole of the corporate pyramid. They integrate data warehouses and OLAP functions into
their information systems, as well as create so-called industry-specific modules. The
function of industry-specific modules is to satisfy those unique requirements of certain
organisations (public utilities, hospitals, banks etc.), which standard ERP systems do not
handle.
While ERP systems are expanding both upwards and downwards, developers of the
stand-alone OLAP systems wish to increase the intrinsic value of their service. They want
to sell complex systems with built-in managerial know-how (e.g. Business Plan, Balanced
Scorecard), rather than ‘empty’ packages.
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3.4. System Development and Implementation
During the development of management information systems, the programmers
encountered serious dilemmas. Perhaps the most critical of all was how to determine the
relevant information requirements.
According to Wetherbe (1991), at the beginning three different solutions were used to
determine managers’ information requirements. The first solution was asking the manager
what he/she needed. Since managers usually could not give a definite answer to this
question, the early projects often ended in failure, or devoured huge additional investment
because the developed systems had to be changed to fit real needs. These unpleasant
experiences have led system developers to ask for the manager’s signature explicitly,
proving his expectations. However, this was not enough for success and did not prevent
managers from accusing programmers of deliberate deception. The third solution called
‘catalogue method’ did not prove to be a success either. According to this method the
developers showed a complete set of reports which the program could possibly generate,
and asked the managers to choose from them. However, the answer was generally
disappointing: managers wanted them all. More effective means of determining
information requirements have been developed since then, of which the Critical Success
Factors (CSF) method is probably the most famous (Rockart, 1979).
Other proposals have focused on the better involvement of users more during the system
development process (Land, 1987), and how to overcome difficulties in communication
(Oliver – Langford, 1987; Valusek – Fryback, 1987; Mittermeir – Hsia – Yeh, 1987).
Mantey and Teory (1989) summarise behavioural methods, which can be used at the
different stages of the development process. Benbasat and Taylor (1978) discuss system
designs corresponding to different cognitive styles.
The prototype method also aims to improve the efficiency of user-developer relations.
According to this method, the user has an opportunity of see and check a demo version of
the designed information system, which allows him to make changes in time. As
development progresses, prototypes become get more advanced and approach the user’s
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demands. Based on 15 years of research, Beynon, Avies, Tudhope and Mackay (1999)
evaluate the prototype method as follows:
Advantages:
•
better communication between user and developer;
•
better determination of information requirements;
•
greater commitment of the user to the project;
•
more user-friendly information systems;
•
simpler software, easier maintenance;
•
shorter development period.
Problems:
•
new types of tools and skills are needed for the development;
•
costs are at least 5-10 per cent higher;
•
project management is more difficult;
•
extreme expectations may arise;
•
impracticable in the case of highly complex systems;
•
users’ enthusiasm may be decreasing;
•
the system design is conservative (often starts from the present situation).
The different types of information systems shown on Figure 8 follow different
development techniques. ERP systems are implemented according to standardised
methods. These methods, which are defined by the system developer (in some cases with
the help of a consultant), are in most cases a combination of the sequential (life cycle
model) and the prototype techniques.
Data warehouses and OLAP-based systems are typically introduced with the prototype
technique: some system developers take an already functioning prototype to the first
meeting with the potential client.
Besides ready-made and half-finished systems it is worth noting that with the
proliferation of spreadsheets and user-friendly development tools more and more systems
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are developed by the users, themselves (end-user computing). However, such systems can
only fulfil local and/or simple analytical requirements.
3.5. The Information System Organisation
In the case of decision support systems emphasis is laid on the determination, adequate
supply, and flexible changes of unique managerial information, rather than on
standardised processing of data based on simple algorithms. ‘One-off production’ suited
to managers’ unique personal characteristics and special needs plays a prominent role
instead of ‘mass production’. It is important to note, however, that ‘mass production’ still
important for it provides the necessary input of ‘one-off production’.
According to this perspective, the information system organisation, either staff or line, is
close to managers, most probably near the top of the hierarchy. Basic expectations from
its members are that they know the general business models (e.g. those of the financial,
controlling area), be aware of the critical success factors of the industry, and also be able
to communicate effectively with users. Although assistance from external experts or
expeditious colleagues taking part in the development of their own information systems
can certainly prove to be very helpful, the prominent role of the IT organisation could not
be questioned.
3.6. Strengths and Limitations
It is indisputable that the fulfilment of managerial tasks, especially of planning and
control, depends heavily on correct and suitable information processing. Therefore,
thinking of information systems as managerial decision support devices is clearly
justified.
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However, the exclusiveness of the MIS approach cannot be upheld any longer.
Experience shows that even the a priori assumptions (listed in sub-chapter 3.1.) have
often failed in practice:
• First of all, the effectiveness of organisations can be improved in several ways, not
only by means of supporting managers’ planning and control decisions. Advance can
be achieved directly and in shorter run as well, for example through the development
of strategic applications (see Chapter 4).
• Secondly, it can be doubted whether the provision of the requested information, in
itself, is sufficient for managers to make good decisions. A careful assessment requires
that we consider the experience of researchers of organisational behaviour (Feldman –
March, 1987), which show that:
− some information necessary for a decision and available somewhere in an
organisation is only revealed to decision-makers when the decision is already
explicitly made;
− even if the requested pieces of information are known to decision-makers, a large
part of them are ignored when making the decisions;
− independently of how much information we presently possess, there is always a
need for additional information;
− complaints about not having enough information come parallel with neglecting
available data and facts.
The above patterns of organisational behaviour only make sense if we place ourselves
in other perspectives. From power point of view, the collection and transfer of
information always take place in political arena, within a context of conflicting
interests. Decisions made can either favour or damage existing position. Under such
circumstances the likelihood to delay, (intentionally) misinterpret or distort
information increases. Certainly, decision-makers are aware that a part of the
information they receive is manipulated. This is one of the reasons why they ignore a
set of the information available for them (Feldman – March, 1987).
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According to another approach good decisions are characterised by the use of much
information. That is to say, information in itself has value, so persons or organisations
are considered to be ‘better’ if they have more information. In this sense the
consumption of large amounts of information increases the base of legitimacy and
leads to favourable judgement about the organisations and decision-makers concerned.
This example shows that information as well as the information system that provides it
can often be a signal, a symbol (Feldman – March, 1987) beside (or instead of) its
primary function of reducing uncertainty (see Chapter 7).
• Finally, claiming that decision-making is assigned to managers exclusively has also
proved false. More and more companies apply the empowerment conception and allow
their employees to make important decisions (see Chapter 5 and 6 on process and
knowledge management).
The information systems pyramid models based on the previously challenged a priory
assumption can invoke further critiques:
• The availability and quality of managerial information depends on the correct
measuring of elementary data and their proper insertion into the database, with the
appropriate dimensions (Bodnár, 1997). Pyramid models turn attention away from
these important elements by disregarding the level of the EDP/TPS systems.
• Pyramid models accept and implicitly support the vertical and horizontal segmentation
of information systems. They do not realise that copying the organisational structure is
not a value in itself, and that the segmentation of information systems is largely a
result of technical problems. With the emphasis on the pyramid structure they promote
a conservative, rigid concept from organisational theory point of view as well.
• Pyramid models suggest that only the top levels of the organisational hierarchy require
‘intelligent’ decision support (Sprague, 1980). However, such support (embodied in
DSS/OLAP systems) can be helpful on all levels (let us remember the popular
empowerment conception again).
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• Pyramid models cannot handle systems which do not belong to a specific level of
hierarchy, e.g. electronic mail systems, intranets, groupware applications, or personal
productivity tools.
• Strategic information systems, which increase competitiveness through the direct
influencing of the business activity rather than good managerial decisions, cannot be
inserted into pyramid models either. Some authors (for example O’Brien, 1997, p. 11.)
try to fit these systems into the pyramid anyway, probably for the sake of
completeness. They put them to the top, ‘strategic’ level, which shows a
misunderstanding of the nature of strategic information systems.
• Pyramid models forget about inter-organisational information technologies (remote
terminals, EDI, Internet, etc.), which play a significant role in business. They consider
incoming information to be important only for top managers, so they wish to create
channels only through the EIS systems. This contradicts both to the actual demands
and the actual functions of organisational information systems (Finnegan – Murphy –
O’Riordan, 1999).
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