CHAPTER 10: Information Systems that Support
Organizations
Chapter Outline
10.1
10.2
10.3
Transaction Processing Systems
Functional Area Information Systems
Enterprise Resource Planning Systems
Learning Objectives
1. Explain the purposes of transaction processing systems, and provide at least one example of
how businesses use these systems.
2. Define functional area information systems, and provide an example of the support they
provide for each functional area of the organization.
3. Explain the purpose of enterprise resource planning systems, and identify four advantages
and four drawbacks to implementing an ERP system.
Discuss the three major types of reports generated by the functional area information systems
and enterprise resource planning systems, and provide an example of each type.
Teaching Tips and Strategies
The focus of this chapter is organizational information systems. You might start this chapter by
discussing why ISs can become quite complicated from both a technical and a managerial
perspective. Significant performance and uptime requirements impose technical challenges,
while coordination and usability for a large, diverse group of users pose managerial challenges.
Now, with the advent of e-commerce, online e-tailers are in the costly business of sending one or
two items to millions of households. To illustrate how this changes the supply chain, you can
use the following example. Let’s pretend for a moment that we work for eToys, and we get a
thousand orders for Barbie in one day. Break the class up into groups, and ask them what will be
involved in delivering those Barbies. The students will usually answer that someone will have to
pick the dolls in the warehouse, create an address label for each customer, and then box and ship
the order.
With the advancement of technology, companies now have more tools than ever before to
successfully deploy information systems that can integrate their operations and reduce
processing time. How do companies better manage their processes?
 By integrating their systems so that all departments can communicate with one another
(including outside vendors).
 By being able to track relevant data in real-time from business processes dispersed across
the organization. This will help management to make crucial decisions regarding
resources.
Review Questions
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Section 10.1 - Before You Go On…
1. Define TPS.
TPS stands for transaction processing system. Transaction processing involves the capture,
storage, and monitoring of data generated from all business transactions. These data are
input to the organization’s database. TPSs must handle high volumes of data, avoid errors,
and provide a highly secure and stable environment.
2. List the key objectives of a TPS.
Objectives of a TPS are:
 Handle large volumes of data
 Avoid errors
 Handle large variations in volume (peak times)
 Avoid downtime
 Never lose results
 Maintain privacy and security
Section 10.2 - Before You Go On…
1. What is a functional area information system? List its major characteristics.
A functional area information system is one in which the functionality supports one
particular area or department such as HR systems, accounting systems, marketing systems,
and production systems. These systems were designed to increase internal effectiveness and
efficiency. They typically developed independently of one another, resulting in “information
silos.”.
2. How do information systems benefit the finance and accounting functional area?
Accounting and finance involves managing how money flows into, within, and out of
organizations. This mission is very broad because money is involved in all functions of an
organization. Planning activities involve analyzing operational data to help forecast and
project business activities as well as the budgeting to support these activities. These data
identify the amount of money that is needed to finance the firm’s operations. They also
specify how that money can be raised from the financial markets and at what cost. These
calculations involve many transactions and data points. Information systems are essential to
achieve a level of automation in these activities.
3. Explain how POM personnel use information systems to perform their jobs more effectively
and efficiently.
The production and operations management (POM) function in an organization is responsible
for the processes that transform inputs into useful outputs and for the operation of the
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business. Because of the breadth and variety of POM functions, the chapter discusses only
four: in-house logistics and materials management, planning production and operation,
computer-integrated manufacturing (CIM), and product life cycle management (PLM). The
POM function is also responsible for managing the organization’s supply chain..
4. What are the most important HRIS applications?
The most important HRIS functions are personnel administration (including workforce
planning, employee recruitment, assignment tracking, personnel planning and development,
and performance management and reviews), time accounting, payroll, compensation, benefits
accounting, and regulatory requirements.
5. How does an FAIS support management by exception? How does it support on-demand
reports?
Exception reports include only information that falls outside certain threshold standards. To
implement management by exception, management first creates performance standards. The
company then configures the FAIS to monitor performance (via the incoming data about
business transactions such as expenditures), compare actual performance to the standards,
and identify exceptions to the standards. The FAIS alerts managers to the exceptions via
exception reports.
An FAIS system can generate on-demand reports by using its flexible interactive reporting
capabilities, which enable managers to query by timeframes, departments, product lines, and
other appropriate criteria.
Section 10.3 - Before You Go On…
1. Define ERP and describe its functionalities.
Enterprise resource planning (ERP) was created to control all major business processes with
a single software architecture in real time. ERP integrates all department and functional
information flows across a company onto a single computer system that can serve all of the
enterprise’s needs.
2. What are ERP II systems?
ERP II systems are interorganizational ERP systems that provide Web-enabled links between
a company’s key business systems (such as inventory and production) and its customers,
suppliers, distributors, and others. These links integrate internal-facing ERP applications
with the external-focused applications of supply chain management and customer
relationship management. Figure 10.3 illustrates the organization and functions of an ERP II
system
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3. Differentiate between core ERP modules and extended ERP modules.
ERP II systems include a variety of modules, which are divided into core ERP modules
(financial management, operations management, and human resource management) and
extended ERP modules (customer relationship management, supply chain management,
business intelligence, and e-business). As the name suggests, the core models must be
included in all ERP systems. In contrast, the extended modules are optional. Table 10.2
describes each of these modules.
4. List some drawbacks of ERP software.
ERP systems can be extremely complex, expensive, and time-consuming to implement.
Also, companies may need to change existing business process to fit the predefined business
process of the software. In addition, companies must purchase the entire software package
even if they only want to use a few of the modules.
Section 10.4 Before You Go On…
1. Compare and contrast the three major types of reports.



Routine reports are produced at scheduled intervals. They range from hourly quality
control reports to daily reports on absenteeism rates. Although routine reports are
extremely valuable to an organization, managers frequently need special information that
is not included in these reports.
Out-of-the routine reports are called ad-hoc (on-demand) reports. They are created based
on what users need, when they need it.
Exception reports include only information that falls outside certain threshold standards.
To implement management by exception, management first creates performance
standards. The company then sets up systems to monitor performance (via the incoming
data about business transactions such as expenditures), compare actual performance to
the standards, and identify exceptions to the standards.
2. Compare and contrast the three types of on-demand reports.



Drill-down reports display a greater level of detail. For example, a manager might
examine sales by region and decide to “drill down to more detail” to look at sales by store
and then by salesperson.
Key-indicator reports summarize the performance of critical activities. For example, a
chief financial officer might want to monitor cash flow and cash on hand.
Comparative reports compare, for example, the performances of different business units
or of a single unit during different time periods.
IT’s About Business Questions
IT’s About Business 10.1
USA Cycling
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1. Why did USA Cycling need an inventory system?
As teams traveled around the world, they took supplies with them. When teams needed to
restock tires, seats, chains, parts, and other items, they had to take time to gather inventory
information from various locations to determine which items they need to reorder. This lack
of information resulted in poor planning.
2. What advantages did the SmartTurn system provide for USA Cycling?



SmartTurn provided an on-demand inventory and warehouse management system that
allowed USA Cycling teams in different locations manage inventory information in a
single system.
The system is delivered as software-as-a-service (SaaS).
SmartTurn allowed cycling teams around the world to update their inventory so that the
home office could instantly see which supplies their various teams have and which
supplies they need.
IT’s About Business 10.2
SAP at Airgas
1. What actions did Airgas take to help insure the successful implementation of SAP?


Airgas chose approximately 300 subject-matter “experts” from the various functional
areas to identify which new functionalities were required in the SAP system.
The “experts” worked side-by-side with a 120-member, full-time project team composed
of Deloitte consultants and Airgas executives.
2. What benefits does Airgas expect to receive from its deployment of SAP?
The SAP deployment is expected to generate between $75 and $125 million in additional
operating income each year, thanks to increased sales, better price management, and leaner
operating costs. Airgas expects to find additional benefits as the project moves forward.
Discussion Questions
1. Consider the-chapter opening case. What are the advantages that Fieldf/x provides for the
owners of professional baseball teams? What are the advantages that Fieldf/x provides for
professional baseball players? Are there disadvantages for the players? Support your
answers.
Fieldf/x is a motion-capture, or optical tracking system, that is designed to rid sports of the
biases of the human eye and quantify the formerly unquantifiable art of being in the right
place at the right time. Sportvision claimed that Fieldf/x is accurate to within one foot.
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The system collects player movement data and produces valuable information such as a
fielder’s reaction time, his path to the ball, the baserunner’s speed, and the arc of a fly ball.
The system generates more than 2.5 million records per game, or 2 terabytes of data. When
Fiedlf/x is installed at all major league baseball parks, it will create a digital catalog of
virtually every movement of every fielder at every Major League Baseball game.
Fieldf/x will generate new baseball metrics, such as degree-of-difficulty fielding ratings.
Fieldf/x will also make coaching more precise. For example, coaches will be able to better
position their fielders, depending on the hitter and the pitch being thrown (e.g., fast ball
versus slow curve ball). Finally, the system will enhance the process by which clubs evaluate
— and pay — their players.
Students will have their own opinions on advantages/disadvantages to players.
2. Why is it logical to organize IT applications by functional areas?
Data are collected and flow through an organization based on the functions of the various
departments. IT systems that mirror those functions in departments support a smooth
operation.
3. Describe the role of a TPS in a service organization.
Customer orders/requests are entered into the TPS and are then available for the department
which will handle the order. Data is passed to other systems such as CRM, DSS, knowledge
management and e-commerce as needed.
4. Describe the relationship between TPS and FAIS.
FAIS provides information primarily to lower- and middle-level managers in the various
functional areas. Managers use this information to help plan, organize, and control
operations. The information is provided in a variety of reports. Of course the reports need to
be based on data, and that is the role of the TPS to generate the data from the business
operations.
5. Discuss how IT facilitates the budgeting process.
The budget allows management to distribute resources in the way that best supports the
organization’s mission and goals. Budgeting software supports budget preparation and
control and facilitates communication, review and approval among participants in the budget
process. These packages can reduce the time involved in the budget process. Further, they
can automatically monitor exceptions for patterns and trends as well.
6. How can the Internet support investment decisions?
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The internet is a massive repository of company and financial information. There are several
web sites that provide financial information and these can be used by an investor to make
investment decisions.
7. Describe the benefits of integrated accounting software packages.
Integrated accounting packages allow the automation of several business processes – expense
management, investment management, control and auditing, managing multiple currencies,
and virtual close. By integrating accounting with financial management, many vendors have
allowed this automation to be supported.
8. Discuss the role that IT plays in support of auditing.
One major reason that organizations go out of business is their inability to forecast and/or
secure a sufficient cash flow. Underestimating expenses, overspending, engaging in fraud,
and mismanaging financial statements can lead to disaster. Consequently, it is essential that
organizations effectively control their finances and financial statements. We discuss several
forms of financial control next. Auditing has two basic purposes: (1) to monitor how the
organization’s monies are being spent, and (2) to assess the organization’s financial health.
Internal auditing is performed by the organization’s accounting/finance personnel. These
employees also prepare for periodic external audits by outside CPA firms.
9. Investigate the role of the Web in human resources management.
Many HRIS applications are delivered via an HR portal. Key HR functions are: recruitment,
HR maintenance and development, and HR planning and management.
Recruitment involves finding potential employees, evaluating them, and deciding which ones
to hire. Companies are trying to find appropriate candidates on the Web, usually with the
help of specialized search engines. Companies also advertise hundreds of thousands of jobs
on the Web. Online recruiting can reach more candidates, which may bring in better
applicants. In addition, the costs of online recruitment are usually lower than traditional
recruiting methods such as advertising in newspapers or in trade journals. After employees
are recruited, they become part of the corporate human resources pool, which means they
must be evaluated, maintained, and developed. IT provides support for these activities. IT
also plays an important role in training and retraining. Some of the most innovative
developments are taking place in the areas of intelligent, computer-aided instruction and the
application of multimedia support for instructional activities. For example, much corporate
training is delivered over the company’s intranet or via the Web. IT can also provide support
for payroll and employees’ records, benefits administration as well. This is known as ERM –
Employee resource management.
10. What is the relationship between information silos and enterprise resource planning?
ERP allows for integration of business operations and can break silos by sharing data from
different parts of the business and integrating business processes.
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Problem-Solving Activities
1. Finding a job on the Internet is challenging as there are almost too many places to look.
Visit the following sites: www.careerbuilder.com, www.craigslist.org, www.linkedin.com,
www.careermag.com, http://hotjobs.yahoo.com, www.jobcentral.com, and
www.monster.com. What does each of these sites provide you as a job seeker?
Students prepare a list of capabilities for each of the sites. Building profiles, searching for
jobs, responding to job ads, evaluate the job market, etc.
2. Enter www.sas.com and access revenue optimization there. Explain how the software helps
in optimizing prices.
SAS is a statistical data analysis package and allows for advance mining of data to help in
business planning.
3. Enter www.eleapsoftware.com and review the product that helps with online training
(training systems). What are the most attractive features of this product?
While different features may appeal to different students, tracking progress and completion
and multi format delivery of the content are very attractive capabilities.
4. Enter www.microsoft.com/dynamics/sl/product/demos.mspx. View three of the demos in
different functional areas of your choice. Prepare a report on each product’s capabilities.
Student answers will vary based on the demo they view.
Web Activities
Students will follow the directions for these activities and submit a thoughtful report on each
1. Examine the capabilities of the following (and similar financial software packages:
Financial Analyzer (from Oracle) and CFO Vision (from SAS Institute). Prepare a report
comparing the capabilities of the software packages.
Students will develop a report on their findings
2. Surf the Net and find free accounting software (try www.shareware.com, www.rkom.com,
www.tucows.com, www.passtheshareware.com, and www.freeware-guide.com). Download
the software and try it. Compare the ease of use and usefulness of each software package.
Encourage students to download software, but remind them of the security issues.
3. Examine the capabilities of the following financial software packages: TekPortal (from
www.teknowledge.com), Financial Analyzer (from www.oracle.com), and Financial
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Management (from www.sas.com). Prepare a report comparing the capabilities of the
software packages.
Students will develop a report on their findings
4. Find Simply Accounting Basic from Sage Software
(www.simplyaccounting.com/products/basic). Why is this product recommended for small
businesses?
Students will develop a report on their findings
5. Enter www.halogensoftware.com and www.successfactors.com. Examine their software
products and compare them.
Students will develop a report on their findings
6. Enter www.iemployee.com and find the support it provides to human resources management
activities. View the demos and prepare a report on the capabilities of the products.
Students will develop a report on their findings
Team Assignments
Groups will follow directions on these activities and submit a thoughtful report on each
1. The class is divided into groups. Each group member represents a major functional area:
accounting/finance, sales/marketing, production/operations management, and human
resources. Find and describe several examples of processes that require the integration of
functional information systems in a company of your choice. Each group will also show the
interfaces to the other functional areas.
Students will follow the directions for the group project. Note that students might
have to search the Internet to locate information systems used in their functional area
in order to better describe the interfaces to other related areas.
2. Each group is to investigate an HRM software vendor (Oracle, Peoplesoft (now owned by
Oracle), SAP, Lawson Software, and others). The group should prepare a list of all HRM
functionalities supported by the software. Then each of the groups makes a presentation to
convince the class that its vendor is the best.
To help students prepare for the presentation, set up a scenario involving a company looking to
adopt HRM software. Suggest that each project team is working for a consulting/software
company. Stage the presentation as if they were presenting their software to the company’s
executives as a part of the bidding process for the project.
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3. Each group in the class will be assigned to a major ERP/SCM vendor such as SAP, Oracle,
Lawson Software, and others. Members of the groups will investigate topics such as: (a) Web
connections, (b) use of business intelligence tools, (c) relationship to CRM and to EC, and
(d) major capabilities by the specific vendor. Each group will prepare a presentation for the
class, trying to convince the class why the group’s software is best for a local company
known to the students (for example, a supermarket chain).
To help students prepare for the presentation, set up a scenario where the city has
funding to promote local business development. Each project team is working for a
local company. Stage the presentation as if they were presenting the selected
technology (i.e., topic) to the city’s Board of Commerce as a part of the city
grant/funding application process.
Closing Case
The No-Fly Zone
The Problem
Americans looked to their government to respond quickly and forcefully. Accordingly, the White
House and Congress sought ways to increase the amount of intelligence data accessible to all
agents and key agencies in the form of meaningful reports. For example, in a now-famous memo
from an FBI field office in Phoenix, Arizona, an agent reported suspicions about Middle Eastern
men training in Arizona flight schools prior to September 2001. Unfortunately, the agent’s
superiors never acted on this information. These men turned out to be among the 9/11 hijackers.
The government’s objectives were to prevent such lapses in the future and to foresee future
attacks by consolidating and sharing data among intelligence and law-enforcement agencies,
including the CIA, the FBI, the State Department, the Defense Department, the National Security
Agency (NSA), the Transportation Security Agency (TSA), the Department of Homeland
Security (DHS), U.S. Customs and Border Protection, the Secret Service, the U.S. Marshals
Service, and the White House.
The IT Solution
The Bush administration established the National Counterterrorism Center (NCTC) to organize
and standardize information about suspected terrorists from multiple government agencies into a
single database. As a result, the NCTC faced one of the most complex database challenges ever
encountered.
The NCTC feeds data to the FBI’s Terrorist Screening Center (TSC), which is responsible for
maintaining a database of suspected terrorists. The NCTC data contain information on
individuals suspected of having ties to international terrorism. Such individuals appear on a
report called the watch list. In turn, the FBI provides the watch list to the TSC concerning
individuals with ties to domestic terrorism. As of mid-2009, the watch list contained more than 1
million names, and it was growing at the rate of 20,000 names per month.
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Information from the watch list is distributed to many government agencies, among them the
TSA. Airlines use data supplied by the TSA system in their NoFly and Selectee lists for
prescreening passengers. NoFly passengers are not allowed on the plane. Selectee passengers can
fl y, but they are subject to extra searches and possible additional questioning.
The Result
James Robinson is a retired Air National Guard brigadier general and a commercial pilot for a
major airline. He has even been certified by the TSA to carry a weapon into the cockpit as part of
the government’s defense program should a terrorist try to commandeer a plane. However, he
has trouble even getting to his plane because his name is on the government’s terrorist watch list.
This means that he cannot use an airport kiosk to check in, he cannot check in online, and he
cannot check in curbside. Instead, like thousands of Americans whose names match a name or an
alias used by a suspected terrorist on the list, he must go to the ticket counter and have an agent
verify that he is James Robinson, the pilot, and not James Robinson, the terrorist. Prominent
lawmakers, including Massachusetts Senator Edward Kennedy and Georgia Representative John
Lewis, have also encountered difficulties with the watch list.
Congress has demanded that the TSC and the TSA fix the problems with the list that are making
travel so difficult for so many Americans. People are considered “misidentified” if they are
matched in the TSC database and then, upon further examination, are found not to match. They
are usually misidentified because they have the same name as someone in the database.
Misidentifications typically lead to delays, intensive questioning and searches, and missed
flights.
More than 30,000 airline passengers who have been misidentified have asked the TSA to have
their names cleared from the watch list. The problem has become so severe that the DHS
developed the Traveler Redress Inquiry Program, or TRIP. The purpose of this program is to
clear people who are routinely subjected to extra airport security screening and even detention
simply because their names are confused with those on the watch list.
Unfortunately, the number of requests to TRIP is more than 2,000 names per month. That
number is so high that the DHS has been unable to meet its goal of resolving cases in 30 days.
Questions
1. Is the watch list program a success or a failure? Support your answer.
Something needed to be done after the attacks. This is a solution and can prevent attacks.
However as with any system, it can have problems and they need to be worked out.
2. Are the problems with the watch list the result of technology? If so, how? If not, what is the
cause of the problems with the watch list? Support your answer.
Partially, as names are not the way to uniquely identify a person. People are considered
“misidentified” if they are matched in the TSC database and then, upon further examination,
are found not to match. They are usually misidentified because they have the same name as
someone in the database. Misidentifications typically lead to delays, intensive questioning
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and searches, and missed flights. More than 30,000 airline passengers who have been
misidentified have asked the TSA to have their names cleared from the watch list. The
problem has become so severe that the DHS developed the Traveler Redress Inquiry
Program, or TRIP to clear people.
Glossary
ad-hoc (on-demand) reports
Nonroutine reports that often contain special information
that is not included in routine reports.
batch processing
TPS that processes data in batches at fixed periodic intervals.
comparative reports Reports that compare performances of different business units or time
periods.
computer-integrated manufacturing (CIM)
An information system that integrates
various automated factory systems.
drill-down reports
Reports that show a greater level of detail than is included in routine
reports.
enterprise application integration (EAI) system A system that integrates existing systems by
providing layers of software that connect applications together.
enterprise resource planning (ERP) system
Information system that takes a business
process view of the overall organization to integrate the planning,
management, and use of all of an organization’s resources, employing a
common software platform and database.
ERP II systems
Interorganizational ERP systems that provide that provide Web-enabled
links between key business systems (such as inventory and production) of
a company and its customers, suppliers, distributors, and others.
exception reports
Reports that include only information that exceeds certain threshold
standards.
functional area information systems (FAISs)
A system that provides information to
managers (usually mid-level) in the functional areas, in order to support
managerial tasks of planning, organizing, and controlling operations.
key-indicator reports
Reports that summarize the performance of critical activities.
online transaction processing (OLTP)
TPS that processes data after transactions occur,
frequently in real time.
routine reports
Reports produced at scheduled intervals.
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trans-border data flow
transaction
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The flow of corporate data across nations’ borders.
Any business event that generates data worth capturing and storing in a
database.
transaction processing systems (TPSs)
Information system that supports routine, core
business transactions.