Chapter 7
Competitive Advantage
with Information
Systems within
Organizations
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
This Could Happen to You
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DSI leases facilities capable of handling
three aircraft at a time
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DSI can handle up to six projects a year
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7-2
Connected through wireless and wired network
Each project takes about six months
Typical project costs between $5-$10M
Estimated yearly revenue: $30-$60M
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Dilemma
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7-3
You are summer intern at DSI
One intern will be offered a full-time job
Your work is very good and you are a very
hard worker
One of the other interns is a relative of one of
the owners
How do you gain a competitive advantage?
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Study Questions
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7-4
How do organizations gain a competitive advantage
using IS inside the organization?
What are the three fundamental types of information
systems within organizations?
How do functional systems relate to the value chain?
What are the basic types of functional systems?
What are the problems of functional systems?
How do cross-functional systems relate to the value
chain?
How does knowledge from this chapter help you at
DSI?
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Achieving Competitive Advantage
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Businesses determine competitive strategies
Create processes to achieve strategies
Information systems developed to support
business processes
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7-5
Help organizations achieve competitive
advantage
Need to avoid creating systems that are unrelated
to organization’s strategy
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Fundamental Types of Information
Systems within Organizations
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7-6
Calculation systems
Functional systems
Cross-functional systems
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Calculation Systems
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7-7
Antiquates system
Relieved workers of repetitive calculations
Labor-saving devices
Produced little information
Examples: systems that computed payroll
and wrote paychecks; inventory tracking
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Functional Systems
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Facilitates work of single department or function
Functions added to calculation system programs to
provide more value
Islands of automation
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7-8
Work independently from each other
Effective as independent functions
Inefficient working in cooperation with other processes
across entire business
Examples: human resources; financial reporting
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Integrated, Cross-Functional
Systems
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Cross-department systems operate across
departmental boundaries
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Process-based systems support complete
business processes
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7-9
Increased functionality
Integrated processing systems are more efficient
Needs clear line of authority
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Value Chain Activities
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Primary activities
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Relate directly to organization’s customers and
products
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7-10
Marketing and sales
Inbound logistics
Operations and manufacturing
Outbound logistics
Service and support
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Primary Activities
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Facilitated by support activities
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7-11
Human resource
Accounting and infrastructure
Procurement
Technology activities
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Reorganized Porter’s Value Chain
Model
Figure 7-3
7-12
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Basic Types of Functional
Systems
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7-13
Marketing and Sales Systems
Operations systems
Manufacturing systems
Human resource systems
Accounting systems
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Marketing and Sales Systems
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Few systems support marketing
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Product management
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Many systems support sales
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Sales forecasting
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Used for planning production, managing inventory, financial
reporting
Customer management
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7-14
Assess product marketing efforts
Generate follow-on business
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Operations Systems
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Used by non-manufacturing companies
Key operations functional systems
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7-15
Order entry
Order management systems
Inventory management systems
Customer service
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Manufacturing Systems
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Support production and planning
Process data about inventories
Push production planning
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Pull production planning
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7-16
Organization creates schedule and pushes goods through
manufacturing and sales
Responds to customer demand
Reduction in inventory triggers production
One-off producers fall into neither category
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Additional Functional Manufacturing
Systems and Technologies
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Manufacturing scheduling systems
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Operations systems
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Control manufacturing plants and machines
Radio-frequency identification tags (RFIDs)
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7-17
Assist organizations to determine optimal
methods
Computer chips that transmit data about items
Sensors connected to functional systems receive
signals and record information
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Human Resources Systems
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7-18
Payroll
Compensation systems
Recruiting
Assessing employee performance, skills, and
training
Human resource planning systems
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Accounting Systems
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Support organization’s accounting activities
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7-19
General ledger
Financial reporting
Accounts receivable
Accounts payable
Cost accounting
Cash management
Treasury management
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Ethics Guide: Dialing for Dollars
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Poor performance has resulted in the organization
giving a 20 percent discount – provided delivery is
taken before end of quarter
In order to make sale, salesperson tells customer
that company will take back any unsold inventory
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Customer wants this stipulated on purchase order
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Salesperson agrees to send an e-mail agreeing to this
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7-20
Accounting won’t book order
Accounting books full amount
Product will probably come back
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Ethics Guide: Dialing for Dollars,
continued
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With another customer, salesperson doesn’t offer
discount, but agrees to pay 20 percent credit in next
quarter
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Salesperson sells product to fictitious company
owned by relative
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7-21
Accounting books full price now
Will hurt sales next quarter
Accounting books full sale
Merchandise returned next quarter
MRP II system schedules production based on
increased sales
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
The Sarbanes-Oxley Act of 2002
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Revision of Exchange Act of 1934
Enacted to prevent corporate fraud
Requires management:
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7-22
Create internal controls for production of financial
statements
Issue statement attesting to control activities
External auditor must issue opinion on quality of
controls
Exposes both management and external auditor to
financial and criminal liability
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Controls Examples
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Internal control: separation of duties and
authorities
All computer-based systems must have
controls
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Increases burden on development of systems
Assets subject to contingent liability
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7-23
Customer information
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
MIS in Use: Sarbanes-Oxley: Boon
or Bane?
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Goal was to upgrade financial reporting
Intended to improve trust in financial reports
More than 15 percent of IS will be diverted to SOx
compliance
No one knows exactly what is necessary for
compliance
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7-24
Act requires external auditors become more independent
Act is vague and is often given broadest possible
interpretation
Potential for millions of dollars to be wasted in
compliance
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Functional Systems Problems
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Systems provide tremendous benefits, but are
limited because they operate in isolation
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Data duplication results from each application having own
database
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Business processes disjointed across functions
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7-25
Potential lack of data integrity
Produces lack of integrated enterprise information
Limited information available at any one source
Inefficient decisions based on limited knowledge
Increased costs to organization
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Cross-Functional Systems and the
Value Chain
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Cross-functional systems designed to overcome
problems in functional systems
Customer relationship management systems (CRM)
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Enterprise resource management systems (ERP)
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7-26
Integrates all of the primary business activities
Makes the organization customer-centric
All customer data stored in single database
Integrates primary value chain activities with human
resources and accounting
Enterprise-wide systems
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Opposing Forces Guide: The
Flavor-of-the-Month Club
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Management programs are often introduced
into organizations
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7-27
Kick-off meetings
Change management experts explain programs
HR changes annual review to include changes
Senior management seems to forget about the
programs
Program loses support and new one is introduced
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
How Does Knowledge from This
Chapter Help You at DSI?
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DSI competitive strategy based on quality
Can propose system that increases quality and labor
costs
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Increases sales challenges
Decide not to pursue
Focus instead on increased labor productivity,
reducing labor costs
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First consider how DSI currently saves labor
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7-28
Uses recycled vending machines for consumables
Connected to IS that allocates expense of items
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
How Does Knowledge from This
Chapter Help You at DSI?, continued
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Consider other ways to increase labor
productivity
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DSI maintains shop to repair tools
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DSI operates a tool crib for portable tools
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7-29
Broken tools means lost time
Need to process repair data to determine how much
time is lost
Workers lose time waiting in line
Wonder about RFID and potential for “virtual tool crib”
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke
Active Review
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
7-30
How do organizations gain a competitive advantage
using IS inside the organization?
What are the three fundamental types of information
systems within organizations?
How do functional systems relate to the value chain?
What are the basic types of functional systems?
What are the problems of functional systems?
How do cross-functional systems relate to the value
chain?
How does knowledge from this chapter help you at
DSI?
© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke