Chap - 13 Strategies For Information

chapter 13
Strategies for information

Contents
Introduction
Examination context
Topic List
1
The role of information
Information and communications technology in

organisations
The strategic value of IT/IS in business
Knowledge management
Risks associated with IT/IS
Summary and Self-test

Answers to Self-test
Answers to Interactive questions
589
Business strategy
Introduction
Learning objectives
Explain and demonstrate how information can be used to gain competitive advantage
Identify key changes needed in an information system in order to meet changes in the needs
and resources of a business
Explain how a business collects and distributes information in order to manage its strategy
Identify the risks associated with use of information technology and the controls available
Tick off
Specific syllabus references for this chapter are: 3g, i, j.
Practical significance
The history of firms coming to grief as a result of inadequate management of Information Systems and
Information Technologies (IS/IT) is long and includes:
A UK food store forced to write off CU53m of development expenditure on a supply-chain

management system taking with it the job of the CEO who was forced to resign.
An online toy shop that failed to deliver its presents in time for Christmas and went out of business a
month later.
The UK Government's decision to outsource all passport and essential identity background checks on
teachers to a private sector provider which led to huge backlogs and resort to the issuing of desperate
'interim ID papers' that put the cause of national security and child protection back years.
A major bank launching an online banking system with inadequate security leading to hundreds of
accounts being rifled for funds and confidential information thus eroding public confidence in online
banking systems.
The problems following Morrison's acquisition of Safeway, discussed in Chapter 10 is another

illustration of the risks from IT/IS.
Therefore there is a need for proper management of IT/IS to ensure that systems are appropriate to
business needs, that money is properly spent, and that systems are properly secure.
Stop and think

The UK National Health Service (NHS) is developing a Care Records Service (CRS) that will give all NHS
professionals 24/7 access to the care record of each and every NHS patient in the UK (i.e. everyone in the
UK if they have used the NHS). This has been billed as the largest IS/IT project ever and dwarfs military
applications to date. It is hugely complex and very expensive.
What are the potential benefits from this system to health care in UK?
What technical and social issues will need to be overcome if it is to be successful?
What are the technical and social risks?
Working context
You are likely to come across organisational information systems and their operation within the context of
audit engagements.
Many ad hoc audit assignments are to conduct independent post-implementation reviews of an IT/IS
implementation.
590
The Institute of Chartered Accountants in England and Wales, March 2009
STRATEGIES FOR INFORMATION
13
The Operating and Financial Review should include a statement of risks associated with IT/IS.
Internal control evaluation will normally be a key issue in an audit of IT/IS.
Syllabus links
Some of the risks associated with IT/IS have been covered in Chapter 9.
The strategic value of IT/IS is a new topic that complements earlier chapters on strategy.
591
Business strategy
Examination context
Exam requirements
In the examination you may be required to comment upon the information available for decision making in a
scenario question is there enough information available? What other information is needed? Is the
information system adequate to fulfil the functions required of it by the business?
In the context of the exam, a key aspect of information strategy is that it should provide the appropriate
type and amount of information needed by management to select, implement and control its chosen
business strategy. The information strategy therefore needs to match the business strategy both in terms of
the types of information available. Also the level of detail, the form of the information and its timing should
be appropriate to the role of the person(s) who receive it.
592
13
1 The role of information

Section overview
Information takes many forms and has many roles within the organisation. It comes from internal and
external sources.
Organisations require information for a range of purposes.
Planning
Controlling
Recording transactions
Performance measurement
Decision making
Organisations require different types of information system to provide different levels of information in a
range of functional areas, supporting the distinction between strategic, tactical and operational decision
making.
1.1
Why do organisations need information?

Definitions
Data is the raw material for data processing. Data consists of numbers, letters and symbols and relates to
facts, events and transactions.
Information is data that has been processed in such a way as to be meaningful to the person who receives
it.
Information is now recognised as a valuable resource, and a key tool in the quest for competitive advantage.
A key aspect of IT/IS is that it should provide the appropriate type and amount of information needed by
management to select, implement and control its chosen business strategy. The information strategy
therefore needs to match the business strategy.
More detailed information is also required, however, by lower level management for the day-to-day
management of an organisation, its functions and its divisions.
Easy access to information, the quality of that information and speedy methods of exchanging the
information have become essential elements of business success.
For example the following businesses are highly dependent on information:
Supermarkets and other retailers using customer information as the basis of loyalty schemes
Investment fund managers that base buy and sell decisions on a huge variety of formal and informal
information sources
Insurance brokerages that can only quote competitive premiums if they have access to detailed
assessments of the risks from the client and of the offers available from underwriters against these
risks
The main purposes of information are:

Planning
Once any decision has been made, it is necessary to plan how to implement the steps necessary to make
it effective. Planning requires a knowledge of, among other things, available resources, possible timescales for implementation and the likely outcome under alternative scenarios.
593
Business strategy
Controlling
Once a plan is implemented, its actual performance must be controlled. Information is required to assess
whether it is proceeding as planned or whether there is some unexpected deviation from the plan. It
may consequently be necessary to take some form of corrective action.
In some cases information systems control the process without any human involvement at all e.g. robotic
machinery, e-commerce transactions and automated acknowledgements.
Recording transactions
Information about each transaction or event is required for a number of reasons. Documentation of
transactions can be used as evidence in a case of dispute. There may be a legal requirement to record
transactions, for example for accounting and audit purposes. Detailed information on production costs can
be built up, allowing a better assessment of profitability. Similarly, labour utilised in providing a
particular service can be measured. Structured systems can be installed to capture transactions data.
Performance measurement
Just as individual operations need to be controlled, so overall performance must be measured in order to
enable comparisons against budget or plan to be carried out. This may involve the collection of
information on, for example, costs, revenues, volumes, time-scale and profitability. It may also include non
financial information and other metrics such as KPIs in a balanced scorecard.
Decision making
Information is also required to make informed strategic and management decisions. This completes the full
circle of organisational activity.
1.2
Levels of information in the organisation

A modern organisation requires a wide range of systems to hold, process and analyse information
Organisations require different types of information system to provide different levels of information in a
range of functional areas. Strategic planning, management control and operational control may be
seen as a hierarchy of decisions. This is sometimes called the Anthony hierarchy, after the writer Robert
Anthony. One way of portraying this concept is shown on the following diagram.
Types of information systems
594
System level
System purpose
Strategic
To help senior managers with long-term planning, and in assessing whether objectives
are being met. Information provided by such systems include overall profitability, the
profitability of different segments of the business, future market prospects, the
availability and cost of raising new funds, total cash needs, total manning levels and
capital equipment needs. The main function of such systems is to ensure that changes
in the external environment are matched by the organisation's capabilities.
Management/
tactical
To help middle managers monitor and control. Such information includes productivity
measurements, budgetary control or variance analysis reports, forecasts and results
for particular departments, and short term purchasing requirements. These systems
check if things are working well or not. Some management-level systems support
non-routine decision making such as 'what if?' analyses.
Knowledge
To help knowledge and data workers design products, distribute information and
perform administrative tasks. These systems help the organisation integrate new and
existing knowledge into the business and to reduce the reliance on paper documents.
Operational
To help operational managers track the organisation's specific and day-to-day

operational activities. These systems enable routine queries to be answered, and
transactions to be processed and tracked.
13
The point to note from the above diagram is that the higher level applications such as managerial
information depend to a great extent on skimming data from the operational systems maintained by the
different functional departments for their own purposes.
Strategic information
Tactical information
Operational information
Derived from both internal and

external sources
Primarily generated internally

(but may have a limited
external component)
Derived from internal sources
Summarised at a high level

Relevant to the long term
Concerned with the whole
organisation
Often prepared on an ad hoc
basis
Both quantitative and
qualitative
Uncertain, as the future
cannot be accurately
predicted
Summarised at a lower level

Relevant to the short and
medium term
Concerned with activities or
departments
Prepared routinely and
regularly
Detailed, being the processing

of raw data
Relevant to the immediate
term
Task-specific
Prepared very frequently
Largely quantitative
Based on quantitative
measures
Worked example: An evening newspaper
Operational information will include supplies and returns from vendors to support invoicing, costs of
production, controls over inventories of paper, ink etc, hours worked by staff to support payroll,
health and safety compliance.
Managerial information will include levels of sales to plan production runs of each edition (up to seven
a day in some cities), the quality of stories and likely interest in them to plan production runs,
advertising sales and success of special editions, supplements etc, the weather on the day and its
effects on sales. Clearly the main information that will be used at this level will be the articles and
stories themselves and the editorial team will decide inclusion and position of each.
595
Business strategy
Strategic information includes the plans of rival newspaper owners, the policies of the press
watchdogs, potential sources of new advertising revenues, new printing technologies, the costs and
efficiency of the various printing plants operated by the firm potential new markets for newspapers
(e.g. morning free papers).
Knowledge level refers to a cadre of knowledge workers who use information from the operational
systems in their work. Examples include:
1.3
Management accountants preparing month-end reports

Credit controllers deciding which accounts to suspend and which debts to chase
The qualities of good information

The qualities of good information are outlined below in mnemonic form. If you think you have seen
this before, note that the second A here stands for 'Authoritative', an increasingly important concern
given the huge proliferation of information sources available today.
596
Quality
Example
Accurate
Figures should add up, the degree of rounding should be appropriate, there
should be no typos, items should be allocated to the correct category,
assumptions should be stated for uncertain information (no spurious accuracy).
Complete
Information should includes everything that it needs to include, for example

external data if relevant, or comparative information.
Cost-beneficial
It should not cost more to obtain the information than the benefit derived from
having it. Providers of information should be given efficient means of collecting and
analysing it. Presentation should be such that users do not waste time working out
what it means.
User-targeted
The needs of the user should be borne in mind, for instance senior managers may
require summaries, junior ones may require detail.
Relevant
Information that is not needed for a decision should be omitted, no matter how
'interesting' it may be.
Authoritative
The source of the information should be a reliable one (not, for instance, 'Joe
Bloggs' Predictions Page' on the Internet unless Joe Bloggs is known to be a reliable
source for that type of information).
Timely
The information should be available when it is needed.
Easy to use
Information should be clearly presented, not excessively long, and sent using
the right medium and communication channel (e-mail, telephone, hard-copy
report etc).
1.4
13
Information requirements in different sectors

Sector
Information type
Example(s)
General comments
Manufacturing
Strategic
Future demand estimates
The information requirements of

commercial organisations are
influenced by the need to make and
monitor profit. Information that
contributes to the following
measures is important:
New product
development plans
Competitor analysis
Tactical
Variance analysis
Departmental accounts
Inventory turnover
Operational
Production reject rate

Materials and labour
used
Changeover times
Number of common parts
Level of product diversity
Product and process quality
Inventory levels
Service
Strategic
Forecast sales growth

and market share
Profitability, capital
structure
Tactical
Resource utilisation such

as average staff time
charged out, number of
customers per
hairdresser, number of
staff per account
Organisations have become more

customer and results-oriented over
the last decade. As a consequence,
the difference between service and
other organisation's information
requirements has decreased.
Businesses have realised that most
of their activities can be measured,
and many can be measured in
similar ways regardless of the
business sector.
Customer satisfaction
rating
Operational
Staff timesheets
Customer waiting time
Individual customer
feedback
597
Business strategy
Sector
Information type
Example(s)
General comments
Public sector
Strategic
Population demographics
Public sector (and non-profit

making) organisations often don't
have one overriding objective.
Their information requirements
depend on the objectives chosen.
The information provided often
requires interpretation (e.g. student
exam results are not affected by
the quality of teaching alone).
Expected government
policy
Information may compare actual

performance with:
Standards
Targets
Similar activities
Indices
Activities over time as trends
Tactical
Hospital occupancy rates

Average class sizes
Percent of reported
crimes solved
Operational
Staff timesheets
Vehicles available
Student daily attendance
records
Non-profit /
charities
Strategic
Activities of other
charities
Government (and in
some cases overseas
government) policy
Public attitudes
Tactical
Percent of revenue spent

on admin
Average donation
'Customer' satisfaction
statistics
Operational
Households collected
from / approached
Banking documentation
Donations
598
Many of the comments regarding

public sector organisations can be
applied to not-for-profit
organisations.
Information to judge performance
usually aims to assess economy,
efficiency and effectiveness.
A key measure of efficiency for
charities is the percentage of
revenue that is spent on the
publicised cause (e.g. rather than on
advertising or administration).
Interactive question 1: Strategic decision making
13
[Difficulty level: Intermediate]
Decision making at the strategic level in organisations needs to be supported by information systems that
are flexible and responsive.
Requirement
(a)
Describe the characteristics of information flows at the strategic level.
(b) Describe the sources of information required for strategic decision making and the characteristics of
an information system used to provide strategic information.
See Answer at the end of this chapter.
2 Information and communications technology (ICT)

in organisations
Section overview
Modern applications of ICT have moved beyond mechanisation of clerical tasks into becoming a strategic
force in their own right.
2.1
Developments in IT/IS have encouraged the flattening of organisation hierarchies and widening
spans of control.
The boundaries of organisations have become permeable as information is shared with

customers, suppliers and business partners. Many staff now work from home as tele-workers.
The benefits of any new information system must however always be weighed against the costs.
Types of system
Definitions
Information systems (IS): These include all systems and procedures involved in the collection, storage,
production and distribution of information.
Information technology (IT): This term describes the equipment used to capture, store, transmit or
present information. IT provides a large part of the information systems infrastructure.
Information management: This refers to the approach that an organisation takes towards the
management of its information systems, including:
Planning IS/IT developments

Organisational environment of IS
Control
Technology
599
Business strategy
The use of IT has permitted the design of a range of information systems. We can identify seven types of
information system.
Executive Support Systems (ESS)

Management Information Systems (MIS)
Decision-Support Systems (DSS)
Expert systems (ES)
Knowledge Work Systems (KWS)
Office Automation Systems (OAS)
Transaction Processing Systems (TPS)
Definitions
Executive Support System (ESS) pools data from internal and external sources and makes information
available to senior managers in an easy-to-use form. ESS help senior managers make strategic, unstructured
decisions (sometimes called Executive Information Systems).
Management Information Systems (MIS) convert data from mainly internal sources into information
(e.g. summary reports, exception reports). This information enables managers to make timely and effective
decisions for planning, directing and controlling the activities for which they are responsible.
Decision Support Systems (DSS) combine data and analytical models or data analysis tools to support
semi-structured and unstructured decision making.
An Expert system is a computer program that captures human expertise in a limited domain of
knowledge.
Knowledge Work Systems (KWS) are information systems that facilitate the creation and integration
of new knowledge into an organisation.
Knowledge Workers are people whose jobs consist of primarily creating new information and
knowledge. They are often members of a profession such as doctors, engineers, lawyers and scientists.
Office Automation Systems (OAS) are computer systems designed to increase the productivity of data
and information workers.
A Transaction Processing System (TPS) performs and records routine transactions.
Worked example: The medical profession
600
Executive Support Systems (ESS): The general managers of hospitals will have information on bed
usage, costs of procedures, the demographics of the hospital catchment, the priorities of government,
the care provided nearby and the potential for epidemics or other issues. They will use this to set
priorities and decide the levels of provision for the coming years.
Management Information Systems (MIS): Managers exist at many levels such as practices, wards,
clinics, procurement divisions etc. They will use information on demand and resource availability, costs
and revenues etc to ensure care is given within budget. They will use balanced scorecard measures to
ensure all is controlled.
Decision-Support Systems (DSS): Clinical staff may use systems such as scans, blood test data,
information on the patient's history and information on drug doses and effects to decide how to treat
the patient.
Expert systems: Some telephone triage services (e.g. NHS Direct in the UK) gather information
from the caller about the symptoms using a structured set of questions and the system will infer
potential causes and will generate further questions leading to a preliminary diagnoses and decision on
course of action such as calling paramedics, recommending pain killers, etc.
2.2
Knowledge Work Systems (KWS): Clinical staff will complete records and reports on office
automated systems. They may keep up to date with their areas with on-line journals. Some specialists
use teleconferencing and image sharing workflow systems to discuss cases or to provide expert
diagnoses to remote hospitals.
Office Automation Systems (OAS): The patient appointment system will be automated and all
correspondence typed. The hospital menus will be prepared in a graphics package as will occasional
signage.
Transaction Processing Systems (TPS): The pharmacy will order and dispense stock through its
TPS.
13
Intranets and extranets

Organisations are increasingly using intranets and extranets to disseminate information.
2.3
An intranet is like a mini version of the Internet (covered in the following section). Organisation
members use networked computers to access information held on a server. The user interface is a
browser similar to those used on the Internet. The intranet offers access to information on a wide
variety of topics, and often includes access to the Internet.
An extranet is an intranet that is accessible to authorised outsiders, using a valid username and
password. The username will have access rights attached determining which parts of the extranet
can be viewed. Extranets are becoming a very popular means for business partners to exchange
information.
The Internet
Definition
The Internet is a global network connecting millions of computers.
The Internet is the name given to the technology that allows any computer with a telecommunications link
to send and receive information from any other suitably equipped computer
The World Wide Web is the multimedia element which provides facilities such as full-colour, graphics,
sound and video. Websites are points within the network created by members who wish to provide an
information point for searchers to visit and benefit by the provision of information and/or by entering into a
transaction.
Almost all companies have a Website on the Internet. A site is a collection of screens providing
information in text and graphic form, any of which can be viewed simply by clicking the appropriate
button, word or image on the screen.
The Internet provides opportunities to organise and automate tasks which would previously have required
more costly interaction with the organisation. These have often been called low-touch or zero-touch
approaches.
2.4
The benefits of a proposed information system

The benefits from a proposed information system should be evaluated against the costs. To quantify the
benefits several factors need to be considered.
601
Business strategy
Increased revenue
Improved data collection, storage and analysis tools may indicate previously unknown opportunities
for sales. Such tools may include data-mining software which allows relationships to be discovered
between previously unrelated data.
Cost reduction
New technology can be used to automate previously manually intensive work. This saves staff time and
may result in a smaller workforce being required.
Systems such as stock control can benefit as losses from obsolescence and deterioration are reduced.
Enhanced service
Computerised systems that create a more prompt and reliable service will increase customer
satisfaction. In some cases it may be a source of competitive advantage.
Improved decision making

Providing decision makers with the most accurate and up-to-date information that is possible can have
substantial benefits. The main areas of benefit are:
Forecasting
Models can be created to forecast sales trends and the likely affect on costs. Organisations that
can make accurate forecasts are in a better position to plan their structure and finances to
ensure long-term success.
Developing scenarios
Organisations facing uncertain times, or those which operate in dynamic, evolving environments,
need to make complex decisions (often quickly) to take advantage of opportunities or to avoid
threats. Scenario planning models enable a wide range of variables to be changed (such as
inflation rates or sales numbers), the overall effect on the business to be identified and a business
plan to be constructed.
Market analysis
Modelling can be extended into the market that the organisation operates in. Trends such as
sales volumes, prices and demand can be analysed. Relationships between price and sales volume
can be identified. These can be used by an organisation when deciding on a pricing strategy.
Setting the best price for a product can help drive up sales and profitability.
Project evaluation
Organisations will benefit from improved decision making where systems can accurately evaluate
a wide range of projects. Investment decisions often involve large capital outlays and if the system
prevents bad decisions it can prevent the organisation wasting large sums of money.
Systems can also prevent an organisation agreeing 'bad' deals. Tenders for suppliers or other
long-term contracts can prove costly if the wrong choice is made.
3 The strategic value of IT/IS in business

Section overview
602
Business analysis views the information system in the context of the organisation's operations and
strategy.
Portfolio techniques assess the relationship between information systems and business operations and
performance.
As the importance of information has increased, organisations have realised that information systems
and information technology can be used as a source of competitive advantage.
3.1
13
Strategic implications
When formulating an overall information technology strategy the following aspects should be taken into
consideration:
What are the key business areas which could benefit most from an investment in information
technology, what form should the investment take, and how could such strategically important units be
encouraged to use such technology effectively?
How much would the system cost in terms of software; hardware; management commitment and
time; education and training; conversion; documentation; operational manning; and maintenance? The
importance of lifetime application costs must be stressed according to Roger Lee:
'Most companies try to assess how much it will cost them to install an information technology
function, but all too few measure the costs and benefits after implementation. Yet this is the area
of greatest potential loss.'
What criteria for performance should be set for information technology systems. Again quoting Roger
Lee:
'The quality of an information technology application should be measured in two ways: the
technical standard it achieves and the degree to which it meets the perceived and often changing
needs of the user.'
What are the implications for the existing work force have they the requisite skills; can they be
trained to use the systems; will there be any redundancies?
Whether such a strategy is based on a database approach will depend on a number of factors.
According to the US Department of Commerce a database approach is called for when:
3.2
Application needs are constantly changing, with considerable uncertainty as to the important data
elements, expected update or processing functions and expected volumes to be handled.
Rapid access is frequently required to answer ad hoc questions.
There is a need to reduce long lead times and high development costs in developing new
application systems.
Many data elements must be shared by users throughout the organisation.
There is a need to communicate and relate data across functional and department boundaries.
There is a need to improve the quality and consistency of the database and to control access to
that resource.
Substantial dedicated programming assistance is not normally available.
Earl's systems audit grid

Earl suggests a grid to analyse an organisation's current use of information systems
High
Renew
Maintain, enhance
Low
Divest
Reassess
Low
High
Business
value
Technical quality
603
Business strategy
A system of poor quality and little value should be disposed of (divest).
A system of high business value and low technical quality should be renewed (invested in). An
important system of low quality carries a high business risk.
A system of high quality but low business value should be reassessed. Is the system meeting an
information need? Why is it under-utilised?
High quality systems with a high business value should be maintained to preserve the high quality,
and if possible enhanced in the quest for competitive advantage.
Establishing where to place systems on the grid is the difficult part. Consultation with system users and
those for formulating and implementing information system strategy would be undertaken to form an
opinion of each system. Again, judgements are subjective.
3.3
The strategic grid (McFarlan/McKenney)

The importance of IS/IT to an organisation was studied by McFarlan and McKenney back in the early 1980s.
They devised a matrix designed to show the level of dependence on IS/IT within an organisation. The grid
classifies four levels of dependence.
Strategic
importance of
planned
information
systems
High
Turnaround
Strategic
Low
Support
Factory
Low
High
Strategic importance of current
information systems
3.4
Organisations in the strategic quadrant currently depend on IS/IT for competitive advantage, and
expect to continue to do so.
Organisations in the turnaround quadrant do not currently view IS/IT as having strategic importance,
but expect IS/IT will be strategically important in the future.
Organisations in the support quadrant see no strategic value in IS/IT.
Organisations in the factory quadrant see IS/IT as strategically significant at the moment, but predict
this will not be the case in the future.
The value chain and IT/IS

Value chain analysis, also covered in Chapter 5 can be used to assess the impact of IS/IT, and to identify
processes where IT could be used to add value.
IT can be used to automate and improve physical tasks in the manufacturing sector. It also provides
extra information about the process.
3.4.1
604
Operations
Process control: Computer systems enable tighter control over production processes.
Machine tool control: Machine tools can be automated and, it is hoped, be made more precise.
Numerical control: Information to operate the machine tool is prepared in advance to

generate a set of instructions
Computer numerical control is where the computer produces the instructions
Direct numerical control is where the computer is linked directly to the machine tool.
Robots can automate some of the process.
Computer aided manufacturing (CAM) involves a variety of software modules such as:
Production control, supervisory systems
Materials requirement planning (MRP 1) and Manufacturing Resources Planning (MRP II). These
are automated component ordering and automated production scheduling systems respectively.
Capacity requirements planning
Computer Integrated Manufacturing (CIM) integrates all aspects of an organisation's

manufacturing activities. 'IT cannot solve basic organisational problems, but the essence is the use of
the IT to provide integration though communication, effectiveness and efficiency'. Flexible
manufacturing systems include:
3.4.2
13
Machine tools
Materials handling conveyor sets
Automatic guided vehicles
Enterprise Resource Planning (ERP) systems take MRP II systems a step further, and are not
restricted to certain types of organisation. ERP systems are used for identifying and planning the
enterprise-wide resources needed to record, produce, distribute, and account for customer orders.
Logistics
In both inbound logistics and outbound logistics IT can have an impact.
3.4.3
The use of IT in inbound logistics includes stock control systems such as MRP, MRPII, ERP and IT.
Warehousing: The use of barcodes can increase knowledge about the quantity and nature of stock in
hand.
It is possible to create computer models, or virtual warehouses, of stock actually held at suppliers.
For example an organisation with several outlets might have each connected to a system which
indicates the total amount of stock available at different sites.
Marketing
Marketing and services can be made more effective by customer databases enabling market segmentation.
3.4.4
Buying and analysing a mailing list is a more precise method of targeting particular groups of
consumers than television advertising.
A variety of market research companies use IT to monitor consumers' buying habits.
Supermarkets can use automated EPOS systems to have a precise hour-by-hour idea of how
products are selling to enable speedy ordering and replenishments.
Service
Customer relationship management (CRM) describes the methodologies, software, and usually
Internet capabilities that help an enterprise manage customer relationships.
For example, an enterprise might build a database about its customers that described relationships in
sufficient detail so that management, salespeople, service staff, and maybe the customer, could access
information, match customer needs with product plans, remind customers of service requirements and
know what other products a customer had purchased.
CRM consists of:
Helping an enterprise to identify and target their best customers, manage marketing campaigns with
clear goals and objectives, and generate quality leads.
Assisting the organisation to improve telesales, account, and sales management by optimising
information shared, and streamlining existing processes (for example, taking orders using mobile
devices).
605
Business strategy
3.4.5
Allowing the formation of relationships with customers, with the aim of improving customer
satisfaction and maximising profits; identifying the most profitable customers and providing them with
the highest level of service.
Providing employees with the information and processes necessary to know their customers,
understand their needs, and effectively build relationships between the company, its customer base,
and distribution partners.
Support activities
As far as support activities are concerned IT has some impact.
Procurement: IT can automate some purchasing decisions. Paperwork can be saved if the
organisation's purchase systems are linked directly to the sales order systems of some suppliers (e.g.
by electronic data interchange).
Technology development. Computer automated design (CAD) is, in a number of areas, an

important influence.
Drafting: CAD produces engineer's drawings, component design, layout (e.g. of stores, wiring
and piping) and electronic circuit diagrams in complex systems.
Updating: It is easy to change design in CAD systems and to assess ramifications of any changes.
Some CAD systems have archive data (e.g. for reference).
CAD enables modelling to be checked without the necessity of producing working prototypes.
Some 'stress testing' can be carried out on the model.
There is perhaps less impact on human resources. However, the HR applications include the
maintenance of a skills database, staff planning (e.g. using network analysis), computer based training,
time attendance systems, payroll systems, pension systems.
Worked example: Fast-growing firms say IT is their edge

The fastest-growing companies in the United States attribute their competitive advantage to an edge in IT.
A PricewaterhouseCoopers survey found that 52% of the 436 CEOs interviewed said that their companies
have a competitive edge in computer and information technology. The companies are identified as the
fastest-growing U.S. businesses over the last five years.
The 'trendsetter' companies 'with an IT advantage are reaping the benefits,' Jim Atwell, global private equity
director at PricewaterhouseCoopers, said in a statement. 'Their composite revenues have grown 20-fold
over the past 5 years, 45% faster growth than their counterparts without an IT edge. And they also tend to
be larger with 58% higher revenues and 56% more employees.'
The study found that service firms lead product vendors in claiming an IT advantage, 58% compared to 46%.
57% of the companies surveyed report having financial analysis/cash management systems; 52% have sales
information systems; 37% have sales/customer service systems; 28% have marketing systems; and 24% have
customer 'end user' systems. In addition, 47% report the Internet as being very important to their business.
Nearly all of the CEOs of the companies studied (97%) rated computers and information technology as
important to their company's profitable business growth over the past two years, with 80% rating them as
extremely or very important.
Companies that rated IT as extremely important to their business have grown their revenues ten-fold over
the past five years, or 72% faster than those who did not rate it as highly. Likewise, 96% of the CEOs said
computers and IT have generally lived up to their expectations for increased business productivity. 60%
rated IT as performing extremely or very well against their original expectation.
Although a majority of the companies studied praised IT as a business necessity, 84% of growing companies'
CEOs now express concern about information security, an increase of seven points from a similar study
done two years ago. 31% say security is a major concern, with this high degree of discomfort more
prevalent among service than product firms. To address this issue, more than half of the CEOs of these
companies have documented disaster recovery plans in place for IT emergencies.
606
13
Looking ahead over the next year, 32% of the companies surveyed said they are planning to increase their
levels of investment in computers and information technology, while only 11% are cutting back. About 55%
expect to continue with current IT spending levels, and the remaining 2% are uncertain.
4 Knowledge management
Section overview
4.1
Knowledge management (KM) refers to the harnessing of ICT to develop and disseminate relevant
knowledge throughout the organisation.
KM is a source of competitive advantage because it encourages process improvement and innovation.
Certain office efficiency applications are essential for effective KM.
Knowledge management programmes

Definitions
Knowledge is information within people's minds.
Knowledge management describes the process of collecting, storing and using the knowledge held
within an organisation.
Knowledge Work Systems (KWS) are information systems that facilitate the creation and integration
of new knowledge into an organisation.
Knowledge workers are people whose jobs consist primarily of creating new information and knowledge.
They are often members of a profession such as doctors, engineers, authors, lawyers and scientists.
Data workers process and distribute information, e.g. secretary, accounts clerk.
Knowledge management programmes extend beyond any particular piece of IT/IS and embrace changing
the attitudes of management and staff towards sharing information. They concern:
Designing and installing techniques and processes to create, protect and use explicit knowledge
(that is knowledge that the company knows that it has). Explicit knowledge includes facts, transactions
and events that can be clearly stated and stored in management information systems.
Designing and creating environments and activities to discover and release tacit knowledge
(explained below).
Tacit knowledge is expertise held by people within the organisation that has not been formally
documented.
Tacit knowledge is a difficult thing to manage because it is invisible and intangible. We do not know what
knowledge exists within a person's brain, and whether he or she chooses to share knowledge is a matter of
choice.
The motivation to share hard-won experience is sometimes low; the individual is 'giving away' their value
and may be very reluctant to lose a position of influence and respect by making it available to everyone.
Organisations should encourage people to share their knowledge. This can be done through a culture of
openness and rewards for sharing knowledge and information.
607
Business strategy
Worked example: Mittal Steel

Bill Scotting, Director of Continuous Improvement at Mittal Steel, identifies the role of Knowledge
Management as a rationale for growth by acquisition.
'Over the past decade and a half, Mittal Steel has grown into the world's leading steel producer. This
achievement is I think testament not just to our ability to make the right acquisitions, but also to make
those acquisitions work for us. I think that in a company that grows so much through acquisition that
knowledge management is a vital part of it. A company formed through a merger or an acquisition will have
more knowledge than the two companies before the union, and the scope and potential that comes from
this knowledge increases. The companies differ in geography, in history, in culture, and in operating
practices bringing people together to benchmark, to share experiences and best practices, and to even
undertake joint problem solving. We try to foster knowledge sharing, and we always encourage our
managers to think entrepreneurially. I think with the various acquisitions we've made we've achieved the
benefits, be they financial or operational. By really focusing on addressing the business needs in each case.
We've made targeted capital investments. We've applied our knowledge management programme. We've
promoted the sharing of product and process capabilities. But I think most of all what drives all of this is
that it's the sharing of the knowledge and the experiences of the diverse management team that has come
together to form this group through all these acquisitions that's what underpins success at the end of the
day.
In 1992 we acquired a flat products producer in Mexico. In the year before we bought it, it was shipping
around half a million tons of production. It's now regularly doing 4 million tons. That's an eightfold increase
in output. Temirtau in Kazakhstan is another one we acquired in I think 1995. It's grown from a production
and output of around 2.5 million tons at that time to over 4 million tons today. Since buying in South Africa
in 2001 we have successfully increased production by over a million tons at that operation. But it's not just
about increasing output and production in emerging countries. If I think of the developed world, think of
Europe, in Germany in 1995 we bought a long products business. In 2004, the peak of the market, we
actually produced 20% more than it had been doing at that time. And in the US, at Inland Steel, a producer
we bought in 1998, we have seen an improvement in output of around 300,000 tons at that facility. And
that's from a very strong starting base. I think in both these latter cases we've not just been focused on
volume growth, but we've also improved the value added mix through product development and process
innovation.'
Source: Securities and Exchanges Commission filing June 2006 (adapted)
Interactive question 2: Data and knowledge work
In traditional industrial economies a large proportion of businesses produced or assembled goods and most
employees worked in factories.
Many countries now have an information economy where most wealth originates in information and
knowledge production and the majority of workers process or create information. Information work is
divided into two groups: data and knowledge work.
Requirements
(a)
Distinguish between data workers and knowledge workers.
(b) Outline the role of a professional accountant as both a data worker and a knowledge worker and
briefly describe the support systems they require to work effectively.
608
4.2
13
Systems that aid knowledge management

Information systems play an important role in knowledge management, helping with information flows
and helping formally capture the knowledge held within the organisation.
Worked example: How to facilitate knowledge sharing

The business trend for the new millennium might well be summed up as, 'Tradition is out, innovation is in.'
World-class companies now realise that the best ideas do not necessarily come from the executive
boardroom but from all levels of the company; from line workers all the way through to top management.
Companies that have cultures that encourage best practice sharing can unlock the rich stores of
knowledge within each employee: sharing promotes overall knowledge, and facilitates further creativity.
World-class companies are innovatively implementing best practice sharing to shake them of out of the rut
of 'the way it's always been done.' Programs such as General Electric's Work-Out sessions or Wal-Mart's
Saturday meetings help employees challenge conventions and suggest creative new ideas that drive process
improvement, increased efficiency, and overall, a stronger bottom line.
The fundamental goal of knowledge management is to capture and disseminate knowledge across an
increasingly global enterprise, enabling individuals to avoid repeating mistakes and to operate more
intelligently striving to create an entire learning organisation that works as efficiently as its most
seasoned experts.
Best Practices' recently updated report, Knowledge Management of Internal Best Practices, profiles innovative
methods used by world-class companies to communicate best practices internally. The study provides
recommendations for how to create a best practice-sharing culture through all levels of the organisation,
how to use both external and internal sources to find best practices and how to capture that knowledge
and communicate it to all employees.
Best Practices, LLC contacted over fifty leading companies at the vanguard of knowledge management to
compile its report. Some of the vital issues these thought leaders addressed include measurement and
management of intellectual assets, best practice identification and recognition systems, best practice
prioritisation systems, communication of best practices, and knowledge sharing through technology.
For example, in the area of best practice communications, the report examines how General Electric
spreads best practices with regular job rotations.
4.3
Groupware
Groupware is a term used to describe software that provides functions for the use of collaborative work
groups.
Typically, groups utilising groupware are small project-oriented teams that have important tasks and tight
deadlines. Perhaps the best-known groupware products at present are Lotus Notes and Microsoft
Exchange. However, there are many related products and technologies.
Features might include the following:
A scheduler (or diary or calendar), allowing users to keep track of their schedule and plan meetings
with others.
An electronic address book to keep personal and business contact information up-to-date and easy
to find. Contacts can be sorted and filed in any way.
To do lists. Personal and business to-do lists can be kept in one easy-to-manage place, and tasks can
quickly be prioritised.
A journal, which is used to record interactions with important contacts, record items (such as e-mail
messages) and files that are significant to the user, and record activities of all types and track them all
without having to remember where each one was saved.
A jotter for jotting down notes as quick reminders of questions, ideas, and so on.
609
Business strategy
4.4
Workflow
Workflow is a term used to describe the defined series of tasks within an organisation to produce a final
outcome. Sophisticated workgroup computing applications allow the user to define different workflows for
different types of jobs. For example, in a publishing setting, a document might be automatically routed from
writer to editor to proof reader to production.
Workflow systems can be described according to the type of process they are designed to deal with. There
are three common types.
4.4.1
Image-based workflow systems are designed to automate the flow of paper through an
organisation, by transferring the paper to digital 'images'. These were the first workflow systems that
gained wide acceptance. These systems are closely associated with 'imaging' (or 'document image
processing' (DIP)) technology, and help with the routing and processing of digitised images.
Form-based workflow systems (form-flow) are designed to route forms intelligently throughout an
organisation. These forms, unlike images, are text-based and consist of editable fields. Forms are
automatically routed according to the information entered on them. In addition, these form-based
systems can notify or remind people when action is due.
Co-ordination-based workflow systems are designed to help the completion of work by

providing a framework for co-ordination of action. Such systems are intended to improve
organisational productivity by addressing the issues necessary to satisfy customers, rather than
automating procedures that are not closely related to customer satisfaction.
Intranets and extranets

An intranet is an internal network used to share information. Intranets utilise Internet technology and
protocols. The firewall surrounded an internet fends off unauthorised access.
The benefits of intranets are:
Savings accrue from the elimination of storage, printing and distribution of documents that can
be made available to employees on-line.
Documents on-line are often more widely used than those that are kept filed away, especially if the
document is bulky (e.g. manuals) and needs to be searched. This means that there are
improvements in productivity and efficiency.
It is much easier to update information in electronic form.
Wider access to corporate information should open the way to more flexible working patterns,
e.g. material available on-line may be accessed from remote locations.
An extranet is an intranet that is accessible to authorised outsiders. Only those outsiders with a valid
username and password can access an extranet, with varying levels of access rights enabling control over
what people can view. Extranets are becoming a very popular means for business partners to exchange
information.
Extranets therefore allow better use of the knowledge held by an organisation by facilitating access to that
knowledge.
Interactive question 3: Information and knowledge management

Increasingly the management of information sharing and group working ventures is a fundamental part of
business management.
Requirements
(a)
Discuss how the management of information might differ from the management of knowledge.
(b) How can an organisation develop a knowledge strategy?

610
13
5 Risks associated with IT/IS

Section overview
5.1
The risks of IT/IS can be summarised as:
The risk of inadequacy: the failure by the firm to utilise IT/IS as effectively as its rivals will lead
to loss of competitive advantage, e.g. inferior service, poorer products, excess costs.
The risk of breakdown: where the firm depends on IT/IS a breakdown in its operations
threatens the business.
The risk of excess expense: IT/IS is a significant budget item. Botched projects, expensive
contracts, inappropriate systems or non-adoption presents a direct financial risk.
Risks are present at the system specification stage, and they carry through to implementation. There
is also the risk of systems failure. Controls are therefore needed to protect data and information.
Development and implementation what can go wrong

Some of these issues involve change and project management which we have covered elsewhere.
Problems that occur when implementing a new information system can usually be traced to deficiencies in
the development and specification process. The following table outlines some common mistakes that
adversely affect the implementation process.
Stage/activity
Problems
Analysis
The problem the system is intended to solve is not fully understood.

Investigation of the situation is hindered by insufficient resources.
User input is inadequate through either lack of consultation or lack of user
interest.
The project team is unable to dedicate the time required.
Insufficient time spent planning the project.
Design
Insufficient user input.

Lack of flexibility. The organisation's future needs are neglected.
The system requires unforeseen changes in working patterns.
Failure to perform organisation impact analysis. An organisational impact
analysis studies the way a proposed system will affect organisation structure,
attitudes, decision making and operations. The analysis aims to ensure the
system is designed to best ensure integration with the organisation
Organisational factors sometimes overlooked include:
Ergonomics (including equipment, work environment and user interfaces)
Health and safety
Compliance with legislation
Job design
Employee involvement
611
Business strategy
Stage/activity
Problems
Programming
Insufficient time and money allocated to programming.

Programmers supplied with incomplete or inaccurate specifications.
The logic of the program is misunderstood.
Poor programming technique results in programs that are hard to modify.
Programs are not adequately documented.
Testing
Insufficient time and money allocated to testing.

Failure to develop an organised testing plan.
Insufficient user involvement.
User management do not review and sign-off the results of testing.
Conversion
Insufficient time and money allocated to data conversion.

Insufficient checking between old and new files.
The process is rushed to compensate for time overruns elsewhere.
Implementation
Insufficient time, money and/or appropriate staff mean the process has to be
rushed.
Lack of user training increases the risk of system under-utilisation and
rejection.
Poor system and user documentation.
Lack of performance standards to assess system performance against.
System maintenance provisions are inadequate.
A recurring theme when examining the reasons for information system failure is user resistance. Users may
be management and staff, but for outward-facing systems equally could involve customers, suppliers and
other partners.
The three types of theories to explain user resistance are explained in the following table.
Theory
Description
Overcoming the resistance
People-oriented
User-resistance is caused by factors

internal to users as individuals or as a
group.
User training.
For example, users may not wish to

disrupt their current work practices
and social groupings.
System-oriented
User-resistance is caused by factors

inherent in the new system design
relating to ease of use and
functionality.
For example, a poorly designed userinterface will generate user-resistance.
612
Organisation policies.
Persuasion.
User involvement in system
development.
User training and education.
Improve user-interface.
Ensure users contribute to the
system design process.
Ensure the system 'fits' with the
organisation.
Theory
Description
Overcoming the resistance
Interaction
User-resistance is caused by the

interaction of people and the system.
Re-organise the organisation before

implementing the system.
For example, the system may be welldesigned but its implementation will
cause organisational changes that users
resist e.g. reduced chance of bonuses,
redundancies, monotonous work.
Redesign any affected incentive

schemes to incorporate the new
system.
13
Promote user participation and

encourage organisation-wide
teamwork.
Emphasise the benefits the system
brings.
5.2
Security controls
Definition
Security means the protection of data from unauthorised modification, disclosure or destruction, and the
protection of the information system from the degradation or non-availability of services in other words,
system failure.
The risks to data are:
Human error
Entering incorrect transactions

Failing to correct errors
Processing the wrong files
Technical error such as malfunctioning hardware or software

Natural disasters such as fire, flooding, explosion, impact, lightning
Deliberate actions such as fraud
Commercial espionage
Malicious damage
Industrial action
Security can be subdivided into a number of aspects.
Prevention: It is in practice impossible to prevent all threats cost-effectively.
Detection: Detection techniques are often combined with prevention techniques: a log can be
maintained of unauthorised attempts to gain access to a computer system.
Deterrence: As an example, computer misuse by personnel can be made grounds for dismissal.
Recovery procedures: If the threat occurs, its consequences can be contained.
Correction procedures: These ensure the vulnerability is dealt with (for example, by instituting
stricter controls).
Threat avoidance: This might mean changing the design of the system.
Methods of identifying and avoiding risks in an IT environment were discussed in Chapter 9.
613
Business strategy
Summary and Self-test
Summary
Uses of
information
Benefits
Quality
IT/IS Strategy
614
13
Self-test
Answer the following questions.
1
List five uses of information.
List five characteristics of strategic information.
List five characteristics of tactical information.
List five characteristics of operational information.
Match the following abbreviations with the appropriate description.

TPS, OAS, KWS, MIS, DSS, ESS.
(a)
Information systems that facilitate the creation and integration of new knowledge into an
organisation.
(b) A system that pools data from internal and external sources and makes information available to
senior managers in an easy-to-use form.
(c)
Computer systems designed to increase the productivity of data and information workers.
(d) A system that converts data, mainly from internal sources into information (e.g. summary
reports, exception reports).
(e)
A system that combines data and analytical models or data analysis tools to support semistructured and unstructured decision making.
(f)
A system to perform and record routine transactions.
Distinguish between explicit knowledge and tacit knowledge.
Information systems used to collect, generate and manipulate information can be classified as follows.
(a)
(b)
(c)
(d)
(e)
(f)

Decision Support Systems (DSS)
Executive Information Systems (EIS) [also known as Executive Support Systems (ESS)]
Requirement
Describe each of the categories identified above in terms of the functions information systems
perform, and the level they serve in the organisation.
(20 marks)
8
The SFA Company

The SFA Company manufactures clothing and operates from one location in a major city. It purchases
cotton and other raw materials and manufactures these into garments of clothing, such as sweatshirts,
T-shirts and similar articles in its factory. There are approximately 20 administration staff, 30 sales staff
and 300 production workers. Although the company is profitable, three major concerns were raised at
a recent board meeting about the operations of the company:
(1) The company does not always appear to obtain the best prices for raw materials, which has
decreased gross profit in the last few years of trading.
(2) Many garments are made to order for large retail shops, but the company has spare capacity and
so it maintains an active sales force to try to increase its total sales. However, the sales force
does not seem to be making many sales because of lack of information about the garments in
production and stocks of finished garments.
(3) Some production is carried out using Computer Assisted Design and manufacture although the
company has found limited use for this application to date. The system was purchased in a hurry
two years ago with the objective of keeping up with competitors who had purchased similar
systems. The board believes that greater use could be made of this technology.
615
Business strategy
The Value Chain model produced by Porter provides a good summary of the primary and support
activities of the company. An adaptation of Porter's general model follows.
SUPPORT
ACTIVITIES
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
IN
RG
MA
TECHNOLOGY DEVELOPMENT
PROCUREMENT
AFTERSALES
SERVICE
M
A
RG
IN
INBOUND OPERATIONS OUTBOUND MARKETING

LOGISTICS
LOGISTICS
& SALES
PRIMARY ACTIVITIES
The board of SFA is currently considering introducing some form of information system or systems,
such as a MIS, into the company for all staff to use. Because of the perceived weaknesses in the
current systems already mentioned, the directors are particularly interested in the areas of:
(1) Inbound logistics
(2) Marketing and sales
(3) Technology development
Requirements
(a)
Explain what inputs will be needed for the information systems designed to support the
operations of the business in the three areas mentioned above.
(14 marks)
(b) Explain what outputs will be required from those information systems.
Note: Do not describe Porter's general model.
9
(6 marks)
(20 marks)
The results obtained from conducting a current situation analysis are often depicted in Earl's audit grid
format.
Requirements
(a)
Evaluate the use of current situation analysis and the resulting audit grid within the context of
developing an information systems strategy.
(10 marks)
(b) Examine a key information system in an organisation of your choice using Earl's audit grid as a
framework. In your answer you should discuss which of the four quadrants is more applicable to
your chosen information system and why.
(10 marks)
(20 marks)
10
CC Ltd
CC Ltd is a company employing 2,560 staff in 20 different offices within one country. The company
offers a wide range of specialist consultancy advice to the building and construction industry. This
includes advice on materials to be used, relevant legislation (including planning applications) and
appropriate sources of finance.
The information to meet client requirements is held within each office of the company. Although most
clients are serviced by a single office, a lot of the information used is duplicated between the different
offices. This is not surprising given that legislation and other standard information such as details of
materials used are the same for the whole country.
616
13
In the past there has been no attempt to share data because of the cost of transferring information and the
lack of trust on the part of staff in other offices. Some senior managers tend to keep part of client data
confidential to themselves.
The company has recently provided all employees with e-mail for communication within CC Ltd and
to clients. Software with internet access is also available so that staff can obtain undated planning
information from appropriate websites. The hardware in the company is quite old and only just meets
the minimum specification for these purposes.
The marketing director has suggested that an Intranet should be established in the company so that
common information can be shared rather than each office maintaining its own data. This suggestion is
meeting with some resistance from all grades of staff.
Requirements
(a)
Explain the objectives of an intranet and suggest how the provision of an intranet within CC Ltd
should result in better provision of information.
(9 marks)
(b) Discuss the organisational and human reasons why information may not become more widely
available in CC Ltd, and suggest methods for overcoming these barriers.
(7 marks)
(c)
Briefly explain how an extranet differs from an intranet, and how CC Ltd could utilise an
extranet.
(4 marks)
(20 marks)
Now, go back to the Learning Objectives in the Introduction. If you are satisfied you have achieved these
objectives, please tick them off.
617
Business strategy
Answers to Self-test
1
Planning, controlling, recording transactions, measuring performance and making decisions.
Five of:
Five of:
Derived from both internal and external sources

Summarised at a high level
Relevant to the long term
Concerned with the whole organisation
Often prepared on an ad hoc basis
Both quantitative and qualitative
Uncertain, as the future cannot be predicted accurately
Primarily generated internally (but may have a limited external component)
Summarised at a lower level
Relevant to the short and medium term
Concerned with activities or departments
Prepared routinely and regularly
Based on quantitative measures
Five of:
Derived from internal sources

Detailed, being the processing of raw data
Relevant to the immediate term
Task-specific
Prepared very frequently
Largely quantitative
(a)
(b)
(c)
(d)
(e)
(f)

Executive Support Systems (ESS)
Decision Support Systems (DSS)
Explicit knowledge is knowledge that an organisation already stores in formal systems. It includes facts,
transactions and events that can be clearly stated and stored in information systems.
Tacit knowledge is expertise held by people within the organisation that has not been formally
documented.
(a)
Transaction Processing Systems (TPS) are operational level systems that perform and
record the daily routine transactions necessary to conduct business. They provide information
about the efficiency of operations and activities, but are limited in the support they provide to
management decision-making.
The TPS routinely captures, processes, stores and outputs the low-level transaction data. It is
normally characterised by the use of one of the following methods of processing.
Batch processing e.g., payroll systems

Online processing sales order entry systems
Real time processing inventory control systems
(b) Office Automation Systems (OAS) serve the information needs of the data workers at the
knowledge level of the organisation. Typical office automation systems create, handle and manage
documents (through word processing, desktop publishing and digital filing), manage workflow and
scheduling (through electronic calendars), help financial managers manage client portfolios,
618
13
manage projects and communication (through electronic mail, electronic bulletin boards, voice
mail or teleconferencing). Text and image processing systems evolved from word processors to
desktop publishing, enabling the creation of professional documents with graphics and special
layout features. Spreadsheets, presentation packages (like PowerPoint), personal database
systems and note-taking systems (appointment book and notepad) are all part of OAS and are
designed to increase the productivity of data workers in the office.
(c)
Knowledge Work Systems (KWS) support knowledge workers at the knowledge level of
the organisation. They are information systems that aid knowledge workers in the creation and
integration of new knowledge in the organisation. To do this they need to link the worker to
external and internal (organisation) information.
KWS require much more powerful analytic, graphics, document management, and
communications abilities than a typical microcomputer. They also need more computing
processing power because knowledge workers tend to do more data-intense and computingintense work than other workers. Examples of KWS include the following:
Computer Aided Design (CAD) systems
Virtual Reality systems for simulating the real world e.g., flight simulators
Investment workstations used in the financial industry
Group collaboration systems although the software can be counted among office
automation systems, it is used to support knowledge workers also. Groupware is software
that supports shared activities: documents, ideas, calendars, e-mail, meeting software, etc.
Intranet environments include Internet technologies used for communication purposes e.g.,
e-mail, chat groups, web tools.
Artificial Intelligence (AI) systems are based on human expertise, knowledge, and some
reasoning patterns. They extend the power of experts, but lack the general reasoning
capabilities. These systems are useful to preserve the expertise that can be lost when
workers leave a firm.
(d) Management Information Systems (MIS): Information systems at the management level of
an organisation that serve the functions of planning, controlling, and decision making by providing
routine summary and exception reports. An MIS is defined as 'a system to convert data from
internal and external sources into information, and to communicate that information in an
appropriate form to managers at all levels and in all areas of the business to enable them to make
timely and effective decisions'.
The format of the information supplied is determined by the abilities of the user and by the use
that will be made of it.
Strategic management will require information that is broad, aggregated and summarised
Tactical management requires information that is more detailed and tailored to the user's
needs or area of responsibility
Operational management require very detailed information specific to their responsibility

area
The MIS produces reports that are mainly summarised and inflexible, e.g. scheduled reports,
demand reports, exception reports etc.
(e)
Decision Support Systems (DSS): Information systems also at the management level of an
organisation that combine data and sophisticated analytical models to support semi-structured
and unstructured decision-making. A DSS is defined as 'a computer-based system which enables
managers to confront ill-structured problems by direct interaction with data and problem-solving
programs'. Their aim is to provide information in a flexible way to aid decision-making.
The DSS does not itself make the decision, it merely assists in going through the phases of
decision making. The system sets up various scenarios and the computer predicts the result for
each scenario by using a process of 'what if?' analysis.
619
Business strategy
There are three basic elements to the DSS.
(f)
(a)
A language sub-system, which is likely to be non-procedural (called a structured query

language or SQL)
A problem processing sub-system, which includes spreadsheet, graphics, statistical analysis
A knowledge sub-system, which includes a database function
Executive Information Systems (EIS): Information systems at the strategic level of an

organisation designed to address unstructured decision-making through advanced graphics and
communication. Information is provided in a very summarised way and is specially designed for
the non-IT executive. The EIS has the ability to:
Call up summary data from an organisation's main systems e.g., summary income statement,
balance sheet etc
Analyse the summary data to a more detailed level e.g., analysis of the inventory figure
shown in the balance sheet
Manipulate summary data e.g., rearrange its format, make comparisons with similar data
Set up templates so that information from different areas of the business is always
summarised in the same format
Perform complicated 'what if?' analysis
The SFA Company

Introduction
As a result of concerns raised at the recent board meeting a new Management Information
System (MIS) is currently being considered. Output from the main transaction processing systems
will form the input of the MIS.
The MIS manipulates this data into summary level information for control and decision-making
purposes to support the monitoring and control of the key functions of the organisation. The MIS
will require inputs relating to the three key primary activities of inbound logistics, marketing and
sales and technology development.
lnbound logistics
The inbound logistics function aims to ensure the right materials are available at the right
price and at the right time. A key element of this involves ensuring the best possible price for
raw materials of the required quality is negotiated. Output from the Computer Assisted Design
(CAD) and Computer Assisted Manufacture (CAM) systems will become inputs into the MIS. The
MIS will manipulate and summarise this data, resulting in information that will enable the
purchasing department to plan and meet its responsibilities in the most efficient manner. For
example, negotiations with suppliers can be faced with improved knowledge of the quantities
of raw materials required in the medium term which should help win improved prices.
Marketing and sales
The MIS can provide information on the activities of customers and salespeople, showing who is
buying and selling what. Over time, useful trends should become apparent. The links with the
CAM system will enable customers to be given accurate information relating to both orders in
progress and finished goods. Forecast demand can be made available via the feeder systems to
the MIS, and when matched with production scheduling information, instances of spare capacity
should be able to be established and appropriate action taken.
Technology development
The new MIS should provide information that will allow the increased use of Computer
Assisted Design (CAD) and Computer Assisted Manufacture (CAM). Use of CAD and
CAM techniques will improve efficiency, resulting in the faster production of garments, and
improved garment quality. Prototypes can be produced rapidly allowing customer feedback
to be acted on at the design stage.
620
13
The MIS can monitor sales and production information and when necessary provide control
information to ensure orders are delivered on time. One difficult area to predict in the clothing
industry is future demand levels for fashion items, as a change in consumer taste can often be
rapid and on the surface unpredictable. The MIS will therefore require information feeds from
'outward looking' sources such as fashion show trends and market research.
(b) Outputs required
Outputs from the CAD/CAM systems should include performance measures that show
whether the design, development and production activities are achieving their targets, and
how these functions are contributing to the overall performance of SFA. The performance
measures should be available for on-screen viewing, and be included in control reports that
highlight areas in need of corrective action.
Reports from the MIS should also show supplier and buyer performance, including information
on price, quantity and quality (including service quality). Marginal cost information should feed
from the accounting system to the MIS, as this information is vital when negotiating prices
relating to 'extra' production runs to utilise any spare capacity.
Conclusion
The proposed MIS will consolidate information from the main transaction processing systems. It
will 'pull-together' information from the separate functions of SFA, allowing the overall picture
to be seen more clearly. This will enable SFA to identify and respond quickly to circumstances
that require action. The MIS will enable SFA to operate more efficiently and effectively and
should be implemented as soon as possible.
9
(a)
Current situation analysis (CSA) involves a review of all information systems and information
technology used within an organisation. The review includes all aspects of hardware, software,
communications devices, network topologies, systems development methodologies, maintenance
procedures, contingency plans and IS/IT personnel.
CSA may be used in conjunction with Earl's grid. Earl devised a grid to analyse an organisation's
current use of information systems. Current systems are plotted on the following grid the grid
is shown below.
High
Renew
Maintain, enhance
Business
value
Low
Reassess
Divest
Low
High
Technical quality
The four quadrants in the grid suggest the following.

If a system has little business value and is low on technical quality the system should be disposed
of (divest). In the context of information systems strategy, these systems will have very little
impact on strategic planning.
If a system has a high business value and low technical quality, then the appropriate action is to
renew the current system by investing in it. The information systems strategy should take the
need for investment in these systems into account.
If the system is judged to have high technical quality but low business value, the system should be
reassessed. An investigation is required before a course of action for these systems can be
devised. Relevant questions could include whether the system is meeting an information need is
the system really required?
621
Business strategy
Finally, if a system has high business value and high technical quality the system should be well
maintained and if possible enhanced. Systems in this quadrant contribute significantly towards
the achievement of organisational goals and must be given due consideration in the information
systems strategy.
(b) Considering an 'Internet retailer' such as Amazon, their website represents an information
system that has high technical quality and high business value. As such, this system would be
placed in the 'maintain/enhance' quadrant on Earl's grid.
This quadrant is most appropriate for this system for the following reasons.
10
The technical quality of the system is important in terms of the customer experience it
provides and in ensuring reliability (as downtime means lost revenue as potential customers
will simply click onto another site).
As the site is in effect the organisation's 'retail outlet', it is the means by which it is able to
attract customers and earn revenue. The business value of the website as an information
system is therefore extremely high.
The site is also a potential source of competitive advantage relative to traditional

retailers and other websites. To achieve an advantage requires a user-friendly, reliable site
and order fulfilment procedures of equally high quality.
To ensure Amazon remains the 'e-trailer' of choice for many customers requires almost
constant improvements (i.e. maintain and enhance) to make things easier for users and to
remain ahead of the competition.
For these reasons, the website definitely represents an information system of strategic
importance in this organisation and belongs in the maintain/enhance quadrant of Earl's grid.
The fact that both business value and technical quality are high discounts all of the
other three quadrants of the grid as possibilities.
CC Ltd
(a)
An intranet uses software and other technology originally developed for the internet on internal
company networks. An intranet comprises an organisation-wide web of internal documents that
is familiar, easy to use and comparatively inexpensive. Each employee has a browser enabling him
or her to view information held on a server computer and may offer access to the internet.
The main objective of an intranet is to provide easy access to information that helps people
perform their jobs more efficiently. Many roles require increased access to knowledge and
information. An intranet is a way of making this knowledge readily available.
Other objectives are outlined in the following paragraphs.
To encourage the use of reference documents: Documents on-line are more likely to be
used than those stored on shelves, especially if the document is bulky (for instance procedure
manuals).
To create a sense of organisational unity: An intranet 'pulls together' in a co-ordinated
fashion information from disparate parts of an organisation. It may be the only visible way some
parts of a large organisation are linked.
The provision of an intranet within CC Ltd should result in better provision of information
by:
Ensuring consistency in information held and provided to clients. The intranet will enable
one set of data to be held and accessed by all 20 offices.
Providing easy access to a larger pool of data: Information that managers previously
'kept to themselves' will be available to others.
The intranet-Internet link will ensure the most up-to-date planning information is
available. It would be useful to develop an intranet page complied from appropriate
websites. (This must be kept up to date.)
622
13
(b) Even after an intranet and e-mail have been implemented at CC Ltd, organisational and human
reasons will hinder the process of making information more widely available. Steps need to be
taken to overcome these barriers to information sharing.
Human reasons that will need to be overcome include the following.
Information is only available if people know how to find it. The people at CC Ltd
who could use the information held on the intranet must be told that the information is
available, and trained so that they are confident enough to access it.
Efficient communication (including a company-wide e-mail explaining the intranet) and
staff training programmes demonstrating intranet use will help overcome this problem.
Some staff will not choose to share information or knowledge. People may protect
the information they have to boost their own performance relative to their colleagues. A
culture change within CC Ltd is required before staff will be willing to share knowledge and
information so that the organisation as a whole can benefit.
To tackle this problem, techniques and processes to encourage the sharing of
information could be included as part of a communication and knowledge management
programme.
Organisational reasons that will need to be overcome include the following.
The hardware used by CC Ltd is too old to support the new communication tools. This is
likely to lead to user frustration with slow response times and problems gaining access to
various systems. Unless the systems provided are efficient, users will abandon them.
To overcome this problem CC Ltd will need to make a significant investment in new
hardware.
Work practices that do not involve or encourage the sharing of information have become
established. A significant number of CC Ltd staff are likely to have a building and
construction background, and not be enthusiastic towards computing developments. These
staff may see these new communication tools as an unnecessary waste of resources by IT
staff who do not have a feel for the business.
This problem could be minimised by involving staff in the design of systems from the
outset. Staff should be asked what information would make them more efficient. A tool that
helps them do their job better will be welcomed by even the most sceptical.
(c)
Staff training programmes and a user friendly human-computer interface should

also reduce staff resistance.
An extranet differs from an intranet in that it is able to be accessed by authorised outsiders.

Those outsiders authorised to access parts of the intranet will usually be provided with a user
name and password that will enable them to view certain information.
CC Ltd could provide valued customers with access to relevant information (such as advice and
legislation updates) via an extranet. This should encourage closer relationships with selected
clients.
If valued clients do not have access to computer links (still possible in industries such as building),
some alternate method of making this information available may be required to prevent these
customers feeling neglected.
623
Business strategy
Answers to Interactive questions
Answer to Interactive question 1

(a)
Long-term outlook
Information flows at a strategic level will be geared towards information expected to impact on the
long-term future of the business. There is a need for high quality information to enable sound longterm decisions to be made.
Flexible
Organisations are complex systems.
In order to maintain control in a constantly changing organisation the information flows and systems at
strategic level need to be flexible and able to respond quickly to new demands.
For example, if a new competitor enters the market place, or environmental legislation is introduced
affecting production processes or a trading opportunity arises in an overseas territory, then strategic
decisions will be required to formulate the most appropriate response.
Good decisions can only be made when all the implications can be quantified with an acceptable
degree of certainty. Management information systems must be flexible enough to provide concise,
accurate and timely information relevant to the new environment.
Multi-directional
In a business organisation information flows both vertically and horizontally. The familiar pyramid
hierarchy of an organisation sets out three levels of control and information.
Information flows at the strategic level facilitates decision-making that will affect the whole
organisation and provide the framework for long term strategic plans. Internal information will flow
from middle management up to senior management and vice versa.
Information also flows horizontally between different activities in a business. For instance overtime
hours provided by the payroll section may be used by the production department, delivery lead times
from warehouses may be used by the sales team and the level of future orders from the sales
department will be used to forecast turnover and cash flows by the accounts department. The quality
of these information flows will dictate both the efficiency of the business operations and will impact on
the type and quality of information received by senior management.
The complex nature of strategic decisions makes information sharing vital.
An external component
Strategic level information flows will include information from external sources (e.g. government,
suppliers, media etc). Strategic decisions are generally non-routine and require a high degree of
judgement. The quality of information is critical at the strategic management level.
(b) Information used at a strategic level is often ad hoc strategic decision making is non-routine and
potentially risky.
Strategic information comes from both internal and external sources.
Internal sources
Most management information systems are now computer-based because of processing speed,
accuracy and the ability to process large volumes of data. Internal data needs to be captured from dayto-day operations, processed into relevant information and made available in a suitable form at a
strategic level.
Senior management information requirements should play a part in the development of information
systems to ensure that the information required for strategic decision making is able to be produced.
624
13
Centralised systems are relatively powerful and usually controlled at senior level. However, a
flexible response to non-routine problems may be lacking.
Decentralised systems may provide more flexibility, however central control and standard formats
are often lacking.
Currently, popular solutions revolve around networked and distributed processing systems. These
can provide information to different levels of management often from the same database. They
combine the advantages of local control, speed and ease of use with flexibility and the potential for
standardised presentation of information.
Executive Support Systems (ESS) can be particularly useful in this area, providing summarised highlevel information with the ability to view the underlying data if required.
The introduction of an ESS will also encourage senior management to consider which type of
information is really relevant to the business.
An intranet may also be appropriate to encourage the sharing of knowledge and opinions relevant to
strategic decisions (e.g. bulletin boards).
External sources
External information may be in the form of official reports, tax leaflets, technical updates, press
updates and often just word of mouth.
Much of this information is now available via the Internet. Intelligent agents and news-clipping
services can also be utilised on the Internet, to find user-defined information and forward it usually
via e-mail.
Some organisations are able to access external information through an extranet allowing them to
enter certain parts of another organisation's intranet.

(a)
Knowledge work is defined as creating/generating new kinds of information or knowledge. It

involves the development of ideas or of expert opinions.
Knowledge workers are professional people, such as engineers, financial and marketing analysts,
production planners, lawyers, and accountants, to mention just a few. They are responsible for finding,
developing and maintaining knowledge for the organisation and integrating it with existing knowledge.
Knowledge workers are experts in their particular functional area and therefore must keep informed
of all developments and events related to their profession. They also act as advisers and consultants to
the members of the organisation, and as change agents by introducing new procedures, technologies,
or processes.
Knowledge work is supported by a body of knowledge such as a collection of books, articles,
standards and research, which is widely accepted as valid. In other words, knowledge is codified. This
body of knowledge must be capable of being taught at educational establishments rather than merely
passed on as experience. There must be principles, procedures, and methods, independent of pure
experience, for work to be considered knowledge work.
Data work is defined as using, manipulating, or distributing symbolic information. Typical data
workers include bookkeepers, clerical workers and sales personnel. Both data workers and knowledge
workers deal with information. The difference is in how they deal with this information. Data
workers keep track of and disseminate information; knowledge workers generate new kinds of
information.
(b) As a data worker, the accountant may add value to an organisation by supporting management
planning, decision-making and control. This work is based on data and information processing and
reporting. To work effectively as data workers, accountants use operational level information systems
(transaction processing systems) and management level systems, such as MIS and DSS.
Operational level systems support managers and accountants by keeping track of the elementary
activities and transactions of the organisation e.g., sales, payroll and credit decisions. Management
625
Business strategy
level systems support the monitoring, controlling, decision-making and administrative activities of
accountants. They provide periodic reports rather than one-off type information on operations and
may provide facilities for 'what-if?' analysis.
As well as wanting to know what happened in the past, accountants should provide information that
helps senior management decide what action should be taken in the future. As knowledge workers,
accountants add value to the organisation in several ways.
Accountants are required to interpret ever-expanding external knowledge bases, they may
perform internal system/workflow reviews requiring them to recognise problems and possible
solutions within a complex and changing business environment. Accountants may be called upon to act
as organisational change agents.
The information required by the decision-makers of the future is likely to come increasingly from
environmental scanning and intelligence gathering. Information must be readily available, of
reasonable quality, in the right form, and not too costly. Furthermore, the knowledge worker must
have the skills and knowledge to use it effectively.
For accountants to work effectively as knowledge workers they need easy access to electronically
stored knowledge bases. They also need powerful software that facilitates communication and analysis,
and they must be able to manipulate data and graphics for modelling and presentation purposes.
The IT tools the accountant will use should be powerful, but user-friendly. A user-friendly interface
is particularly important, designed to maximise the use of knowledge workers' most limited resource
time.
Knowledge level systems include office automation systems and knowledge work systems; they
support accountants in their roles as both knowledge and data workers in organisations. Office
automation systems increase productivity through co-ordination and communication. These systems
include document managers, schedulers and communication tools.
The purpose of knowledge level systems is to discover, organise and integrate new knowledge
into the organisation. One way that IT can integrate the expertise of knowledge workers into an
organisation and assist in improving worker performance is through the use of intelligent systems.
These systems contain the knowledge of super-experts and can disseminate that knowledge to all
employees who need it.
The main support systems for knowledge workers range from Internet search engines that help
them find information, to expert systems that support information interpretation and even to
hyperlinks that help them increase their productivity and the quality of their work.
Within most organisations, knowledge workers are the major users of the Internet because it is an
effective way of accessing up-to-date information on a wide range of topics. Accountants need to keep
abreast of developments in accounting, business and information technology, to communicate with
managers and colleagues, and to collaborate with knowledge workers in other organisations
('knowledge networking') to solve problems.

(a)
Information management entails identifying the current and future information needs, identifying
information sources, collecting and storing the information and facilitating existing methods of using
information and identifying new ways of using it. It should also ensure that the information is
communicated to those who need it and not to those who are not entitled to see it.
Mayo defines knowledge management (KM) as 'the management of the information, knowledge
and experience available to an organisation its creation, capture, storage, availability and utilisation
in order that organisational activities build on what is already known and extend it further'.
More specifically, knowledge is interpreted in terms of potential for action and distinguished from
information in terms of its more immediate link with performance. This interpretation is consistent
with what the information systems philosopher and professor Charles West Churchman observed
three decades ago in his pioneering work The Design of Inquiring Systems: 'knowledge resides in the
626
13
user and not in the collection of information it is how the user reacts to a collection of information
that matters'.
Databases, or more correctly knowledge bases, need to be designed and developed to store the
organisation's knowledge. This will be particularly difficult because of the tacit nature of much of the
knowledge and also because it is largely inside the heads of individuals. Recording this knowledge will
be very different to recording the fields and records of a traditional database. An expert system
seems one way forward as this has a knowledge base made up of facts, rules and conditions. But much
of this knowledge may have to be represented pictorially as images and 'knowledge maps'. An intranet
that lends itself to full multimedia representation and intelligent searching may therefore be the way
forward.
Knowledge-based companies will vary from industry to industry but there are some broad common
principles about where knowledge resides and how to capture its value. The intellectual capital can be
divided between human capital (the bodies that go home at night), and structural capital. Structural
capital includes innovation capital (intellectual property), customer capital (address lists and client
records), and organisational capital (systems for processing policies and claims). A number of
organisations are creating knowledge management programmes for protecting and distributing
knowledge resources that they have identified and for discovering new sources of knowledge.
One such programme is the identification and development of informal networks and
communities of practice within organisations. These self-organising groups share common work
interests, usually cutting across a company's functions and processes.
Another means of establishing the occurrence of knowledge is to look at knowledge-related

business outcomes e.g., product development and service innovation. While the knowledge
embedded within these innovations is invisible, the products themselves are tangible.
Every day companies make substantial investments in improving their employees' knowledge and
enabling them to use it more effectively. Analysis of these investments is a third way of making
KM activities visible. For example how much technical and non-technical training are individuals
consuming? How much is invested in competitive and environmental scanning, and in other forms
of strategic research?
The process by which an organisation develops its store of knowledge is sometimes called
organisational learning. A learning organisation is centred on the people that make up the
organisation and the knowledge they hold. The organisation and employees feed off and into the
central pool of knowledge. The organisation uses the knowledge pool as a tool to teach itself and its
employees.
There are dozens of different approaches to KM, including document management, information
management, business intelligence, competence management, information systems management,
intellectual asset management, innovation, business process design, and so on. Many KM projects have
a significant element of information management. After all, people need information about where
knowledge resides, and to share knowledge they need to transform it into more or less transient
forms of information.
627
Business strategy
(b) A knowledge management strategy might take the form shown in the diagram below.
The stages may include the following.

(i)
Develop and determine a policy for owning, growing and sharing knowledge within the
organisation.
(ii)
Identify critical knowledge functions within each department.
(iii) Audit knowledge to determine its type, location, longevity and whether it is explicit or tacit.
(iv) Document knowledge in a medium that best suits the purpose for which it will be used.
(v)
Store it in a repository where it can be easily updated and retrieved.
(vi) Determine ways in which it can be grown and tracked.

(vii) Decide how the knowledge will be disseminated inside the organisation and possibly outside.
(viii) Ensure this valuable organisational asset is kept secure.
628

Chap - 13 Strategies For Information

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chap - 13 Strategies For Information

Uploaded by

Copyright:

Available Formats

chapter 13

Strategies for information

The role of information

Information and communications technology in

The strategic value of IT/IS in business

Risks associated with IT/IS

Summary and Self-test

Specific syllabus references for this chapter are: 3g, i, j.

A UK food store forced to write off CU53m of development expenditure on a supply-chain

The problems following Morrison's acquisition of Safeway, discussed in Chapter 10 is another

Stop and think

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR INFORMATION

The Institute of Chartered Accountants in England and Wales, March 2009

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR INFORMATION

1 The role of information

Why do organisations need information?

The main purposes of information are:

The Institute of Chartered Accountants in England and Wales, March 2009

Levels of information in the organisation

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR INFORMATION

To help operational managers track the organisation's specific and day-to-day

Derived from both internal and

Primarily generated internally

Derived from internal sources

Summarised at a high level

Summarised at a lower level

Detailed, being the processing

Worked example: An evening newspaper

The Institute of Chartered Accountants in England and Wales, March 2009

Management accountants preparing month-end reports

The qualities of good information

Information should includes everything that it needs to include, for example

The information should be available when it is needed.

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR INFORMATION

Information requirements in different sectors

Future demand estimates

The information requirements of

Production reject rate

Forecast sales growth

Resource utilisation such

Organisations have become more

The Institute of Chartered Accountants in England and Wales, March 2009

Public sector (and non-profit

Information may compare actual

Hospital occupancy rates

Percent of revenue spent

The Institute of Chartered Accountants in England and Wales, March 2009

Many of the comments regarding

STRATEGIES FOR INFORMATION

Interactive question 1: Strategic decision making

[Difficulty level: Intermediate]

Describe the characteristics of information flows at the strategic level.

2 Information and communications technology (ICT)

The boundaries of organisations have become permeable as information is shared with

Planning IS/IT developments

The Institute of Chartered Accountants in England and Wales, March 2009

Executive Support Systems (ESS)

Worked example: The medical profession

The Institute of Chartered Accountants in England and Wales, March 2009