Chapter 3

INFORMATION ANALYSIS
AND
INFORMATION TECHNOLOGY
Since quality programs are dependent on good
information systems, chief information officers
have the opportunity to plan an integral and
highly visible role in shaping the quality of the
corporation
Curt Riemann, Director
Malcolm Baldrige Award
Information Technology
Systems designs may be a constraint, but information
technology (IT) is not.
The geometric acceleration of developments is well known
and can only be described as dramatic and spectacular.
If industry is capable of absorbing the technology, a further
increase in the sophistication and importance of information
will occur.
Capital and direct labor will continue to be sources of value
added, but the proportion contributed by intellectual and
information activity will increase.
Indeed, information can be considered to be a substitute for
other assets because it can increase the productivity of
existing capital and reduce the requirement for additional
expenditures. It should be exploited.

In 1990, Federal Express spent more than $243 million
on IT. CEO Fred Smith stated that IT is absolutely the
key to the organizations operations and that the entire
quality process depends on statistical qualification
which, in turn depends on IT. Information is generated
for both employees and customer.
Decision Making
The ability to make decision quickly has always been
critical to management at all levels and information is
essential to the process.
It has emerged as a crucial competitive weapon. Yet
middle managers, who are the real change agents,
spend most of their time exchanging information with
subordinates, peers, or boss, leaving little time for
customer or for innovation and change.
In the jargon of information system, they need a
decision support system
Strategic Information System
Integration of processes and information can proceed as follows:

Identify the market segment in which you want to compete.
Use data collection and analysis to define the customer
requirements in the chosen segment.
Translate these requirements into major design parameters to
develop, produce, deliver and service the product that meet the
customers requirements. These are primary activities of the value
chain.
Complement the primary processes with support activities such as
planning, finance and accounting, MIS, personnel, etc
Subdivide or explode the organization design parameters into the
processes (functions, activities, etc) that are necessary to achieve
the quality differentiation.
Design the information requirements necessary to manage each
process and to integrate all process horizontally.
Environmental Analysis
Strategy formulation requires an analysis of the different
environments:
general, industry and competitive.
One study found that small business owners spend over
one-fourth of the day in external information search
activities.
Competitive information is particularly valuable but is
difficult to obtain.
In general, the minimum information needed about
competitors can be related to how they stand on the key
success factors for a market segment.
Primary Environment Factors
These may differ by industry and segment but
usually include the following:

Market share Growth rate
Product line breadth Distribution effectiveness
Proprietary advantages Price competitiveness
Age and location of facility Capacity and productivity
Experience curve effects Value added
R & D advantage and position Cash throw-off
Secondary Environment Factors
Porter has identified the information needed for
positioning in an industry and in a chosen market
segment, and his system is widely used.
His categories are;
1.Intensity of rivalry
2.Bargaining power of buyers
3.Bargaining power of suppliers
4.Threat of substitution and
5.Threat of new entrants
Each category includes a number of elements or sub
topics that should be determined and tracked with some
type of information system.
SHORTCOMING OF ACCOUNTING SYSTEM
Peter Druker describes of shortcomings that generally
recognized:
Cost accounting is based on a 1920s reality, when direct
labor was 80% of manufacturing costs other than raw
material. Today it is 8-12 percent and in some industries
(e.g. IT) it is about 3%.

Non-direct labor costs, which can run up to 90%, are
allocated in proportion to labor cost, and arbitrary and
misleading system. Benefits of a process change are
allocated in the same way.

The cost system ignores the cost of non-producing,
whether this be down time, stock outs, defects, or other
costs of non-quality.
The system cannot measure, predict, or justify
change or innovation in product or process. In other
words, accounting measures direct or real cost and
not benefits.
Accounting-generated information does not
recognize linkages between functions, activities, or
processes.
Manufacturing decisions cannot be made as business
decisions based on the information provided by
accounting. The system confines itself to measurable
and objective decisions and doesnt address the
intangibles.
TABLE 3-2
Objectives of Major Processes in system Design
Process/system objective
Statistical quality control (SQC) Build in the control limits of a process that spots
and identifies causes of variations.
Statistical process control (SPC) Provide information on how Productivity and
quality can be continuously improved through
problem identification
Just-in-time Reduce inventory cost, production time and space
requirement
Computer-integrated Lower cost, shorten lead time and improve Quality
Manufacturing (CIM) based Information sharing by linking management
and financial information systems, Departmental
computing, process management etc
Quality function department Integrate the three dimensions of
(1) company-wide quality (2)Focus on customer
requirements and (3) Translation of Quality
perceptions into product characteristics and then
into the manufacturing process.


Information and the Customer
Why do information system directly related to customer
satisfaction frequently take a back seat to what otherwise might
be accepted or excellent information system in support of quality
and process control? The answer may be that it is difficult to
specify information needs for an elusive system to measure
customer satisfaction and requirement, which in themselves are
difficult to define. Or it may be that the pressure of crisis
management and internal information exchange leaves little time
for customer. Whatever the cause, it is a good idea to design a
system that measure the pulse of the market and the customer
bias. It is estimated that failure to do so will cost twice as much
as a poor internal quality.
Quality of Information!
Lack of communication between patients and health
care provider (physicians and nurses) in the Japanese
medical setting (small clinics and hospitals) appears
to be a strong barrier to the establishment of deep and
long relationship with health care services
organization. Thus it is concluded that Japanese
expectations and perceptions of health care quality
will be dominated by the quality of communication
and interpersonal factors.