Organizational decision making,

functions, and levels

Executive, managerial, and operational

levels
Systems to support organizational
functions and decision making
Decision Support Systems (DSS): types
and components
 OBJECTIVES
•Evaluate the role played by the major types of
systems in a business and their relationship to each
other

•Describe the information systems supporting the

major business functions: sales and marketing,
manufacturing and production, finance and
accounting, and human resources
Executive, managerial, and
operational levels
Information Technology and Decision Making

 Intellectual Capital
The collective brainpower or shared
knowledge of a workforce that can be
used to create wealth.
It is a major source of competitive advantage.
Information Technology and the New
Workplace

Electronic Office
Refers to the use of computers and related technologies
to electronically facilitate operations in an office
environment.
Information Technology and the New
Workplace

Electronic Commerce
Called e-business and it information
technology to support on-line commercial
transactions.

Amazon.com is a striking example of

e-commerce and its dynamics.
 External and Internal Information
Needs of Organizations

Intelligence Information Public Information

Gathered from the Disseminated to the

Top external environment
external environment
Management
Formulates strategy, policies,
long-term plans, and objectives,
make strategic decisions.

Middle Managers
Formulate operational plans and objectives
to implement strategy; make operational decisions

First-Level Managers
Implement operational plans and objectives; make
short-run decisions; transact day-to-day business operations
Developments in Information
Systems
 Information Systems
Use IT to collect, organize, and distribute
data for use in decision making.

 Chief Information Officer

Senior executive responsible for IT and it
utilization throughout an organization.
 Different Kinds of Systems
Three main categories of information systems serve
different organizational levels:

1. Operational-level systems:
support operational managers by keeping track of the elementary
activities and transactions of the organization, such as sales, receipts,
cash deposits, payroll, credit decisions, and the flow of materials in a
factory. The principal purpose of systems at this level is to answer
routine questions and to track the flow of transactions through the
organization.
• How many parts are in inventory?
• What happened to Mr. Williams's payment?
• How many hours worked each day by employees on a factory floor.
2. Management-Level Systems:

serve the monitoring, controlling, decision-making, and

administrative activities of middle managers.

• The principal question addressed by such systems is: Are things

working well? Management-level systems typically provide
periodic reports rather than instant information on operations.

• Some management-level systems support no routine decision

making.

• They tend to focus on less-structured decisions for which

information requirements are not always clear. These systems
often answer "what if" questions:External & Internal Data.
3. Strategic-level systems:

4. help senior management TACKLE and ADDRESS STRATEGIC

issues and LONG-TERM trends, both in the FIRM and in the

EXTERNAL environment.

• Their principal concern is matching changes in the external

environment with existing organizational capability.

• What will EMPLOYMENT LEVELS be in FIVE YEARS?

• What are the LONG-TERM INDUSTRY COST trends?

• What PRODUCTS should we be making in FIVE YEARS?

Systems to support
organizational functions
and decision making

Decision-Support
Systems (DSS)
Main functional areas in business
In a large organisation, it is usually easier to identify separate functional
areas because people work together in departments. Each department
carries out the tasks that relate to its particular area. The main ones you are
likely to meet in business are shown below.

Research and
Production Administration Customer service
development (R &
D)

Sales Functional areas in business organisations Distribution

Marketing ICT Human resources Finance

The purposes of functional areas
The main purpose of functional areas is to ensure that all important
business activities are carried out efficiently. This is essential if the
business is to achieve its aims and objectives. In addition, specific areas
will be responsibility for supporting specific types of aims and objectives,
for example:

■sales and marketing will be involved in achieving targets linked to

developing new markets or increasing sales

■human resources will be involved in arranging staff training activities

and supporting the continuous professional development of all staff
 Major Types of Systems

• Executive Support Systems (ESS)

• Decision Support Systems (DSS)
• Management Information Systems (MIS)
• Transaction Processing Systems (TPS)
The Four Major Types of Information Systems
 1. Transaction Processing Systems (TPS)

• Basic business systems that serve the operational

level
• A computerized system that performs and records the
daily routine transactions necessary to the conduct of
the business.
• TPS are also major producers of information for the
other types of systems.
A Symbolic Representation for a Payroll TPS
Typical Applications of TPS
 2. Management Information Systems (MIS)

Management level:serve the management level of the organization,

providing managers with reports or with on-line access to the
organization's current performance and historical records.
• They are oriented almost exclusively to internal, not environmental
or external, events.
• MIS primarily serve the functions of planning, controlling, and
decision making at the management level.
• They depend on underlying transaction processing systems for their
data.
 2. Management Information Systems
(MIS)

•Inputs: High volume transaction level data

•Processing: Simple models

•Outputs: Summary reports

•Users: Middle managers

Example: Annual budgeting

2. Management Information Systems (MIS)
(continued)

Figure 2-5
2. Management Information Systems (MIS)
(continued)
A sample MIS report
3. Decision-Support Systems (DSS)
•DSS help managers make decisions that are unique, rapidly
changing, and not easily specified in advance.

•They address non-routine problems DSS use internal information

from TPS and MIS bring in information from external sources, such as
product prices of competitors.

•DSS have more analytical power than other systems.

•They are built explicitly with a variety of models to analyze data

•DSS include user-friendly software.

•DSS are interactive; the user can change assumptions, ask new
questions
 Decision-Support Systems
(DSS)

Management level

• Inputs: Transaction level data

• Processing: Interactive

• Outputs: Decision analysis

• Users: Professionals, staff

Example: Contract cost analysis

Decision-Support Systems (DSS) (Continued)

Voyage-estimating decision-support system

Figure 2-7
 4. EXECUTIVE SUPPORT SYSTEMS (ESS):

•ESS serve the strategic level of the organization.

•They address long term non-routine decisions

requiring judgment, evaluation, and insight because
there is no agreed-on procedure for arriving at a
solution.

•ESS are designed to incorporate data about external

events such as new tax laws or competitors, but they
also draw summarized information from internal MIS
and DSS.
 EXECUTIVE SUPPORT SYSTEMS
(ESS):

• Inputs: Aggregate data

• Processing: Interactive

• Outputs: Projections

• Users: Senior managers

Example: 5 year operating plan

Model of a Typical Executive Support
System
EXECUTIVE SUPPORT SYSTEMS (ESS) (Continued)

• Top Level Management

• Designed to the individual senior manager

• Ties CEO to all levels

• Very expensive to keep up

• Extensive support staff

INTEGRATING FUNCTIONS AND BUSINESS PROCESSES

Enterprise Systems
INTEGRATING FUNCTIONS AND BUSINESS PROCESSES

Business Processes and Information Systems

Business processes

 Manner in which work is organized, coordinated, and

focused to produce a valuable product or service

 Concrete work flows of material, information, and

knowledge—sets of activities
INTEGRATING FUNCTIONS AND BUSINESS PROCESSES

Business Processes and Information Systems

 Unique ways to coordinate work,

information, and knowledge

 Ways in which management chooses

to coordinate work
 INTEGRATING FUNCTIONS AND BUSINESS PROCESSES

Traditional View of the Systems

Relationship of Systems to One Another

Interrelationships among systems

Figure 2-9
 Relationship of Systems to One Another

•Systems serving different levels in the organization are

related to one another.
•TPS are typically a major source of data for other
systems.
•ESS are primarily a recipient of data from lower-level
systems.
•The other types of systems may exchange data with
each other as well.
•Data may also be exchanged among systems serving
different functional areas For example, an order captured
by a sales system may be transmitted to a manufacturing
system as a transaction for producing or delivering the
product specified in the order.
 Sales and Marketing Systems

•Selling the organization's products or services.

•Sales& Marketing is concerned with:
– Identifying the customers for the firm's products or services
– Determining what they need or want
– Advertising and promoting these products and services.
– Sales is concerned with:
– Contacting customers
– Selling the products and services
– Taking orders, and following up on sales.
Sales and Marketing Systems

Major functions of systems:

• Sales management, market research, promotion,
pricing, new products

Major application systems:

• Sales order info system, market research system,
pricing system
  
Sales and Marketing
 
Systems

SYSTEM DESCRIPTION ORGANIZATIONAL

LEVEL
     

Order processing Enter, process, and track orders Operational

     

Pricing analysis Determine prices for products and services Management

     

Sales trend Prepare 5-year sales forecasts Strategic

forecasting
Manufacturing and Production Systems

• Producing the firm's goods and services.

• Manufacturing and production activities deal with:
1. The planning, development, and maintenance of
production facilities
2. The acquisition, storage, and availability of
production materials
3. The scheduling of equipment, facilities, materials,
and labor required to fashion finished products.
 Manufacturing and Production Systems

Major functions of systems:

• Scheduling, purchasing, shipping, receiving,
engineering, operations

Major application systems:

• Materials resource planning systems, purchase order
control systems, engineering systems, quality control
systems
 Manufacturing and Production Systems

SYSTEM DESCRIPTION ORGANIZATIONAL

LEVEL
     

Machine control Control the actions of machines and equipment Operational

     

Production planning Decide when and how many products should be Management
produced

     

Facilities location Decide where to locate new production facilities Strategic

Overview of an Inventory
System

Figure 2-10
 Financing and Accounting Systems

The finance function is responsible for:

•Managing the firm's financial assets, such as cash, stocks, bonds, and
other investments, in order to maximize the return on these financial
assets.
•Managing the capitalization of the firm (finding new financial assets in
stocks, bonds, or other forms of debt). In order to determine whether
the firm is getting the best return on its investments.

•The accounting function is responsible for:

•Maintaining and managing the firm's financial records–
receipts,expenses, payroll
•Accounting account for the flow of funds in a firm.
 Financing and Accounting Systems

Major functions of systems:

• Budgeting, general ledger, billing, cost accounting

Major application systems:

• General ledger, accounts receivable, accounts
payable, budgeting, funds management systems
  

Financing & Accounting Systems (Continued)

SYSTEM DESCRIPTION ORGANIZATION-AL
LEVEL
     

Accounts Tracks money owed the firm Operational

receivable
     

Budgeting Prepares short-term budgets Management

     

Profit planning Plans long-term profits Strategic