Business and IS Performance(IS 6010)

MBS BIS 2010 / 2011

4th November 2010

Fergal Carton (f.carton@ucc.ie)Accounting Finance and Information Systems

Last week• Latency

– Tuning of databases for performance

• Previous Apple exam questions

– Focus this year on management information model rather than process

– Confidentiality of Apple processes

• Apple process flows

• Types of data

– ESB maintenance culture change led by cost goals

– GSK yield data impacted by humidity

• Production planning

• How do managers do their work

• Virtualisation– Nobo pen example

– Zuboff, S. (1984), In the Age of the Smart Machine, Basic Books

Apple process mapping• Should have assumptions documented

– Eg. What is the presumed role of Distributors?

• Show information flows for Gift card numbers

• How are gift card revenue for Cork reported for Apple?

• Think about revenue models for other soclal networks eg. Facebook

– Use this as a case study?

– Go and see Social Network?

– How does a useful idea turn into a revenue generating model?

• What kind of performance measures would Apple have in place for

gift cards

Apple iTunes process• Not sold in Apple stores

• Sent out from central distribution point (as with all Apple material)

• No reporting from ATMac to Apple on sales

– Sales reports used locally for accounting

– No customer data passed on to Apple

– Small inventory kept locally (3 machines of each spec)

– Delivery from central distribution point within 24 hours of order

• Possibly larger US Apple stores connect directly

HMV iTunes sales• HMV Patrick St. Selling cards for last 12 months

• Barcode on back of card identifies denomination (eg. €15 card)

• Scanned at HMV till, connected to central HMV system (UK)

• Sales are aggregated overnight from all HMV stores

• All product sales (inlcuding cards) visible next day to stores

• Replenishment of individual stores done centrally by HMV

Notes on process mapping• Assumptions should deal with overall objective:

– how Apple reports revenues for global gift cards sales

• What is the role of distributors in the process?

• Show information flows

– Card sales information (customer, product, quantity, price, date, ...)

– Gift card numbers: inlcude the end customer creating an iTunes account

• Any link between two processes?

– Apple sale of gift cards to distributors

– Redemption of gift cards by customers

• How might Apple sychronise with HMV sales, or do they need to?

This week• Virtualisation

• Demamd uncertainty

• Decoupling point

• Integration framework

• “One version of the truth”

• Integration benefits and downsides

• Change of date for lecture week of 15th Nov

– Monday 15th at ? instead of Thurs 18th, at Lab 3.15

• Assessment date

– 2nd Dec in-class assessment

– Case study to be distributed Mon 15th Nov at the latest

Virtualisation

• Person physical– Vs.

• Profile facebook (Virtual)

Zuboff’s observations• Distress caused by virtualisation of work:

– “floating in space”, or– “lost behind the screens”– “What does that number actually mean”

• Computer system designer on data integrity:– “The pressure is to get everything that is sensed and convert it

to a symbol ... You must be able to trust your symbols ... Confidence in the symbols of operations is worth it, even if it takes brute-force measures like giving someone the job of maintaining one sensor.”

• Evolution of “technostructure” into IS dept

“most managers suffer not from a lack of relevant information, but rather from an over-abundance of irrelevant information .” Ackoff (1967)

“Information generated by computer based systems does not include much of the information that is most important to management - especially, important qualitative information.”

Dearden (1972)

Usefulness of information

Virtualisation distress

• Zuboff: Work is perceived to be – “floating in space”, or– “lost behind the screens”

Mason and Swanson, 1979• Real world

– Objects, events, states, situations

• Theory of signs (Zuboff’s symbols)

• Virtualisation = gathering data to describe the properties of the real world

• A good measure is not just an accurate one– Must take into account it’s use or influence

• Accuracy and precision

What does integration mean?• Dearden 72

– As computer use expands, control is vital– Single group of experts design a completely integrated

supersystem = absurd– Specialist expertise is functional by nature– Finance, logistics, sales = different expertise– Centralisation of control of systems = dangerous – Examine the interfaces

• Vizard 06– Data used to be in disparate databases– Data now in databases, file systems, applications, …– “One truth” concerning the state of a business process– Interdependent business processes (eg. sales & service)– Meta-data structures– Enterprise Application Integration vs. BI tools

Who benefits?

• Finance gain greater visibility

• Manufacturing?– Demand may be too unstable for MRP– Production planning needs more “nuance”– ERP is too literal– Much planning still done on Spreadsheets

• Sales: need of integration

Integration downsides• Response times• Vulnerability: single point of failure• Limitations on expansion• Dependence on single vendor• Flexibility to change system• …• …• Access to basic information is complicated

Living with demand uncertainty

• Good business is about – satisfying customer demand

– within given cost constraints

• Good processes should ensure consistency• However

– most businesses are seasonal

– most customers will change their requirements

• Being flexible means – dealing with late changes

– without blowing the resource budget

“Stretch” performance targets

• When planning, organisations set goals that are optimistic

• Shareholder confidence sought• Performance targets rarely reduce over time • So target data is considered to be “soft”• Managers given visibility of actual data

MRP model doesn’t always fit

• So, for example, we might load MRP today and look for something in 5 weeks time, even though it’s got maybe a 10 week lead time. So, if you were using what you called a closed loop MRP system, it would say, well there’s no point in loading that, here, load it in 10 weeks time. We say load it and we’ll make it happen. So we might pay premiums, we might go visit vendors, we might beat ‘em up or flex our muscle or pay for more overtime shifts, or whatever.

Virtualisation introduces constraints on reporting

• Technical latency (accumulation of processing, querying and displaying times)

• Gap between virtual and physical– Customisation of application (eg. Shipping)

– Data integrity at point of capture (eg. Sales order)

• Complexity of standard reports• Forecasting and reporting tools not integrated

• ERP integration drives greater manual manipulation of data

Decoupling point

• Decisions were made “intellectually”, “in the brain”, “on the fly”, “off-line” or “by the seat of the pants”.

• Such managerial observations represented the “decoupling point” where the physical and the virtual diverged.

• Information that was structured in a system was no longer adequate to support decision making.

Decoupling point• Inability of planners to deal with demand uncertainty, so

responsibility for make or break performance decisions was pushed downwards to operations managers

• Instead of the planning role protecting operations from fluctuations in demand, managers had to take personal risks in operational decision making (Planning, Buying, Making and Delivering)

• In so doing, managers were obliged to take control of the means of decision making, including the implementation and use of appropriate decision support tools.

• Hence the predominance of the “soft” vocabularly

Control objectives of integration undermined

Control

Centralisation Co - ordination

Integration

Granularity Accuracy / consistency

Inflexibility

Latency Manual

More analysis potential

Deteriorating data integrity

Technical skills required for reporting

Integration framework

Execute Schedule

Measure

Performance control

Supply Demand

Resourcevisibility

Physical

VirtualPlan

PlanPlan

Mason and Swanson, 1979 II• Managers require information about

resources and their relative effectiveness for achieving the organisation’s purpose

• Resources = people, materias, plant and equipment, money and information

• Managerial accounting systems– Resources and costs

– Relationship between costs and performance

Finance: eyes on the road ahead and on the rear-view

mirror• Control of costs and

revenues• Report on results to directors

and shareholders• Plan expenditure (budgets)• Pay suppliers (including

employees!)• Collect cash from customers• Manage cash flow and

currency exposure• Plan for financing

requirements (eg. acquisitions)

Mason and Swanson, 1979 IV• Managers queries and alternatives

which govern the precision of the measure

• Precision of measure only to “discriminate between critical magnitudes”

• Use recruitment process to differentiate between primary and secondary data

Mason and Swanson, 1979 V• What problems shall I look into

(attention)?

• What course of action is better (solution)?

• How well am i doing (scorecard)?

• IS view of information accuracy (data intgegrity) obscures role of information as influential

Accuracy versus precision• Accuracy is tellling the truth

• Precision is telling the same story over and over again

• Granularity is the level of detail required

Accuracy versus precision• Accuracy: closeness of agreement

between the result of measurement and the true value of the measurand

• Precision: closeness of agreement between independen t measurements

Precision Accuracy Accuracy with precision

Reading• Mason, 1969

• Child, 1973

• Mason and Swanson, 1979

• Galbraith, 1983

• Zuboff, 1984

• Elmes et al., 2005