HOW INFORMATION SYSTEM IS EFFECT ON AN ORGANIZATION

Author- Younus Miraj

Shanto-Mariam University of Creative & Technology

UTTARA-DHAKA

Information system

Information system is an integrated set of components for collecting, storing, and processing data and for delivering information, knowledge, and digital products. Business firms and other organizations rely on information systems to carry out and manage their operations, interact with their customers and suppliers, and compete in the marketplace. For instance, corporations use information systems to reach their potential customers with targeted messages over the Web, to process financial accounts, and to manage their human resources. Governments deploy information systems to provide services cost-effectively to citizens. Digital goods, such as electronic books and software, and online services, such as auctions and social networking, are delivered with information systems. Individuals rely on information systems, generally Internet-based, for conducting much of their personal lives: for socializing, study, shopping, banking, and entertainment.

Components of information systems

The main components of information systems are computer hardware and software, telecommunications, databases and data warehouses, human resources, and procedures. The hardware, software, and telecommunications constitute information technology (IT), which is now ingrained in the operations and management of organizations. A to Z[1]

Computer hardwareToday even the smallest firms, as well as many households throughout the world, own or lease computers. These are usually microcomputers, also called personal computers. Individuals may own multiple computers in the form of smartphones and other portable devices. Large organizations typically employ distributed computer systems, from powerful parallel-processing servers located in data centers to widely dispersed personal computers and mobile devices, integrated into the organizational information systems. Together with the peripheral equipment, such as magnetic or solid-state storage disks, input-output devices, and telecommunications gear, these constitute the hardware of information systems. The cost of hardware has steadily and rapidly decreased, while processing speed and storage capacity have increased vastly. However, hardware’s use of electric power and its environmental impact are concerns being addressed by designers.

Computer softwareComputer software falls into two broad classes: system software and application software. The principal system software is the operating system. It manages the hardware, data and program files, and other system resources and provides means for the user to control the computer, generally via a graphical user interface (GUI). Application software is programs designed to handle specific tasks for users. Examples include general-purpose application suites with their spreadsheet and word-processing programs, as well as “vertical” applications that serve a specific industry segment—for instance, an application that schedules, routes, and tracks package deliveries for an overnight carrier. Larger firms use licensed applications, customizing them to meet their specific needs, and develop other applications in-house or on an outsourced basis. Companies may also use applications delivered as software-as-a-service over the Web. Proprietary software, available from and supported by its vendors, is being challenged by open-source software available on the Web for free use and modification under a license that protects its future availability.

TelecommunicationsTelecommunications are used to connect, or network, computer systems and transmit information. Connections are established via wired or wireless media. Wired technologies include cable and fiber. Wireless, technologies, predominantly based on the transmission of microwaves and radio waves, support mobile computing. Pervasive information systems have arisen with the computing devices embedded in many different physical objects. For example, sensors such as radio frequency identification devices can be attached to products moving through the supply chain to enable the tracking of their location and the monitoring of their condition. Wireless sensor networks that are integrated into the Internet can produce massive amounts of data that can be used in seeking higher productivity or in monitoring the environment.

Databases and data warehousesMany information systems are primarily delivery vehicles for data stored in databases. A database is a collection of interrelated data (records) organized so that individual records or groups of records can be retrieved to satisfy various criteria. Typical examples of databases include employee records and product catalogs. Databases support the operations and management functions of an enterprise. Data warehouses contain the archival data, collected over time, that can be mined for information in order to develop and market new products, serve the existing customers better, or reach out to potential new customers. Anyone who has ever purchased something with a credit card—in person, by mail order, or over the Web—is included within such data collections.

Human resources and proceduresQualified people are a vital component of any information system. Technical personnel include development and operations managers, business analysts, systems analysts and designers, database administrators, computer programmers, computer security specialists, and computer operators. In addition, all workers in an organization must be trained to utilize the capabilities of information systems. Billions of people around the world are learning about information systems as they use the Web.

Function of information systems

Information systems support operations, knowledge work, and management in organizations. (The overall structure of organizational information systems is shown in the figure.) Functional information systems that support a specific organizational function, such as marketing or production, have been supplanted by cross-functional systems. Such systems can be more effective in the development and delivery of the firm’s products and can be evaluated more closely with respect to the business outcomes. A to Z[2]

Figure 1: Process of information, communication and technology.

INFORMATION

COMMUNICATION

TECHNOLOGY

Support of knowledge workA large proportion of work in an information society involves manipulating abstract information and knowledge (understood in this context as an organized and comprehensive structure of facts, relationships, theories, and insights) rather than directly processing, manufacturing, or delivering tangible materials. Such work is called knowledge work. Three general categories of information systems support such knowledge work: professional support systems, collaboration systems, and knowledge management systems.Management support

A large category of information systems comprises those designed to support the management of an organization. These systems rely on the data obtained by transaction processing systems, as well as on data and information acquired outside the organization (on the Web, for example) and provided by business partners, suppliers, and customers.

MANAGEMENT REPORTING SYSTEMSInformation systems support all levels of management, from those in charge of short-term schedules and budgets for small work groups to those concerned with long-term plans and budgets for the entire organization. Management reporting systems provide routine, detailed, and voluminous information reports specific to each manager’s areas of responsibility. These systems are typically used by first-level supervisors. Generally, such reports focus on past and present activities, rather than projecting future performance. To prevent information overload, reports may be automatically sent only under exceptional circumstances or at the specific request of a manager.

Managing information systemsFor an organization to use its information services to launch a new initiative, those services

have to be part of a well-planned infrastructure of core resources. The specific systems ought

to be configured into a coherent architecture to deliver the necessary information services.

Many organizations rely on outside firms—that is, specialized IT companies—to deliver

some, or even all, of their information services. If located in-house, the management of

information systems can be decentralized to a certain degree to correspond to the

organization’s overall structure.

Organization of information servicesInformation services of an organization are delivered by an outside firm or by an internal unit. Outsourcing of information services helps with such objectives as cost savings, access to superior personnel, and focusing on core competencies.

In many organizations, information systems are headed by a chief information officer. The activities of information services are usually supervised by a steering committee consisting of the executives representing various functional units of the organization. In the organizations where information systems play a strategic role, boards of directors need to be involved in their governance. As described below, a vital responsibility of an information services unit is to ensure uninterrupted service and integrity of the systems and information in the face of many security threats.

Information systems security and control

With the opening of information systems to the global Internet and with their thorough infusion into the operation and management of business and government organizations and into the infrastructure of daily life across the world, security issues have moved to the forefront of concerns about global well-being. A to Z[3]

Information systems securityInformation systems security is responsible for the integrity and safety of system resources and activities. Most organizations in developed countries are dependent on the secure operation of their information systems. In fact, the very fabric of societies often depends on this security. Information systems are at the heart of intensive care units and air traffic control systems. Financial institutions could not survive a total failure of their information systems for longer than a day or two. Electronic funds transfer systems (EFTS) handle immense amounts of money that exist only as electronic signals sent over the networks or as magnetized spots on storage disks. Information systems are vulnerable to a number of threats, which require strict controls such as countermeasures and regular audits to ensure that the system remains secure.

Computer crime and abuse

Computer crime is illegal acts in which computers are the primary tool costs the world economy billions of dollars annually. Computer abuse does not rise to the level of crime, yet it involves unethical use of a computer. The objectives of the so-called hacking of information systems include vandalism, theft of consumer information, governmental and commercial espionage, sabotage, and cyber war. Some of the more widespread means of computer crime include phishing and planting of malware, such as computer viruses and worms, Trojan horses, and logic bombs.

Information systems controlsTo ensure secure and efficient operation of information systems, an organization institutes a set of procedures and technological measures called controls. Information systems are safeguarded through a combination of general and application controls.

General controls apply to information system activities throughout an organization. The most important general controls are the measures that control access to computer systems and the information stored there or transmitted over telecommunications networks. General controls include administrative measures that restrict employees’ access to only those processes directly relevant to their duties. As a result, these controls limit the damage that any individual employee or employee impersonator can do. Fault-tolerant computer systems installed in critical environments, such as in hospital information systems or securities marketplaces, are designed to control and isolate problems so that the system can continue to function.

Organizational impacts of information systems

Several essential organizational capabilities are enhanced by information systems. These systems provide support for business operations; for individual and group decision making; for new product development; for relationships with customers, suppliers, and partners; for pursuit of competitive advantage; and, in some cases, for the business model itself (e.g., Google). Information systems bring new options to the way companies interact and compete, the way organizations are structured, and the way workplaces are designed. In general, use of Web-based information systems can significantly lower the costs of communication among workers and firms and cost-effectively enhance the coordination of supply chains or webs. This has led many organizations to concentrate on their core competencies and to outsource other parts of their value chain to specialized companies. The capability to communicate information efficiently within a firm has led to the deployment of flatter organizational structures with fewer hierarchical layers.Nevertheless, information systems do not uniformly lead to higher profits. Success depends both on the skill with which information systems are deployed and on their use being combined with other resources of the firm, such as relationships with business partners or superior knowledge of the industry.

The use of information systems has enabled new organizational structures. In particular, so-called virtual organizations have emerged that do not rely on physical offices and standard organizational charts. Two notable forms of virtual organizations are the network organization and the cluster organization.

Information systems development

Information technology departments in larger organizations tend to strongly influence information technology development, use, and application in the organizations, which may be a business or corporation. A series of methodologies and processes can be used to develop and use an information system. Many developers have turned and used a more engineering approach such as the System Development Life Cycle (SDLC) which is a systematic procedure of developing an information system through stages that occur in sequence. An Information system can be developed in house (within the organization) or outsourced. This can be accomplished by outsourcing certain components or the entire system. A specific case is the geographical distribution of the development team.

Information System development is done in stages which include: A to Z[4]

Problem recognition and specification Information gathering Requirements specification for the new system System design System construction System implementation Review and maintenance.[4]

PORTER’S VALUE CHAIN ANALYSIS

The value chain as the internal processes or activities a company performs “to design,

produce, market, deliver and support its product.” Apparel industry is a peculiar player of the

fashion market, whose action oppose to most of industry representatives. Common industry

practice is to focus on design and branding issues to concentrate on the core business. But

Apparel acts differently, they are fully-integrated: from dye house and knitting factories to

international fashion retail chain. At the same time company cares a lot about marketing that

may be rather provoking, though cheap and efficient and logistics processes. By combining

these specific factors company has created its image and has taken a strong market position –

due to their specific business model that involves harsh control on all levels.

PRIMARY ACTIVITIES

Inbound logistics Operations Outbound logistics Marketing and sales

Service

Figure 2: Flow chart of primary activities of value chain.

 SUPPORT ACTIVITIES

Procurement Technology development Human resource management Firm infrastructure

INBOUND LOGISTICES

SERVICESOPERTIONSOUTBOUND LOGISTICES

MARKETING & SELLS

PROCUREMENT

HUMAN RESOURCES MANAGEMENT

FIRM INFRASTRUCTURE

TECHNOLOGY DEVELOPMENT

Figure 3: Support activities of value chain.

VALUE CHAIN ANALYSIS

To better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:

Figure 4: value chain analysis.

VALUE CHAIN ANALYSIS OF WAL-MART

One of the primary goals of any business is to gain an edge on their competition. One way to do so is to conduct a value chain analysis, which examines what organizations can do to create a competitive advantage, while at the same time provide the greatest value to their consumers. The value chain analysis involves identifying each part of the value chain and seeing where improvements can be made either from a production standpoint or a cost perspective to ensure consumers are getting the most bangs for their buck. When consumers are getting the most out of a product for the cheapest cost, businesses will benefit in the long run. Now we are discussing about value chain analysis of Wal-Mart.

Figure 5: value chain analysis of Wal-Mart.

FIRM INFRASTRUCTURE

Wal-Mart has 2485 stores, 682 Supercentres, 457 Sam’s Clubs, 5 Wal-Mart Neighbourhood Markets and 1007 units of Wal-Mart International. It serves over 100 million customers weekly worldwide. There are 1035000 associates, and the company is America’s largest private employer. [5]

HUMAN RESOURCES MANAGEMENT

Almost 60% of all managers in Wal-Mart stores started as hourly associates. The employees are encouraged to communicate openly, offer new ideas, take risks, strive for excellence and have fun. Employees are getting competitive wages and comprehensive benefits. In recruiting new associates the company begins a comprehensive recruitment program in the community where the store is to identify candidates. When new employees start at Wal-Mart they are presented to the two basic rules of Wal-Mart. These are:

Rule 1: The customer is always right

Rule 2: If the customer happens to be wrong, refer rule 1.

TECHNOLOGY DEVELOPMENT

Wal-Mart set up its own satellite communication system in 1983. Wal-Mart uses Bar-coding & RFID technologies, different processes like efficient picking; receiving & proper inventory control of the products along with easy packing and counting of the inventories was ensured. Electronic data interchange is a computer-to-computer exchange of business documents

PROCUREMENT

Wal-Mart’s process of procurement involves and reducing its purchasing costs as far as possible so that it can offer best price to its customers. The company procures goods directly from the manufacturers, bypassing all intermediaries.

– FLOW-TIME ANALYSIS

Wal-Mart’s merchandise replenishment cycle is no more than 48 hrs.

 

 

 

Figure 6: Flow time analysis of Wal-Mart. 

INBOUND LOGISTICS

The drivers are tracked regularly through “Private Fleet Driver handbook” Mart uses a logistics technique called “Cross Docking”. Wal-Mart today about 60% inbound freight (closer to 80% for their grocery segment) is managed by suppliers. The important of Wal-Mart's logistics infrastructure was its fast and responsive transportation system. The distribution centres were serviced by more than 3,500 company owned trucks. [5]

– WAL-MART'S BUSINESS LOGIC

There are given flow chart of Wal-Mart business logic.

Figure 7: Flow chart of Wal-Mart business logic. 

OPERATIONS

Wal-Mart operations are comprised of three business segments. These are

WAL-MART STORES

Super- centres Discount Stores Neighbourhood Markets

SAM’S CLUB-SAM’S CLUB

WAL-MART INTERNATIONAL

MARKETING AND SALES

Employees wore blue vests to identify themselves. Aisles were wide. Apparel departments were carpeted in warm colours. A store employee followed customers to their cars to pick up

Lower prices

From suppliers

More goods sold more goods sold

More customers

Everyday low prices

their shopping carts. Customer was welcomed at the door by a “people greeter,” who gave directions and struck up conversations.

Figure 8: Prices analysis of Wal-Mart products. 

SERVICE

Opening hours at Wal-Mart generally range from 7.00 a.m. to 11.00 p.m. six days a week, and from 10.00 a.m. to 8.00 p.m. on Sunday. All Wal-Mart stores maintain uniform prices, except where lower prices are necessary to meet local competition. Sales are primarily on a self-service, cash-and-carry basis with the objective of maximizing sales volume and inventory turnover while minimizing expenses. Bank credit card programs, operates without recourse to the Company is available in all stores. The replenishment system also helps the store adjust to customers’ demands. The stores are organised the same way all over the world, so the customers will recognise the stores wherever they go.

WAL-MART’S VALUE CHAIN

There are given the below shortcut system of Wal-Mart value chain. These are-

Figure 9: Shortcut system of Wal-Mart value chain. 

Suppliers Wal-Mart

Distribution

Wal-Mart

Store

Wal-Mart

Shopper

Vendors are Wal-Mart's suppliers. They

deliver products to Wal-Mart's

distribution center or directly to one of the stores. Wal-Mart is

able to bargain for the lowest possible price because of the high

volume of sales. Therefore, Wal-Mart passes this savings to

its customers.

Customers can purchase products at very low prices

and have the ability to return

any item.

After products are delivered to the stores, they are placed on the

appropriate shelf location for

customers to view. Store locations are located throughout the U.S. in rural and

urban towns.

Once the products are delivered to the distribution center, they are sorted and placed on trucks to

be delivered to stores. This allows

for less than 48 hour deliveries to

stores and increased efficiency

on trucks with backhauls.

VALUE CHAIN OF MASSCO KNIT COMPOSIT LTD

Massco knit composit ltd is a peculiar player of the fashion market, whose action oppose to

most of industry representatives. Common industry practice is to focus on design and

branding issues – to concentrate on the core business, but it acts simply as like as other

company of garments, they are fully-integrated: from dye house and knitting factories to

international fashion retail chain.

Figure 10: Flow time analysis of Massco Knit Composit Ltd. 

Inbound Logistics

It involves supplier relationships and refers to all the processes/activities involved in receiving, storing and distributing the raw materials, inputs, components, and parts used in the production process. These raw materials are sewing thread, fabrics, trims, accessories and so on.

Operations

Operations are the processes or activities of manufacturing, assembly, packaging, maintenance of the equipment, and testing of inputs to produce the final product. In this company, operations are cutting section, sewing section, finishing section. Through this sections are processing to produce goods.

Outbound Logistics

It relates to storage, processing orders, transport, and distributions of the product to the final consumer. In this way, total products are found after processing. At this, goods are nicely present to the customers or buyers.

Marketing and Sales

Marketing must make sure that the product is targeted towards the correct customer group. The marketing mix is used to establish an effective strategy; any competitive advantage is clearly communicated by the use of the promotional mix. It involves activities like advertising, promotions, sales force organization, segmentations, and selecting distribution channels, pricing, and managing customer relationships. In this company has own buyers and other buyer has come for few prices. But they get few prices in this company. On the way, this company’s merchandiser attitude is good and full fills the order on the time. These company customers are H&M, Target, C&A, Zara, Cubus and so on.

Service

All those activities associated with maintaining product performance after the product has been sold.  It involves processes/activities that enhance the value of the product in terms Order full fills on time, good quality products, timely shipment and so on.

Porter’s Value Chain - Primary Activities: A Summary

Pri

mar

y A

ctiv

itie

s

Inbound Logistics

 - Receipt of inputs (materials) - Storage - Stock Control - Internal Distribution of Inputs

Operations

 - Transformation of inputs into final product - Use of Labor - Manufacturing Technologies

Outbound Logistics - Distribution of finished goods - Stock Control & Inventory - Distribution of final product to buyers

Sales & Marketing - Advertising - Promotional Activity - Persuading People to buy

Service  - After sales support

Figure 11: Primary activities of Massco group. 

On the other hand, Porter (1980, 1985) defines the support activities (see following table) as: 

ProcurementThis concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers).  It occurs in many parts of the organization with purpose to support the main functions to carry out their activities. 

Technology Development

Activities concerned with managing information processing and the development and protection of "knowledge" in a business.  In addition, it involves technology development to support R&D, process automation, and product design; 

Human Resource Management (HRM)

HRM involves activities in relation to recruitment, training, development, promotion, incentives, and payment of people working for an organization. 

Firm Infrastructure

Firm Infrastructure involves the structures and routines of the organization and its management, planning, accounting, finance, and quality control mechanisms.

Porter’s Value Chain - Secondary Activities: A Summary

Sec

onda

ry A

ctiv

itie

s

Procurement - Purchasing of Resources - Purchasing of inputs

Technology Development - Technology to support primary activities &    Operations

Infrastructure

 - Leadership Structure/Management - Planning/processes - Finance - Information Systems

Human Resource Management

 - Recruitment - Selection - Training - Reward & Motivation

Figure 12: Secondary activities of Massco group. 

VALUE CHAIN OF AMERICAN APPAREL LTD

Vertical integration of American Apparel core business has resulted into simplification of

inbound processes – company simply does not need much from the external environment.

Such way of doing things seems a good solution for the company, as it may always be sure

that there could be no problems with suppliers, and the business will operate almost in any

condition of external environment.

Figure 13: Primary activities of American Apparel Ltd. 

Inbound logistics

Vertical integration of American Apparel core business has resulted into simplification of

inbound processes – company simply does not need much from the external environment.

Such way of doing things seems a good solution for the company, as it may always be sure

that there could be no problems with suppliers, and the business will operate almost in any

condition of external environment.

Operations

All of company’s operations except from international fashion retail, takes place in USA and

that is core part of company’s strategy – they could have production in China with much

lower wages, however being a throughout USA brand is what American Apparel has always

been doing. The tag “Made in USA” is really rare, especially in the fashion industry, so this

issue is the core value-adding factor. Company focuses greatly on the control of its operations

and the quality – that is the consequence of vertical integration, company seeks highest

quality at every stage of production.[6]

Outbound logistics

Company, represented by its major shareholder and CEO claims that vertically integrated

business model allows to design, cut, distribute and sell an item globally in just 7 days.

Moreover, company does not franchise its foreign fashion retail operations, and pursues a

peculiar strategy with its stores. It focuses on the principle of spending relatively low

amounts on store design and refurbishment. For example, in USA American Apparel tends to

choose locations for their stores, with rent is about $200 per square foot – company uses low

amount of investments in their distribution premises. At the same time, company operates

and works a lot on an e-shop that is also a very important distribution channel nowadays, and

share of e-sales in company’s financial statement will definitely be growing in the future.[6]

Marketing & sales

American Apparel has created a powerful brand that has high recognition and trust indicators.

Company also states, that their brand has a cult status worldwide, due to their “downtown of

LA production”. Share of international revenues has increased greatly due to expansion that

American Apparel has set up. In their marketing they often use provocative methods that

could be considered pretty much helpful for brand development. At the same time, they have

a focus on quality – so the final picture for the client is really very likely: good-looking,

fashionable clothing of highest quality (that is approved by “Made in USA” tag). Also, an

important issue for company’s marketing activities is their environmental friendliness that is

a very important point in the decision-making process in their home market, so it was really

worth making such a point. With their approach American Apparel for the client seems to be

a company producing premium-branded clothing with highest quality and no “unnecessary”

value creation points (like stores design). For American Apparel, marketing function is a

cornerstone, that ties together all the peculiarities of the brand and makes it clear for the

customers – why you should buy American Apparel goods.

Service

Service for American Apparel mainly stands for the contact with the client – evidently in the

selling points, American Apparel stores. Based on advanced HRM practices, company has

built the atmosphere of support and has set up fair remuneration, so employees should

provide much higher service level – and this creates additional value to what customers buy.

Company infrastructure

Being a massive vertically integrated company, American Apparel has a focus on location of

production facilities of their goods – being a strong USA brand, each item being tagged with

that, and there are branding implications from that point. One specific thing that depicts

company’s approach to infrastructure was installation of a solar battery on the roof of their

factory. Acting this way company attracts attention to its premises and location of the

premises – you always have to fit with local trends in order to succeed.

Human resource management

American Apparel cares a lot about their employees and offers them a range of extremely

convenient options included in employees’ basic salary. This kind of approach shows that

company wants to establish a relationship with each and every worker, and the result would

be workers extended commitment and higher quality of work done. Basically, people is the

foundation for company’s successful development in recent years, so it is evidently also a

way of creating additional value (from company’s insight it is much more important, than

from customers point of view).

Technology

Technology for American Apparel is probably not the most important shape of the business

model, due to business specifics. However, technology is extremely important in production

the system should be working perfectly and the quality of the product should always be on

top level. Quality of goods is definitely plays one of major roles in company’s strategy.

Procurement

Due to the fact that company has internalized its operations greatly throughout vertical

integration process, procurement as a supportive issue that has significant impact on the

process of running business. On the other side, procurement does not have significant effect

on value creation – this supportive function does not imply that.

Conclusion

By subdividing an organization into its key processes or functions, Porter was able to link classical accounting to strategic capabilities by using value as a core concept, i.e. the ways a firm can best position itself against its competitors given its relative cost structure, how the composition of the value chain allows the firm to compete on price, or how this composition allows the firm to differentiate its products to specific customer segments. The Value Chain Analysis should be accompanied with a customer segmentation analysis to mix the internal and external view. A feature or product provides the firm with a differentiating competitive advantage only if customers are willing to pay for it. Customer value chains need to be analyzed to determine where value is created.

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