Topic Objective: To understand the applications of information systems in the business scenario through an example and explore the business processes supported by information systems. Through value chain analysis the topic expands on the primary and support activities of a business and the role of information systems.

Let us understand the business applications of Information systems through an example.

2.1.1.1Baxter Pharma Ltd.

Let us take the example of a pharmaceutical company - Baxter Pharma Ltd., with its headquarters in Germany. The company produces 1500 different medicines and about 300 vaccines. The companies operations are spread around 150 countries distributed in four divisions North America, Europe, Asia Pacific and Latin America. The company products fall into three main categories: Heart and coronary diseases, Infectious diseases and Vaccinations. The companys mission was to discover and develop better medicines to help people live better. The company therefore laid a major emphasis on its Research and development efforts. About 10% of the companys annual turnover was redirected into its R&D activities. Earlier each of the four global divisions was managed independently with their own manufacturing facilities and Research and development units. Though the research was carried out independently, they had occasional seminars where they shared their discoveries and when a major discovery was made it was developed by that division and then cascaded to the other divisions. For the marketing of their products to health professionals the company had its own medical marketing set up. The companys medical representatives met with individual practitioners as well as medical institution staff to give them information regarding the companys products, answer their queries and provide them free samples.

In 1994, though the company met it targets for sales across all its divisions the profitability figures were not as expected. It was seen that the two major reasons were the Research and Development investments and the huge marketing expenditures. A team was set up constituting of members from the management teams of the four divisions to investigate the causes of this performance. After three months of meetings and discussions they came up with a report to be presented to the CEO. The salient points covered were 1. Since the Research and Development efforts were distributed across the four divisions with hardly any interaction between them, there was a lot of duplicate effort and rework taking place. Therefore at a time there could be two different teams of scientists working on the same molecule. Instead of working together they were working in competition with each other sharing results only when a major discovery was made or at the annual conference.2. The productivity of the medical marketing function was found to be very low when benchmarked with other pharmaceutical companies. The function had a very huge staff of medical representatives. When the productivity of individual representatives was analyzed it was found that that each representative spent a lot of time traveling between doctors or in their waiting rooms and very less time actually meeting with the doctors. When explored further it was seen that the problem could be solved if the medical representatives were able to plan their routes better minimizing the travel time and waiting time. They would then be able to cover more doctors in a given timeframe and thus improve productivity.

The committee came up with a two pronged strategy to improve the profitability of the company A. To increase collaboration within the Research and development function through the use of telecommunications technology and thereby eliminate the duplication of efforts. This would ensure that the teams distributed across the various divisions would work as one team. Thus the R&D investments could be channeled optimally resulting in new molecules reaching the market faster and at lower costs.B. A system was to be developed which would enable the marketing function to plan the routes of its medical representatives. This would also have the added advantage of being able to maintain a repository of the doctors who were potential customers for the company.

An implementation plan was drawn up spanning two years. It was decided that communications between the R&D functions would be enhanced through the use of satellite technology. With VSATs installed at each R&D Centre, for voice and data communications the scientists would be able to communicate seamlessly through video conferencing and teleconferences. An application would be built up to take care of all research teamwork, knowledge sharing and document management. This would enable the scientists to work as a team though from distant locations.

At the marketing end a system was built up for Medical Representative route optimization where every six months an optimal route plan would be drawn up for a representative. Each cycle would continue for a month and the same route plan would be followed the next month. Any new doctor or institution was reported back to the department and could be incorporated in the route plan at the half yearly optimization exercise.

In 1996 the two systems were in place and running. The R&D teams working on a single molecule were now spread across the four divisions. The R&D System now allowed the scientist to have online meetings. They could share their research studies and results online, and share common documents and knowledge though they worked in different locations and different time zones. Over years this system has enabled the company to lower the time taken for a new molecule to reach clinical studies and hence shorter time-to-market. There have been enhancements in terms of building of a knowledge sharing intranet built up for the scientists with net meeting services enabled and discussion spaces. Any scientist facing a problem at any stage of his research could post the problem in the discussion space and experts from the four divisions could respond with their comments online. All the research knowledge accumulated over the years was uploaded on the intranet so that it would be available for everybody online.

The Medical Representatives Route Optimization system has enabled the marketing department to rationalize its staff and increase productivity per employee. The routes were planned such that the doctors preferences for meeting times were taken into account and distances between two visits are optimized. Thus the unproductive time of traveling and waiting were cut down considerably.

In 2001 the medical system was enhanced. The project called Medical Marketing and Reporting System aimed to develop a complete solution for the marketing function. A secure website was developed on the internet where the medical representatives could enter data regarding their daily visits to the doctors and the chemists. They would enter the doctors and the chemist outlets they visited on that day. For each doctor they would enter information like the product they detailed, the doctors feedback or queries, free samples given to the doctors, and other details concerning the companys relationship with the doctor. At the chemist outlet they could obtain information regarding the orders received and the prescriptions generated for a particular medical brand. The system would tell them the route for the next day and details about any special events e.g. a birthday or an anniversary regarding a doctor on their call list next day. At the marketing department they can obtain various reports regarding the productivity of particular representatives or certain areas or the prescription rates of doctors. They can make better decision regarding the seminars or other activities they carry out, the target audience for the same as well as the effect of these activities. This has helped the company to build up relationships with doctors and major healthcare institutions and increase the sales of their products at the same time obtaining valuable feedback for further developments.

In the first quarter of 2003 the company performance has been spectacular. The company not only exceeded its profitability targets but has clocked the maximum turnover in a quarter. They further plan to optimize their manufacturing facilities for optimal supply chain configuration.

2.1.1.2 Understanding Business Applications:

Building on the above example let us first bring out the various business activities and then bring out how information systems can facilitate or optimize these activities.

A generic value chain of a business as proposed by Michael Porter of Harvard involves generating demand (marketing), fulfilling demand (procurement, supply chain, production, sales) and corporate functions to manage the enterprise. Each organisation performs certain activities so as to develop, produce market, sell and support its products. These activities may be performed by a single function or by cross functional groups. Let us explore each of these activities in detail and how information systems can play a key role in the optimization and integration of the value chain.

The primary activities a business performs are:

Inbound Logistics: From a systems perspective this implies the Input activity performed by the system. This involves bringing of the raw materials into the business i.e. sourcing and purchasing. Operations: This is the Processing activity carried out by a business system. This involves the conversion activities where finished product is manufactured from the raw materials. Thus manufacturing, packing and its allied activities are included here. Outbound Logistics: The output activities performed by the business to ship out their products to the end consumer distribution and transportation are included here Marketing and Sales: This involves communicating with the end consumers regarding the companys products and persuading them to buy the same. In the above example, the medical representatives meeting with the doctors and medical institution staff to detail them regarding the medicines produced by Baxter Pharma Ltd. is a Marketing activity. Communicating with the chemist outlets is a sales activity. Service: This involves the After-Sales service of the products.

These are the core business processes supported by the following secondary activities

Firm Infrastructure: this involves the activities of business planning, financial budgeting, accounting and reporting, legal activities like communicating with shareholders, registering trademarks or filing patents, or corporate communication activities like lobbying with the Government. Human Resource Management: This involves recruiting and managing the employees and other workers of the organisation. Technology Development: This includes developing better technology for manufacturing or better products for the end consumers. Procurement: This involves the sourcing of other inputs required by the business apart from raw materials and packing materials.

The business should aim to optimize this value chain by cutting down the time and money spent on non value added activities so as to achieve maximum profitability. Information technology can help the business achieve this goal.

2.1.1.2.1Inbound Logistics

Businesses source their raw materials from various vendors and these vendors deliver the raw materials to the processing units or manufacturing facilities of the business. It is important that the right amount of raw materials is delivered to the right place and at the right time. If the raw materials are delivered late or in lower quantities the business suffers because the production plans go awry, causing manufacturing capacity to be underutilized and probably delay in the shipment schedules. If raw materials are delivered early or in excess, there is a danger of loss due to spoilage of the material or the business has to bear the extra costs of carrying inventory not only in terms of storage but also locking up of working capital. Information systems can be implemented such that the raw materials requirement is generated as per the production plans and the information is transmitted to the respective vendors electronically. On receiving the order the vendor would dispatch the requisite raw materials. A step further would be to generate a production plan for the vendor so that he is in tune with the requirements of the business. At another level, the business would require to optimize the number of vendors and the location from which they outsource their raw materials. Information systems can be developed to gather data regarding vendor performance over time e.g. the percentage of on-time deliveries, or the percentage of return deliveries (how many deliveries were returned due to the quality standards not being met). Basis the analysis of the vendor performance the system can optimize on a few vendors so as to ensure smooth functioning of the input component.

2.1.1.2.2Operations

Businesses have processing units which could be located at a single location or may be spread across a region. They have a variety of products which they need to produce. It is important that the right amount of a product is manufactured at a particular facility at the right time. If this process is not optimized it may so happen that the business has large quantities of product A in stock whereas there is a shortage of product B in the market. The company not only loses the opportunity to increase its turnover through the sales of product B but also bears the cost of inventory managements on Product A. In a different scenario the business may manufacture product A at a location X while the product is in great demand in the region Y. At the same time the facility of the company in Y has been producing Product C which is not in huge demand there. Thus the business would incur large costs in terms of cross transportation. The business therefore needs an optimized production plan. This production plan decides things at different levels of aggregation 1. Which products to produce and in what quantities2. Where to produce these products3. What should be the shop floor plan on a daily basis

These decisions are taken at different levels of the organisation. Information systems can be designed to obtain the product requirements from the demand function and cascade the same into monthly and daily production plans for the various facilities.

2.1.1.2.3Outbound Logistics

If the right product is not delivered to the right location the business may end up spending a lot of money in cross transportation of the products between its market locations. This would cause delays in the products reaching the markets. They would lose potential sales and also goodwill of their customers. They would also be in the danger of losing their customers to their competitors. Information systems can enable the business to obtain demand information from the markets and optimize its delivery schedules to meet the same.

2.1.1.2.4Marketing and Sales

How would the marketing department decide the promotion activities it should carry out for a particular product? How would they have real time information regarding brand performance and market shares? How would they know where the advertising of a particular brand needs to be strengthened? Typically businesses obtain this information through research done among consumers by the market research agency. However, by the time the business gets this information and is able to act upon it more than a month would have passed by causing huge opportunity losses. Information systems can enable the businesses to obtain real time information from the end consumers or retailer outlets regarding the performance of a particular product. This can be done through websites which directly gather feedback from the customers or through systems which capture sales at a retailer outlet on a daily or weekly basis. This allows the product managers to continuously monitor the performance of a product or a promotional or trade marketing activity. If they find that the performance is not meeting expectations they can carry out analysis regarding the same and take corrective actions immediately.

2.1.1.2.5Service

If a customer has a complaint regarding a company product he either tells the retailer about the same or directly contacts the company for resolution. In case these complaints are not tackled effectively the business loses those customers. It may also result in loss of reputation and goodwill by the word of mouth of those customers. Information systems allow businesses to track and address these complaints. A typical customer complaint handling system would capture customer complaints as they arrived and assign them to a particular department or personnel. It would track the resolution time for that complaint and provide reports regarding the same. Thus the company could optimize its after sales services and capitalize on the goodwill thus built.

Similarly each of the support activities including corporate planning and budgeting, human resource management, new products development or technology enhancement projects can be automated and optimized through information systems. The various activities where information systems can play a role are: Corporate performance management: Companies carry out annual planning exercises where they make decisions regarding the targeted turnover of the company over the next one year, the next period of three years and goals over a longer say a ten year period. Basis the targets they draw up a financial budget for the next year and the years after that. This enables the company to plan its financial resources optimally. Information systems can help build up a repository of the data regarding company performance over a period, analyze that data to predict future trends taking into account corrections for current economic conditions and expected developments within the business. The system would draw up forecasts which could be further fine-tuned by the business to decide upon its targets. The systems could also track the performance on pre-specified parameters. In case the performance went down on a parameter an alert could be sent to the concerned manager so that he could take quick action basis root-cause analysis carried out by the system. Without information systems this entire planning and tracking cycle would take up a lot of time. If a long time was taken to reach the cause of the problem it would result in longer times and more resources spent of resolving the issue. Human Resources Management: Information systems can be used to automate the HR Processes allowing employees to access their professional information online. Also automation would allow speedy processing of employee applications as well as better planning and tracking of training and development activities. New product development or technology enhancement projects can be optimized through teamwork technologies or knowledge management systems.

Information systems would result in the following benefits:1. Timely and accurate information for decision making2. Analysis of previous trends to forecast future requirements 3. Cut down in time and money spent on non value added activities through process automation.4. Consolidation of performance information for better tracking, analysis and correction

Let us explore the key roles Information Systems can play in different business situations.

2.1.2Key Roles of Information Systems

Topic Objective: To explore the decisions made and the information needs at the strategic, managerial/ tactical and operational levels of an organisation and classify information systems basis the roles they play in the decision making process.

2.1.2.1Categorization of Information Systems.

As we have seen here the decisions at each stage of the value chain are taken at different levels of organization, with different frequencies and at different levels of details. For e.g. in the Operations activity the following levels are evident 1. At a top level a decision needs to be made regarding which products need to be produced and in what quantities. This decision is made at the beginning of each planning cycle of the company by the top management probably annually or half yearly.2. At a lower level a decision needs to be made as to which manufacturing facility will produce which products and in what SKUs (Stock Keeping Units). This decision is made by the production managers say on a monthly basis.3. At a still lower level a decision is made as to the shop floor schedule of a particular unit in a particular facility. This decision is made by the shop floor managers on a daily basis.

This is in keeping with the various levels of management we have discussed in chapter 1, namely, strategic, managerial or tactical and operational. Thus to enable the decision making process at each of these levels the information required is different, the frequency and the representation of this information is also different.

1. At the top level information is needed in terms of the trends of performance of the company over the last ten years. It is required to know Annual sales volume product wise for the past few years Market trends expected in the following year Competitor activities planned in the next yearThis information is required in a concise format on a yearly basis by the top management of the company probably using visual representations like graphs or pie charts. This information comprises a complete aggregate of business performance.2. A production manager needs to know information regarding monthly requirements at various market locations and manufacturing facility capacities and performances. She needs monthly break up of the production required to meet market demand for each product SKU for each location. Thus she needs more details than the top level manager and more frequently. The level of aggregation is at the manufacturing facility and SKU level3. A shop-floor manager needs information regarding daily production required within the processing unit for a sub component of the final SKU, the downtime of a machine in the unit or the attendance records of the workers of that unit on that day. Thus the shop-floor manager requires information at a detailed level in terms of data sheets on a daily basis. The level of aggregation is at the processing unit of a manufacturing facility and a component of a particular SKU.

Thus to cater to different information needs, systems need to be developed such that information is processed at different levels of details, with different frequencies and different levels of aggregation. We will categorization Information Systems basis the different levels of processing required as below:

A. Strategic Information systems Information systems which aggregate information at a broad company level with lesser details and enable strategic decision making by the top management of the business. B. Managerial or Tactical Information Systems Information systems which aggregate information at an individual product level or unit level with a few details and enable managerial decision making by the middle management of the business.C. Operational Information Systems Information system which enable decision making at a sub product level or a unit level with greater details and enable day to day operational decision making.

We discussed a few types of information systems in chapter one. Let us classify these systems into the categories discussed above.

2.1.2.2Categorization of Business Information Systems:

Strategic Information Systems:

1.Executive Support Systems these are systems which cater to the information needs of the strategic level for unstructured decision making through advanced visual representations and drill down features.2.Corporate Performance Management Systems these systems automate the corporate planning process right from strategy planning to setting up of annual targets and financial budgets and tracking performance.

Managerial or Tactical Information Systems:

1.Decision Support Systems These systems support ad hoc decision making at the middle management levels of an organisation. Through various analytical models or data analysis tools the system converts raw data into information for decision support. These systems may use virtual representations, root- cause analysis, what-if scenarios, or various statistical models for data conversion.2.Knowledge Management Systems These systems capture and store organizational knowledge. When a user wants to search for information on a particular topic he conducts a search with some keywords with respect to that topic and gets the information. He can also contact Experts at various locations in the organization.3.Process Automation Systems These are systems designed to cut down process cycle time or improve the processes. These systems usually result in higher productivity, shorter cycle times and higher process transparency.4.Office and Collaboration Systems These systems are used for work management and communication between the employees or with the external parties. E-mail, Electronic Calendars or word processors are the basic examples of these systems.

Operational Information Systems:

1.Transaction Processing Systems these systems are designed to perform and record routine day to day transactions and enable smooth daily activities. These transaction systems automate day to day activities in all departments like Finance, Human Resources, Purchase or Sales.