Business and IS Performance(IS 6010)

MBS BIS 2010 / 2011

14th October 2010

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

Last week 1• Credit Suisse performance parameters

– Return on investment (customer), bonus (fund manager)

– What would be considered reasonable ROI from a customer perspective? Is this the same for

a fund manager?

– Return is related to level of risk taken

– Overall corporate performance objective is broken down into sub-objectives for managers

– This process of splitting objectives to individual managers is what Mason and Swanson (1979)

are investigating

• Feedback on Mason and Swanson (CMR, 1979)

– Scientific Measurement not enough for management decision support (softer information

required)

– Not “user specific“

– Metrics depend on your position (manager, customer, shareholder, employee, …)

Last week 2• Managers have to make decisions regarding solutions to performance issues

– These decisions necessarily engage the resources of the firm

– Measurement systems do not support this level of decision making

• Class exercise: mobile phone sales down 25% with respect to target for quarter, what

kind of decisions required

– Knowledge of overall market performance might explain poor performance

– Change targets? Try telling your boss that!

– Act on demand by using discounts, bundles, promotion, marketing

– In any case solutions involve committing resources (money, people, …)

– What type of information support would a manager require to make such decisions?

• Collaboration / conflict arises: Sales versus Finance view

Last week 3• Apple reporting exercise

– Steve Jobs about to report results

– You are asked to provide gift card revenue figures for Cork

• Channels used to sell gift cards eg. HMV

• Denominations sold (pre-set values or user definable?)

• Do retailers pay for cards up front?

• At what point are Apple able to recognise revenue from sale?

• What is the impact for sales reporting?

– Make up of actual spend of gift card by product not known

– Inventory impact versus non-inventory?

Apple sales process• An increasing range of channels

– Apple stores (eg. ATMac, Penrose Wharf)– Apple.com – Major accounts (Dixons, Curry’s, Fnac, HMV, Virgin, …)– Retailer (Tesco, O2 stores, Argos, …)– Indirect distributor (Russian market?)– …

• An increasing range of products– iTunes– iTunes gift cards– iPods– iTouch– Accessories for all media players and phones– Notebooks– Desktops– iPhones– Service– Software– …

Co-ordination strategies

• Co-ordination consists of:– Protocols, tasks and decision mechanisms to achieve concerted

action between interdependent units (Thompson, 1967)– Decomposing goals to activities (Malone & Crowston, 1990)– People, resources and systems (Hepp & Roman, 07)

• Two key co-ordination strategies:– Centralisation of decision making (purpose agenda)– Standardisation of process (efficiency agenda)

• Inherent tension between individual and organisation• Strategies impact flexibility of organisation differently• IT only provides means of co-ordination, not reason

How can data be shared

– Face to face

– Hard copy

– Soft copy or email

– Interface between applications

– Access to a shared database

– …

Virtualisation

• Virtualisation: capturing & storing data relating to changes in the physical environment in an information system

• A measure of the degree to which information systems can reflect business reality

• Pre-supposes a structure (database), as data captured is related to a logical entity

Basic flows

Finance Sales

Manufacturing

Basic flows

Finance Sales

Manufacturing

Inventory = common denominator

Finance Sales

Manufacturing

ERP integration: demand & supply

Production

DistributionSales

X

X

X

Student Dashboard

Types of data 1

• Volume data (production)• consumption data (raw material, packaging…)• personnel data• maintenance data• time related measurements• productivity data• …

• All form the basis of the calculations used to monitor manufacturing activities

Type of data 2• Primary data:

– taken straight from the floor (input and output)– e.g. production, consumption, labour, maintenance– ad-hoc reports - e.g. accidents, defects

• Secondary data or calculated data:– allocated costs– productivity– pay bonuses– variances

• High level data:– investigations of variances– soft information about staff morale etc...

Type of data: soft information

• Data collection - – Grapevine– factory tours (talking and observing)

• Data storage -– managers’ minds– special reports

• Data usage:– ad-hoc basis– decision making

Production planning and forecastIn theory, it’s simple– Sales forecast future demand for products– Production plan to meet forecast sales

But, in real life, there are many contingencies:

– Sales tend to be optimistic– Most businesses exhibit seasonality– Customers are unpredictable– Forecasts are based on average prices– Yield may be poor due to quality issues– …

How managers do their work

• What is happening? Actual

• What should be happening? Plan

• What therefore would happen if? What-if?

• Adjust plan and/or change actual Manage

Criteria for information sharing

– Integrity – Timing of information exchange– Knowing information is up to date – Ownership of data– Accountability if information is incorrect, incomplete– Decision responsibility

Why is “one truth” so hard?

• Eg. Up to date picture of revenue?

– Easy bit: • all product shipped to date

– Hard bit:• Spares, loaners, replacement machines, …• Deduct any current credit notes• Add any outstanding debts from previous invoices• Apportion revenue from service contract (12 months)• Allow for discount to be applied if paid on time• Currency exchange rate fluctuations …• …

– Revenue recognition “rules”

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

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