Business and IS Performance(IS 6010)

MBS BIS 2010 / 2011

7th October 2010

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

Last week

• Organisational goals

• Soft versus hard goals

• Anglo Irish example of hard vs. soft data

• Types of data

• Example of organisational metrics – UCC

• An integration framework

• Class exercise

This week• Organisational performance and co-ordination strategies

• Collaboration / conflict arises

• Basic flows of information: how can data be shared and virtualisation

• Basic flows of information – manufacturing

• An example closer to home of organisational metrics – UCC

• Types of data

• Apple reporting example

• Class exercise

• How can they be quantified

• Where is there conflict

• An integration framework

Organisational performance

• Organisations are organised in a number of functional areas

• They carry out complementary missions

• They interact and collaborate in managing the organisation

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

Goals constrained by time and cost• Sales Revenue target achievement within budget

• Order processing Booked orders within sales period

• Production planning Minimise inventory levels but avoid stock outs

• Warehouse mgt Right product available at right time and right place

• Manufacturing Fulfil production schedule with available resources

• Distribution / logistics Deliver on time / complete with available resources

• Customer Service Customer repairs, and on site service within budget

• Accounting /Finance Revenue targets within expenditure limits

• Information Systems Application and server uptime with resources

• Human resources Adequate resources available with right skills

Examples:• Finance: managing the cash flows, providing

resources to the firm– sub area: Accounting (books and legal reporting)– sub area: Accounts receivable and payable: deal with

suppliers and customers

• Marketing: promoting the firm and its products• Sales: selling the products; dealing with customers

– sub area: sales orders– sub area: returns

• Production: manufacture goods– sub area: purchasing raw material– sub area: quality control

Collaboration / Conflict• All areas of the firm must exchange info

with the others (just like organisations must interact with the outside)

• Divergence of viewpoints means opportunities for conflict are great

• Managing same resources / using the same assets but with radically different goals

Examples:• Quality control versus production:

– production want to increase volumes and keep productivity at highest levels

– QC want to prevent any “faulty” product to come out of the door

• In an environment where zero defect is only a remote target => conflict is likely

• in one organisation, QC were referred to as the Sales Prevention department

Basic flows

• Basic flows of information in business

• Finance – cash

• Sales – orders, customers

• Manufacturing – suppliers, raw materials

Sales vs. Finance views

• Sale concluded, revenue = € x

• Cash collected, receipt = € y

Discount level?Good payer?Paid in full?Paid when?

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

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– …

Model names (sales)Model Year-Month Scrolling device Capacity VeriPod touch (8 GB or 16 GB) 2007-09 multi-touch display 8 GB or 16 GB 1.1.1

iPod classic (80 GB or 160 GB) 2007-09 Click Wheel 80 GB or 160 GB 1.0.2

iPod nano (3rd generation) 2007-09 Click Wheel 4 GB or 8 GB 1.0.2

iPod shuffle (2nd generation) (1 GB) 2006-09 n/a 1 GB 1.0.3

iPod (5th generation late 2006) (30 GB or 80 GB) 2006-09 Click Wheel 30 GB or 80 GB 1.2.1

iPod nano (Second Generation) (2 GB, 4 GB, or 8 GB) 2006-09 Click Wheel 2 GB, 4 GB, or 8 GB 1.1.3

iPod nano (1 GB) 2006-02 Click Wheel 1 GB 1.3.1

iPod (5th generation) 2005-10 Click Wheel 60 GB 1.2.1

iPod (5th generation ) 2005-10 Click Wheel 30 GB 1.2.1

iPod nano (4 GB) 2005-09 Click Wheel 4 GB 1.3.1

iPod nano (2 GB) 2005-09 Click Wheel 2 GB 1.3.1

iPod with color display (60 GB) 2005-06 Click Wheel 60 GB 1.2.1

iPod with color display (20 GB) 2005-06 Click Wheel 20 GB 1.2.1

iPod photo (30 GB) 2005-02 Click Wheel 30 GB 1.2.1

iPod mini (4 GB Second Generation) 2005-02 Click Wheel 4 GB 1.4.1

iPod mini (6 GB Second Generation) 2005-02 Click Wheel 6 GB 1.4.1

iPod shuffle (512 MB) 2005-01 n/a 512 MB 1.1.5

iPod shuffle (1 GB) 2005-01 n/a 1 GB 1.1.5

iPod photo (40 GB) 2004-10 Click Wheel 40 GB 1.2.1

iPod photo (60 GB) 2004-10 Click Wheel 60 GB 1.2.1

iPod (20 GB Click Wheel) 2004-07 Click Wheel 20 GB 3.1.1

iPod (40 GB Click Wheel) 2004-07 Click Wheel 40 GB 3.1.1

iPod mini 2004-01 Click Wheel 4 GB 1.4.1

Model Model # Model # Model #10GB M8709LL/A M8737LL/A M8740LL//A

10GB M8976LL/A

15GB M8946LL/A M9460LL/A

1GB Black MA352

1GB White MA350

1st Generation iPod mini Models M9160LL/A M9436LL/A M9435LL/A

20GB M8738LL/A M8741LL/A

20GB MA079LL/A

20GB M9244LL/A

20GB M9282LL/A M9282CH/A M9282FE/A

2GB Black MA099

2GB Silver MA477

2GB White MA004

2nd Generation iPod mini Models M9801LL/A M9803LL/A M9805LL/A

30GB M9829LL/A

30GB M8948LL/A

30GB Black MA146LL/A

30GB U2 iPod MA452LL/A

30GB White MA002LL/A MA002B/A

40GB M9585LL/A

40GB M9245LL/A

40GB M9268LL/A M9268CH/A M9268KH/A

Model numbers (manufacturing)

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

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

Fig 7.2 Control objectives of ERP undermined (p. 398)

Control

Centralisation Co - ordination

Integration

Granularity Accuracy / consistency

Inflexibility

Latency Manual

More analysis potential

Deteriorating data integrity

Technical skills required for reporting

Fig 7.3 Integration framework (p.400)

Execute Schedule

Measure

Performance control

Supply Demand

Resourcevisibility

Physical

VirtualPlan

PlanPlan