The importance of information systems
1. Executive Summary
In business world there is no substitute for right information at right time. It is evident that in last couple of decades attempts has been made to develop systems which make information more precise, readily available and easily accessible throughout the organisation. The development and use of information systems is a modern trend which is primarily concerned with the collection, process and dissimilation of useful information that directs an organisation for better planning, better decision making and ultimately the better results.
Information systems and information management is a vast subject. In order to discuss the importance of information systems for an organization, the fundamental concepts like what is information, how it can be managed must be acknowledged. In this essay there will be brief introductions of these fundamental concepts and then there will be a case study of Volvo's Knowledge Management System, the VPS which highlight the importance of information system and information management in an organization. Furthermore, it is not always without a hitch to adopt and appreciate a new concept and information systems are no different. There are some issues and problems in installing and using such systems which again vary one organisation to another. This essay will also touch upon those difficulties as well.
2. The concept of information in Organization
The world information has different usage in different contexts but in organizational context it becomes more complex and difficult to comprehend. Zorkoczy (1981) defines information “as the meaning that a human expresses by, or extracts from, representations of facts and ideas, by means of the known conventions of the representations used”.
On the other hand in organizational context, Stonecash (1981) defines information by stating that “information is simply symbols (data, text, images, voices, etc.) that convey meaning through their relative ordering, timing, shape, context, etc. ... information is the raw material for making decisions for creating knowledge and fuelling the modern organization”.
In organizational context, information becomes more like a basic resource similar to men, material and money. Information is the binding element that holds an organization together. On the contrary, since it is intangible, information is quite different for physical resources and is often difficult to interpret and utilize in efficiently in order to achieve desirable outcomes from the oragnisation. Nevertheless, it is an integral part of organization and should be properly managed to achieve goals and objectives of the organization (W.B. Adeoti-Adekeye, 1997). Hence, it is importance to acknowledge the importance of information in the organizational performance.
3. Information Management in Organizations
Many scholars have recognized the fact that right information and its flow with in the organization can drastically improve the performance and achieve stipulated objectives with ease. But at the same time it is important to note that there is no point of having information which is not relevant to the organisaton. This is the point where information management comes in to play. The prime objective of information management is to make relevant information readily available for the organisation in precise and comprehensible format.
Langemo,( 1980) has defined Information management as the “organization-wide capability of creating, maintaining, retrieving and making immediately available the right information, in the right place, at the right time, in hands of the right people, at the lowest cost, in the best media, for use in decision making.”
Also Best (1988) defines information management as “the economic, efficient and effective co-ordination of the production, control, storage and retrieval and dissemination of information from external and internal sources, in order to improve the performance of the organization.”
4. The concept of Information Systems
Ever since its invention, computers are becoming integral part of humans and humans are becoming more and more dependent on the services offered by them. In words of W.B Adeoti-Adekeye (1997)“the advancements in computer technology have escalated man's desire to obtain computer assistance in solving daily chores and more complex problems: problems which were considered solely in the domain of man's intuitive and judgmental processes, particularly in organizations, a few years ago. Therefore, information systems are becoming area of interest in progressive and dynamic organizations. The need to obtain access conveniently, quickly and economically makes it imperative to devise procedures for the creation, management and utilization of databases in organizations.”
Duff and Assad (1980), has defined the information system as “a collection of people, procedures, a base of data and (sometimes) hardware and software that collects, processes, stores and communicates data for transaction processing at operational level and information to support Management decision making.”
In general terms, Information Systems can be defined as a set of interrelated components which accept data or information (meaningful data) as a raw material store and then process it to generates information as a product to assist and support in decision making and controlling activities of the organization.
The Information System contains information about the organization and its surrounding environment as well. The surrounding environment includes customers, supplies, competitors and other stakeholders of the organization. The basic three activities input, processing and output generate the meaningful information that organization need. There is another essential element of system known as feedback. It is output returned to appropriate authorities in the organization to evaluate input (Laudon and Laudon 2006 9th Ed.). It can be represented in figure as follows;
through one or more transmutation processes
It comprises the following functional elements which relate to the organization and its environment
5. Importance of Information System in Organizations
Managers must have relevant information that increases their knowledge of internal processes and external business environment. This knowledge reduces the degree of uncertainty and makes managerial decisions more rational and practical. Without relevant information most of the decisions made by managers will be like trial and errors, which in turns decrease the efficiency and profitability and increase the uncertainty with in the organization. The main benefits if an information system can be discussed as follows:
1 Economic Importance:
Even though the cost of installation and maintenance of an information system quite high (depends upon kind of system) in the beginning, but in due course the costs drops and appears fair deal when compared to kinds of benefits enjoyed with the help of it. Also with the passage of time cost of information systems tends to decrease, whereas, costs of its substitutes (for instance labour) has been historically tends to rise (Laudon, 1990). Furthermore, information systems use networks, which help an organization to reduce the transaction costs, by making it worthwhile for organization to contract external suppliers instead of using internal resources. For instance, the Chrysler Corporation reduces costs by obtaining more than 70% of its parts from other supplier by using computer links ( Laudon and Laudon, 9th Ed. ).
2. Information Systems Improve Performance:
Information Systems are designed to improve the overall efficiency and effectiveness of a process. The information systems speed up the process and reduce the time by removing non-value adding steps in the operation. For instance, Citibank developed the Automatic Teller Machines and Bank Debit Cards in 1977( Laudon and Laudon 9th Ed.). It made financial transactions easy and was a huge success. Further, banks continued to innovate and these days with the help of reliable and secure information systems from TEMENOS, Infosys, Oracle etc, most of the customer can do majority of transaction from their home computer or even from mobile telephone. Moreover, information systems provide real time information which reduces the scope of errors, hence, increases the quality of the output of the process.
3. Importance in Decision Making:
Information Systems provides the tools for managers enabling them to monitor, plan and forecast with more precision and speed then ever before. They also enable managers to respond more rapidly and adapt swiftly to the fast changing business environment. The Decision Support Systems can significantly improve results both on quantitative and qualitative fronts. For instance, there are around 142 million employees working in United States generating $12.2 trillion of Gross Domestic Products. If the decision making quality of these employees could be improved by just 1% in a year the GDP might be expand substantially. “This implies for any organization the ability of manager or employees to make right decision at right time with the help of right information can have extraordinary business value” ( Laudon and Laudon 9th Ed.).
4. Organizational Behavior Change:
Behavioral researches illustrate that information systems facilitate flattening of hierarchies by broadening the distribution of information to empower lower-level employees. It pushes the decision making rights to the lower level in the organization as the lower level employees receives the information they need to make decisions eliminating the need of middle managers(Laudon and Laudon 9th Ed.). This also leads to the reduction is the administrative costs of the organisation. For example, after installing ERP system Knust-SBO Precision Machining1 of Texas, reduced the administrative staff by 50% and at the same time improved the accuracy of on -time deliveries from56.5% to 95%.
6. Case Study Illustration
The efficient performance of an organization is dependent very much on the performance of the internal resources of organization and their synchronization with external environment. To illustrate the use and importance of a management information system in organizational performance the following example of Volvo from Managing Knowledge in MNCs-The case of the knowledge management initiative in the Volvo Group by Sona Gevorgyan and Boban Ivanovski (2009) will demonstrate that how Volvo achieved superior performances by deploying their Knowledge management system.
6.1 Volvo Group and Knowledge Management
The Volvo Group is one of the leaders in its industry with production facilities in 19 and sales in more than 180 countries. In 2008 it employed more than 90,000 employees worldwide majority located in Sweden, France, USA, Japan, Brazil, China, and South Korea. The industry in which Volvo Group operates is highly technology driven and knowledge intensive. Its product range comprises construction equipment, trucks and buses, aircraft engine components, drive system for marine and industrial applications. Since it operates globally the Group is comprised of numerous subsidiaries, known as product related Business Areas (BA) and supporting Business Units (BU).
The major function of Business area is to manufactures products, whereas Business Units are responsible for procurement, product planning's and financial aspects of the business. As the Group continued to grow, it recognized that the diversity that the subsidiaries represent could serve as opportunity to utilize all the knowledge within the Volvo Group. The group acknowledged need of the global Knowledge Management System which could help in eliminating waste of resources in terms of recreating knowledge in one subsidiary, while already possessing it in another. Furthermore, such initiative could potentially serve as means of discovering new synergies in the Group that may lead to smooth and efficient operation of the Group's activities. Hence, the Volvo Production System Academy was launched in 2008, aiming to undertake and support such a common group Knowledge Management initiative ( Gevorgyan Ivanovski ,2009).
Knowledge Management Systems are designed to store and process the knowledge available in organizations (Wickramasinghe, 2003), and simultaneously support contextualized application of that knowledge (Maier, 2004). Workers are meant to use this technology in sharing information about past experiences and making sense of this information, while performing their tasks (Wickramasinghe, 2003).
Volvo Production System Academy (VPSA) is the centre for research, development and innovation in the Volvo Group. The Academy is meant to represents a central research and development unit which provides the fundamentals for the KM initiatives. It developed the Knowledge Management System for the Group, the Volvo Production System.
The assumption is that operational excellence, sustainable profitability and customer satisfaction is more likely to achieve if the workers operate in accordance with the VPS guidelines. The VPS model is described in detail through internal documents known as Reference Material, stored in central database and provided through the VPSA Intranet portal. The database and the Intranet portal on which the information from the database is available, represents the core of the KMS provided by VPSA. The ‘good example' of VPS model is an essential part of the feedback and learning aspect of the model. It is represents a visual illustration of exceptional execution of a specific module described in the VPS model, this acts as a communication tool to encourage employees to repeat the desirable behavior.
Good examples from various factories are stored in the central database in addition to the principles, and available on the Intranet portal. The good examples are either submitted by the factories and then quality-proofed by VPSA, or spotted in the assessments that VPSA conducts. By sharing them through the Intranet portal, good examples are meant to serve factories from different subsidiaries to locally implement the VPS modules by exploiting mutual synergies and learning from each other's knowledge and experiences.( Gevorgyan Ivanovski ,2009)
The Knowledge Management Systems are one of the most complex information systems. The Volvo Group has realized that their product and services are not limited to physical resources but also on the intangible assets i.e. knowledge. Since it operates globally and most of its business unit are geographically, demographically and culturally dispersed, therefore it was utterly important for the Group to synchronies its knowledge and make it available wherever and whenever it is needed to support the business processes and managerial decisions. The Group achieved it with the help of an information system, the Volvo Production System.
However, installing an information system does not automatically result in success, unless continuous participation of all individual workers in processes is ensured. In this case workers have struggled initially to cope up with the changes the system brought in, but the strong organizational culture motivated them to get involved in the process.
Problems with Information Systems
There might be different reasons, but despite of many success stories there are examples of great failure of implementing information systems in organizations. For instance (web resource1);
- Hershey Foods - The leading chocolate manufacturer in United States accounted 19 % drop in earnings was caused by an incompetent SAP ERP installation that caused distribution disorder during one of its most profitable seasons.
- FoxMeyer Drug s - The pharmaceutical distribution company was forced to declare bankruptcy after an unsuccessful ERP implementation.
- NASA -. The ERP system was not able to close year-end books on a Cal Tech contract which results in generation of inaccurate financial reports.
- Bang and Olufsen - In 1999, the Danish Hi-Fi audio- video maker claimed that SAP systems has damaged relation with its retailers
It is often argued that most of the issues in ERP systems disasters were not technical but were mainly related to employee and organizational culture of the firm. Many of the failures can be attributed to poor managerial practice in the form of inadequate training (Pang 2001). The resistance to change from with in the organization, lack of high flexibility in terms of customization of information system and inadequate IS implementation strategy may be considered as the major factors for such a drastic failure of the information systems in certain cases.
It is important to note that information management and information systems are the means not the end of the process. Both are the powerful tools in the hand of management, which when deployed appropriately can bring dramatic change in the way an organization perform and achieve its objectives. Appropriate utilization of information systems benefits both the organization and its employees and its stakeholders. But when misapplied, they can waste tremendous amounts of time, effort, and money.
To accomplish successful information management and reduce the chances of failure in future, an information system must be designed and operated with due regard to organizational culture as well as technological factors. There should be an equal contribution from both the business management and the information professionals while designing and implementing a new information system. There is no doubt that better exchange of thoughts between organizational management and information professionals has the potential to develop information systems which will entirely change the outlook how we run business today.
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W.B. Adeoti-Adekeye (1997) “The importance of management information systems” Library Review, Vol. 46 No. 5, page 318-327. MCB University Press, 0024-2535.
Wickramasinghe, Nilmini (2003). “Do We Practice What We Preach? Are KnowledgeManagement Systems in Practice Truly Reflective of Knowledge Management Systems in Theory?”. Business Process Management Journal, 9(3): 295-316.
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1The New ERP System Halves the Administrative Staff, Modern Machine Shop, Feb2002, Vol. 74, p142
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