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Explore the impact of organizational structure on information systems and learn about functional silos in organizations. Understand the importance of systems integration and the role of ERP systems. Discover how business processes and information systems are interconnected.
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CHAPTER 2 SYSTEMS INTEGRATION
Learning Objectives • Understand the impact of organizationalstructure on informationsystems. • Find out about the types of functionalsilos in organizations. • Learn about the evolution of informationsystemstechnologygenerations and architectures and its influence on silo environment. • Know what systemsintegration is and why it is important for organizations. • Understand the role of EnterpriseResourcePlanning (ERP) systems in systems integration.
Preview • Systems integration means that you allow a heterogeneous (hodgepodge) IS to communicate or integrate and share information (or data) seamlessly with one another. • The keyword here is seamlessly, because the challenge is that Information Systems have shared information with each other for a long time, however, they relied on a human link, which takes much longertime, errors and inaccurate and • Without system integration, Information sharing can not happen in realtime between the various organization stakeholders. E.g. warehouse employee dose not know the status of shipped product. • Systems integration is a key issue for an organization for its growth; therefore, management needs to pay close attention to this issue.
Functional Silos Typically organizations are structured into division and department based on functionality of each division and department. Each division or department performs its own specific function and determines its own competency. This includes hiring people who are expert in doing that specific function. Therefore, this organization structure tends to create ‘Silo Thinking’, each department stands alonewith less or no interaction with other department within the same organization. Business processes, on the other hand, cut across these functional silos. Where different activities in a process require different skills, the process is likely to involve a number of people and departments. An example is the selling process to customer, it will involve several departments (as seen below), namely Sales, Distribution, and Finance department and also involve people in those departments. Source: http://processdriven.livejournal.com/923.html
Business Processes and Information Systems • Business process is a group of activities or tasks that are coordinated for achieving a business goal (e.g. ordering supplies, targeting customer, designing new products, etc.). • Business processes refer to the manner in which • Work is organized, coordinated, and focused to produce a valuable product or service • Is a concrete workflowsofmaterial, information and knowledge (set of activities). • Ways in which organizations coordinatework, information and knowledge and the ways in which management chooses to coordinate work. • Every business can be seen as a collection of businessprocesses. • Many businessprocesses are tied to a specificfunctionalarea. For example sales and marketing area function would be responsible for identifying customers, and human resourcesfunction would be responsible for hiring employees.
Business Processes and Information Systems Other business processes cross many different functional areas and require coordination across departments. For example fulfilling customer order: First sales department would receive a sales order. The order will pass first to accounting to ensure the customer can pay for the order. Then, production department pull the product from inventory and finally product needs to be shipped. Can you provide other example Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales, accounting, and manufacturing functions.
Functional Silos • Silos (tower of protecting products) are basically compartmentalized operating unitsisolatedfromtheirenvironment. • Why have InformationSystem and organizationsevolved into functional silos? To understand the reason, we first need to look at the horizontalevolution of modern organizations and the system supporting their Information requirements. Horizontal Silos • The functionalmodelPOSDCORB (Planning, Organizing, Staffing, Directing, Coordinating, Reporting and Budgeting) categorization proposed by Luther Gulick led to a set of formalorganizationfunctions such as control, management, supervision, and administration starting in late 1930s. • Classification of organizations into departments like Accounting and HumanResources, reflects the breaking of complextasks into smallermanageabletasks that could be assigned to a group of people who could then be held responsible.
Functional Silos (Cont’d) Vertical Silos • Organizations also divided roles in hierarchical (vertical) layers from strategic planning to managementcontrol and operationcontrol. • CEOs and Presidents plan long-term strategy, midlevel management (e.g. VP, general managers) focuses on tacticalissues and on the execution of organizationalpolicy whereas the lower-level management task (e.g. supervisors) is to focus on the day-to-dayoperations of the company. • As organizations get big and complex they tend to break functions into smaller units and assign staff the responsibility for these activities allowing them to managecomplexity as well as specializeinactivities that enhance productivity and efficiency.
Business Process and Silos • The problem of functional silos gave birth to business process re-engineering (BPR). • Organizations arere-oriented their management towards improving the efficiency and effectiveness by focusing on businessprocesses such as selling products, product development, order processing, etc. • Business process provides an alternative view of grouping people and resources focusing on an organization’sactivity, which involves interactions between sales , warehousing and accounting functional areas, as the work progresses from initial sales order to collection of payment from the client. • The cross-functionalbusinessprocess can involve people and resources from various functional departments working together, sharing information at any level of the organization. • Business process has moved management thinking away from a functionaldepartment to businessprocess. • This organizational evolution from functionalsilos to businessprocesses and to even customercentricapproaches has had a big impact on the evolution of information systems.
Evolution of Information Systems in Organizations • As business changes and expands, the results is sometimes lead to a wide variety of Information Systems and computerarchitectures creating heterogeneousindependentnonintegratedsystems (silos). • These systems lack control and configurations, so they become breeding ground for inconsistency, inaccurate and incompatible dataand ultimatelyleadtomismanagement. • A silo information system is inefficient, inaccurate, and expensive. These systems can not share data therefore require users to accessmultiplesystems to integrate the data manually. • Silos systems focus on individualtasks or functions or both, rather than on process or team. This make it very difficult for organization to be customer-centric because data can not be assimilated from different functional areas to address customer needs.
Evolution of Information Systems in Organizations • Organizations have been designed around functions for long time (e.g., sales, manufacturing, and HR). These functions are important as they provide a structure by which an organization functions runs smoothly. • The system creates bottlenecks for everyone and information is not available in real-time. • The evolution of IS suggests that its role has generally been to support evolving information needs of the organization.
Functional Silos in Organization • Silo environment is inefficient, inaccurate and expensive. • Information is captured and re-enteredseveraltimes and is notavailable in realtime. • Silo environments hamper enterprise decision making, because key information never makes it out of the different pockets of the organization in time for decision maker. • In Silo environment, onlyselectiveemployees from that department have access to information, customers, partners, and suppliers are dependent on there employees to provide them with answers. • Example: UPS package tracking system.
Information Systems Architectures • Three major types of information systems architecture have been commonly used in organizations: Centralized, Decentralizedand Distributedsystems architecture. • Centralized approach utilizing the mainframe computer (the central computer) to host all application system and data resources of the organizations. • With decentralized approach, each user had a personal computer. • Distributed architecture allows sharing of applications and data resources between the end user and the server computers(centralized)
IS Functionalization • In addition to serving the different managementlevels, IS also supports major business functions, such as manufacturing, marketing, accounting, finance, and HR. • Each functional area has different information needs and reportrequirements. • Each functional area in an organization also has multiplelevels of management, each requiring different levels of analysis and details of information.
IS as Categorized by Functional and Hierarchical Models • Above system infrastructure (e.g. operating systems, databases and networking) the lowest level of IS pyramid which consists of: • Office Automation System (OAS): support the activities of employees • Transaction Processing System (TPS): record detailed information in all the major functional areas. • They support the organization's operations and record every transaction, whether it is a sale, a purchase, or a payment. They are often categorized by the functional areas in the organization (sales, purchasing, shipping, etc.) • Management Information System (MIS): reportingsystems that categorize and organizeinformation as required by the midlevel managers. These report can be sales by product for a quarterly period. • Decision Support Systems (DSS): are analytical systemsthat use mathematical equations to process data from TPS to assistant managers in conducting what-if analysis, identifying trends and in generally assisting in making data driven decisions. (e.g. go-seeking, pivot tables, etc using spreadsheet or more sophisticated such as OLAP software). • Expert System also assistmanagers in their decision making using qualitative analysis that captures problem solving to identify solutions. • Executive Support System (ESS): provide visualdashboard of strategicinformation to top level management in real time (snapshot of the organization performance). These system are categorized for each functional area of the organization.
Systems Integration Integrated systems allow companies to accomplish something that has provide most to date: the linking of demand and supplysidefunctions in a way that enables a quick and flexibleresponse to changes. Logical (human level) intergartion • Develop information systems that allow organizations to share data with all of its stakeholders based on need and authorization. It means allowing accessto a shareddataresourcesbypeoplefromdifferentfunctionalareas of the organization. • Management needs to change organizational structures, processes, and employee roles and responsibilities. Physical (technical level) integration • Provide seamless connectivity between heterogeneous systems. • Business process reengineering involves changing the mindset of the employees in the organization, encouraging and enabling them to do their tasks in a new way. • Shifting the focus of employees from achieving the departmentalgoals to organizationalgoals is an essential task for management. • It also requires a changes in traditional hierarchical management structures that are purely functionally oriented. • Teamwork is an essential component if organizations want to break functional silos and have workers from all levels of management collaborate on solving organizational problems.
Steps in Integrating Systems Silos Functional organizations Organizational structure and business processes
ERP and Systems Integration • Enterprise Resource Planning (ERP) systems: are integrated, multi-module application software packages designed to serve and support several business functions across an organization. • ERP system is a strategictool that helps the organization improve its organization and management by integratingbusinessprocesses and helping to optimize the allocation of available resources • ERP systems are typically commercial software packages that facilitate collection and integration of information related to various areas of an organization including finance, accounting, HR, customer services, etc. • ERP systems enable the organization to standardize and improve its business processes to implement best practices for its industry.
ERP’s Role in Logical Integration • ERP systems require organizations to focus on businessprocess rather than on functions. • ERP systems come withbuilt-inprocesses for a wide variety of common business functions. • An ERP system implements best practices via specific built-in steps for processing a customer order in terms of: • order entry. • routing through departments. • communication of output to various parties. • Example: Dell computers: Receive an order – divide the order by major components and transmit to various units, partners and/or suppliers-
ERP’s Role in Physical Integration • Before installing the ERP system, an organization may have to upgrade or install middleware or get rid of their legacy system’s hardware and software. • Integration is also required at the Data level (one database), Client level (standardizing on all client platforms), and at the Application level (common user interface design, back end access and back-up recovery plan). • A good ERP implementation improves operational efficiency with better business processes that focuses on organizational goals rather than on individual departmental goals. • Improved efficiency with a paperless flow and electronic data interchange (EDI) or business-to-business (B2B) commerce environment with partners.
Implications for Management • Silos do not work. • Most organizations lose out in the long-term when information is not shared in real time across the functional boundaries within the company. • In today’s globallycompetitiveenvironment, organizations have to compete both on lower cost, and by providing better customer services through alliances and partnerships with competitions. • System integration has many hidden benefits. • Allows decision making to be cascaded to all departments • Allows employees at lower-levels to make better decisions while interacting with clients or partners. • System integration has many challenges. • Replacing old hardware and software • Working with IT consultants in developing middleware • Human challenges, such as impact on IT staff, department heads losing control of data, and rumors of layoffs
Implications for Management (Cont’d) • Systems integration raises many new ethical issues. • Possibility of some employees exploiting information for personal advantage and illegal access of information. • Remedies can consist of: • Develop policies on ethical usage of information. • Install proper security software and hardware (like firewalls). • Allocate resources for training and education on accessing information.
Summary • Functional silos categorize an organization’s tasks and activities into groups to improve efficiency and responsibility of work in the organization. • Silos can improve productivity, but they often lead employees to achieve departmental goals rather than overall organizational goals. • IS over the years have been divided horizontally by functions and vertically by hierarchical levels. • IS architecture has evolved from centralized mainframe architecture to personal computers with distributed or client–server architecture.
Summary (Cont’d) • In order for systems integration to be successful, organizations have to focus both on the human or logical level and on the physical or systems level. • ERP systems thus make the process of systems integration easier, but they are expensive and often require organizations to start from scratch. • System integration involves the whole organization, requiring top-management support and resources for a long-term period. Management must be ready to face the human and ethical challenges in a systems integration project.
Review Questions • What are functional silos and how did they evolve in organizations? • What is the relationship between organizational functional silos and IS functional silos? • Compare and contrast centralized, decentralized, and distributed IT architectures. Which do you think is most appropriate for ERP and why? • List the horizontal and vertical levels of systems that exist in organizations. • What is logical integration and how is it different from physical integration?
Review Questions (Cont’d) • Describe at least five steps involved in system integration. • What are the key benefits and limitations of system integration? • What is the role of ERP systems in system integration? • Summarize the role of management in systems integration.
