Basic Concept



Topic list
1 Organisational information requirements 1(a)
2 Business strategy and information systems strategy 1(a)
3 Developing a strategy for information systems and information technology 1(a)
4 Critical success factors 1(a)

Welcome to Paper 2.1 Information Systems. This Study Text follows the structure of the officialACCA syllabus and study guide wherever possible.
The front page of each chapter provides syllabus and study guide references showing the areascovered within the chapter.
We start with a look at the concept of business strategy and strategic planning. Later in thischapter we examine the relationships between business strategy, information systems (IS) andinformation technology (IT).

Study guide
Part 1.1 - Business strategy and IS/IT alignment
• Explain an approach that an organisation may follow to formulate its strategic businessobjectives
• Discuss how information systems may be used to assist in achieving these objectives (thisissue is relevant throughout this text)
• Distinguish between a business strategy and an information systems strategy
• Identify responsibility for the ownership of the IS strategy

1.1 All organisations require information for a range of purposes. These can be categorised asfollows.
• Information for planning
• Information for controlling
• Information for recording transactions
• Information for performance measurement
• Information for decision making

1.2 Planning requires a knowledge of the available resources, possible time-scales and the likelyoutcome under alternative scenarios. Information is required that helps decision making,and how to implement decisions taken.

1.3 Once a plan is implemented, its actual performance must be controlled. Information isrequired to assess whether it is proceeding as planned or whether there is someunexpected deviation from plan. It may consequently be necessary to take some form ofcorrective action.

Recording transactions
1.4 Information about each transaction or event is required. Reasons include:
(a) Documentation of transactions can be used as evidence in a case of dispute.
(b) There may be a legal requirement to record transactions, for example for accountingand audit purposes.
(c) Operational information can be built up, allowing control action to be taken.

Performance measurement
1.5 Just as individual operations need to be controlled, so overall performance must bemeasured. Comparisons against budget or plan are able to be made. This may involve thecollection of information on, for example, costs, revenues, volumes, time-scale andprofitability.

Decision making
1.6 Strategic planning, management control and operational control may be seen as a hierarchyof planning and control decisions. (This is sometimes called the Anthony hierarchy, afterthe writer Robert Anthony.)predicted
1.7 Strategic planning is a complex process which involves taking a view of the organisationand the future that it is likely to encounter, and then attempting to organise the structureand resources of the organisation accordingly.

Strategic information
1.8 Strategic information is used to plan the objectives of the organisation, and to assesswhether the objectives are being met in practice. Such information includes overallprofitability, the profitability of different segments of the business, future market prospects,the availability and cost of raising new funds, total cash needs, total manning levels andcapital equipment needs.

1.9 Strategic information is:
• Derived from both internal and external sources
• Summarised at a high level
• Relevant to the long term
• Concerned with the whole organisation
• Often prepared on an 'ad hoc' basis
• Both quantitative and qualitative
• Uncertain, requiring assumptions to be made regarding the future

Tactical information
1.10 Tactical information is used to decide how the resources of the business should beemployed, and to monitor how they are being and have been employed. Such informationincludes productivity measurements (output per hour) budgetary control or varianceanalysis reports, and cash flow forecasts, staffing levels and profit results within a particulardepartment of the organisation, labour turnover statistics within a department andshort-term purchasing requirements.

1.11 Tactical information is:
• Primarily generated internally (but may have a limited external component)
• Summarised at a relatively low level
• Relevant to the short- and medium-terms
• Concerned with activities or departments
• Prepared routinely and regularly
• Based on quantitative measures

Operational information
1.12 Operational information is used to ensure that specific operational tasks are planned andcarried out as intended.

1.13 In a payroll office, for example, operational information would include the hours worked byeach employee and the rate of pay per hour.

1.14 Operational information is:
• Derived from internal sources
• Detailed, being the processing of raw data
• Relevant to the immediate term
• Task-specific
• Prepared very frequently
• Largely quantitative

The qualities of good information
1.15 'Good' information is information that adds to the understanding of a situation. Thequalities of good information are outlined in the following table.

Quality Example
A ccurate
Figures should add up, the degree of rounding should beappropriate, there should be no typos, items should be allocatedto the correct category, assumptions should be stated foruncertain information.

C omplete
Information should include everything that it needs to include,for example external data if relevant, or comparative information.

C ost-beneficial
U ser-targeted
It should not cost more to obtain the information than the benefitderived from having it. Providers or information should be givenefficient means of collecting and analysing it. Presentation shouldbe such that users do not waste time working out what it means.
The needs of the user should be borne in mind, for instancesenior managers need summaries, junior ones need detail.
R elevant
Information that is not needed for a decision should be omitted,no matter how 'interesting' it may be.

A uthoritative
The source of the information should be a reliable one (not, forinstance, 'Joe Bloggs Predictions Page' on the Internet unless JoeBloggs is known to be a reliable source for that type ofinformation).
T imely
The information should be available when it is needed.
E asy to use Information should be clearly presented, not excessively long,and sent using the right medium and communication channel (e-____ ______ mail, telephone, hard-copy report etc).

Improvements to information
1.16 The table on the following page contains suggestions as to how poor information can beimproved.

Feature Example of possible improvements
Accurate Use computerised systems with automatic input checks rather than manualsystems.
Allow sufficient time for collation and analysis of data if pinpoint accuracyis crucial.
Incorporate elements of probability within projections so that the requiredresponse to different future scenarios can be assessed.
Complete Include past data as a reference point for future projections.Include any planned developments, such as new products.
Information about future demand would be more useful than informationabout past demand.
Include external data.
Cost- Always bear in mind whether the benefit of having the information isbeneficial greater than the cost of obtaining it.
User-targeted Information should be summarised and presented together with relevantratios or percentages.
Relevant The purpose of the report should be defined. It may be trying to fulfil toomany purposes at once. Perhaps several shorter reports would be moreeffective.
Information should include exception reporting, where only those itemsthat are worthy of note - and the control actions taken by more juniormanagers to deal with them - are reported.
Authoritative Use reliable sources and experienced personnel.
If some figures are derived from other figures the method of derivationshould be explained.
Timely Information collection and analysis by production managers needs to bespeeded up considerably, probably by the introduction of betterinformation systems.
Easy-to-use Graphical presentation, allowing trends to be quickly assimilated andrelevant action decided upon.
Alternative methods of presentation should be considered, such as graphsor charts, to make it easier to review the information at a glance. Numericalinformation is sometimes best summarised in narrative form or vice versa.
A 'house style' for reports should be devised and adhered to by all. Thiswould cover such matters as number of decimal places to use, tableheadings and labels, paragraph numbering and so on.

The relationship between corporate, business and operational strategies is shown in thefollowing diagram.


Functional/operational strategies; information systems strategy
2.2 Information systems strategy is an example of a functional/operational strategy (althoughin some cases it may have strategic implications). Functional/operational strategies dealwith specialised areas of activity.
Functional area Comment
Information systems A firm's information systems are becoming increasingly important, as an item of expenditure, as administrative support and as a tool forcompetitive strength.
Marketing Devising products and services, pricing, promoting and distributing them, in order to satisfy customer needs at a profit.
Production Factory location, manufacturing techniques, outsourcing etc.
Finance Ensuring that the firm has enough financial resources to fund itsother strategies.
Human Secure personnel of the right skills in the right quantity at the rightresources time.
R&D New products and techniques.

Information systems and business strategy
2.3 It is widely accepted that an organisation's information system should support corporateand business strategy. In some circumstances an information system may have a greaterinfluence and actually help determine strategy. For example:
(a) IS/IT may provide a possible source of competitive advantage. This could involve newtechnology not yet available to others or simply using existing technology in a differentway.
(b) The information system may help in formulating business strategy by providinginformation from internal and external sources.
(c) Developments in IT may provide new channels for distributing and collectinginformation, and /or for conducting transactions eg the Internet.
Accountants and IT managers areseen as scorekeepers andadministrators rather than as abusiness partner during thestrategic planning process

Change from cost-orientated to Imarket-orientated ie development \of more effective strategic planningsystems

3.1 A company that has a vision of its own future, and some idea of how information
technology can be used to turn that vision into reality, may be able to use new technologiesfor strategic advantage.

3.2 One approach to creating a vision is to adopt a familiar three step approach, involvinganswering three questions about the organisation.

• Where are we now?
• Where do we want to be?
• How will we get there?

3.3 The first question can be answered using standard techniques such as a strengthsweaknesses, opportunities, threats (SWQT) analysis. This approach ensures that bothinternal and external factors are considered. We cover SWOT analysis in the context ofinformation systems development in Chapter 6.

3.4 Answering the second question requires vision. This does not have to be a continuation in
the organisation's current direction. It must be challenging, attainable and communicatedto those who will implement it.

3.5 Once this has been done, the strategy (in answer to the third question) can be defined.

3.6 A second approach takes the view that insiders are too tied to 'the way we do things now'and recommends the involvement of outsiders. An outsider may be able to more readilyanticipate dramatic shifts which might occur in the future. Additionally, an outsider doesnot have the insider's investment in maintaining the status quo.

Information systems, strategy and competitive advantage
3.7 It is now recognised that information can be used as a source of competitive advantage. Therealisation that information (and therefore information systems and informationtechnology) may be a source of competitive advantage and be key to achievingorganisational goals, has led to increased emphasis on the importance of formalmanagement strategies and plans for information and information systems.

3.8 A strategy is needed for areas in which decisions have the potential to have a major impacton an organisation. Many organisations have recognised the importance of information anddeveloped an information strategy, covering both IS and IT.

3.9 In commercial organisations it could be argued that one of the main aims of any strategy iscompetitive advantage - as success ultimately depends upon doing something better thancompetitors do. Business objectives, if achieved, should result in competitive advantage inone or more areas. This process is contributed to by ensuring the organisation's strategy forinformation and information systems is tied to business objectives.
(a) The corporate strategy is used to plan functional business plans which provideguidelines for information-based activities.
(b) On a year by year basis, the annual plan would try to tie in business plans withinformation systems projects, perhaps through a steering committee.

Information systems strategy
3.10 An IS strategy therefore deals with the integration of an organisation's informationrequirements and information systems planning with its long-term overall goals (customerservice etc). IS strategy is formulated at the level of business where specific customer needsetc can be delineated. It deals with what applications should be developed, and whereresources should be deployed.

3.11 The information technology (IT) strategy leads on from the IS strategy above. It dealswith the technologies of:
• Computing
• Communications
• Data
• Application systems

3.12 This provides a framework for the analysis and design of the technological infrastructureof an organisation. This strategy indicates how the information systems strategies that relyon technology will be implemented.
Why have an IS/IT strategy?

3.13 A strategy for information systems and information technology is justified on the groundsthat IS/IT:
• Involves high costs
• Is critical to the success of many organisations
• May be utilised as part of the commercial strategy in the battle for competitiveadvantage
• Can significantly change the business environment
• Affects all levels of management
• Affects the way management information is created and presented
• Requires effective management to obtain the maximum benefit
• Involves many stakeholders inside and outside the organisation

IS/IT is a high cost activity
3.14 Many organisations invest large amounts of money in IS, but not always wisely.

3.15 The unmanaged proliferation of IT is likely to lead to expensive mistakes. Two key benefitsof IT - the ability to share information and the avoidance of duplication - are likely to belost.

3.16 All IT expenditure should therefore require approval to ensure that it enhances rather thandetracts from the overall information management strategy.

IS/IT is critical to the success of many organisations
3.17 When developing an IS/IT strategy a firm should assess how important IT is in theprovision of products and services. The role that IT fills in an organisation will varydepending on the type of organisations. IS/IT could be:
• A support activity
• A key operational activity
• Potentially very important
• A strategic activity (without IT the firm could not function at all)
• A source of competitive advantage

IT can significantly change the business environment
3.18 IT is an enabling technology, and can produce dramatic changes in individual businessesand whole industries. For example, the deregulation of US airline system encouraged thegrowth of computerised seat-reservation systems (eg SABRE, as used by American Airlineswhich always displayed American Airlines flights preferentially). IT can be both a cause ofmajor changes in doing business and a response to them.

IT affects all levels of management
3.19 IT has become a routine a feature of office life, a facility for everyone to use. IT is nolonger used solely by specialist staff.

IT and its effect on management information
3.20 The use of IT has permitted the design of a range of Management Information Systems(MIS). Executive Information Systems (EIS), Decision Support Systems (DSS), and expertsystems can be used to enhance the flexibility and depth of MIS. (We look at different typesof information system in Chapter 2.)

3.21 IT has also had an effect on production processes. For example. Computer IntegratedManufacturing (CIM) changed the methods and cost profiles of many manufacturingprocesses. The techniques used to measure and record costs have also adapted to the use ofIT.

IT and stakeholders
3.22 Parties interested in an organisation's use of IT are as follows.
(a) Other business users - for example to facilitate Electronic Data Interchange (EDI).
(b) Governments - eg telecommunications regulation, regulation of electronic commerce.
(c) IT manufacturers looking for new markets and product development. User-groupsmay be able to influence software producers.
(d) Consumers - for example as reassurance that product quality is high, consumers mayalso be interested if information is provided via the Internet.
(e) Employees - as IT affects work practices.

3.25 An IS strategy therefore deals with the integration of an organisation's informationrequirements and information systems planning with its long-term overall goals (customerservice etc). IS strategy deals with what applications should be developed and whereresources should be deployed.

3.26 The information technology (IT) strategy leads on from the IS strategy above. It dealswith the technologies of:
• Computing
• Communications
• Data
• Application systems

3.27 This provides a framework for the analysis and design of the technological infrastructureof an organisation. This strategy indicates how the information systems strategies that relyon technology will be implemented.

Establishing organisational information requirements
3.28 The identification of organisational information needs and the information systemsframework to satisfy them is at the heart of a strategy for information systems andinformation technology.

3.29 The IS and IT strategies should complement the overall strategy for the organisation. Itfollows therefore that the IS/IT strategy should be considered whenever the organisationprepares other long-term strategies such as marketing or production.

Earl's three leg analysis
3.30 The writer Earl devised a method for the development of IS strategies. His methodidentified three legs of IS strategy development:
• Business led (top down emphasis, focuses on business plans and goals)
• Infrastructure led (bottom up emphasis, focuses on current systems)
• Mixed (inside out emphasis, focuses on IT/IS opportunities)

4.1 The use of critical success factors (CSFs) can help to determine the informationrequirements of an organisation. CSFs are operational goals. If operational goals areachieved the organisation should be successful.

4.2 The CSF approach is sometimes referred to as the strategic analysis approach. Thephilosophy behind this approach is that managers should focus on a small number ofobjectives, and information systems should be focussed on providing information to enablemanagers to monitor these objectives.

4.3 Two separate types of critical success factor can be identified. A monitoring CSF is used tokeep abreast of existing activities and operations. A building CSF helps to measure theprogress of new initiatives and is more likely to be relevant at senior executive level.
• Monitoring CSFs are important for maintaining business
• Building CSFs are important for expanding business

4.4 One approach to determining the factors which are critical to success in performing afunction or making a decision is as follows.
• List the organisation's objectives and goals
• Determine which factors are critical for accomplishing the objectives
• Determine a small number of key performance indicators for each factor

4.5 The determination of key performance indicators for each of these CSFs is not necessarilystraightforward. Some measures might use factual, verifiable data, while others might makeuse of'softer' concepts, such as opinions, perceptions and hunches.

4.6 For example, the reliability of stock records can be measured by means of physical stockcounts, either at discrete intervals or on a rolling basis. Forecasting of demand variationswill be much harder to measure.

4.7 Where measures use quantitative data, performance can be measured in a number of ways.
• In physical quantities, for example units produced or units sold
• In money terms, for example profit, cevenues, costs or variances
• In ratios and percentages

4.8 In general terms Rockart identifies four sources of CSFs.
(a) The industry that the business is in.
(b) The company itself and its situation within the industry.
(c) The environment, for example consumer trends, the economy, and political factors ofthe country in which the company operates.
(d) Temporal organisational factors, which are areas of corporate activity which arecausing concern, for example, high stock levels.

4.9 More specifically, possible internal and external data sources for CSFs include thefollowing.
(a) The existing system. The existing system can be used to generate reports showingfailures to meet CSFs.
(b) Customer service department. This department will maintain details of complaints,refunds and queries.
(c) Customers. A survey of customers, provided that it is properly designed andintroduced, would reveal (or confirm) those areas where satisfaction is high or low.
(d) Competitors. Competitors' operations, pricing structures and publicity should beclosely monitored.
(e) Accounting system. The profitability of various aspects of the operation would be akey factor in any review ofCSFs.
(f) Consultants. A specialist consultancy might be able to perform a detailed review of theorganisation to identify CSFs.

An organisation has an objective to maintain a high level of service direct from stockwithout holding uneconomic stock levels. This is quantified in the form of a goal, whichmight be to ensure that 95% of orders for goods can be satisfied directly from stock, whileminimising total stockholding costs and stock levels. CSFs and KPIs might then beidentified as the following.
Supplier performance Average order lead time
Stock records reliability Number of discrepancies found
Accurate demand forecasting Difference between forecast and actual demand
CSF approach: strengths and weaknesses4.12
CSF approach - strengths Comment
Takes into accountenvironmental changes
The CSF approach requires managers to examine theenvironment and consider how it influences theirinformation requirements.
Focuses on information
The approach doesn't just aim to establish organisationalobjectives. It also looks at the information and informationsystems required to establish and monitor progress towardsthese objectives.
Facilitates top managementparticipation in systemdevelopment
The clear link between information requirements andindividual and organisational objectives encourages topmanagement involvement in system (DSS, EIS) design.

CSF approach - weaknesses Comment
Aggregation of individualCSFs
Wide-ranging individual CSFs need to be aggregated into aclear organisational plan. This process relies heavily onjudgement. Managers who feel their input has beenneglected may be alienated.
Bias towards topmanagement
CSFs change often
When gathering information to establish CSFs it is usuallytop management who are interviewed. These managersmay lack knowledge of operational activities.
The business environment, managers and informationsystems technology are subject to constant change. CSFsand systems must be updated to account for change.

Chapter roundup Summary
• Organisations require information for a variety of purposes including
· Planning
· Controlling
· Recording transactions
· Measuring performance
· Decision making
• A strategy is a general statement of long-term objectives and goals and the ways by whichthese will be achieved. Strategic planning is the formulation, evaluation and selection ofstrategies for the purpose of preparing a long-term plan of action to attain objectives.
• Information systems and Information Technology (IS/IT) strategy refers to the long-term planconcerned with exploiting IS and IT either to support business strategies or create newstrategic options.
• IS/IT strategy is an example of a functional/operational strategy, but may have strategicimplications.
• A strategy is needed for IS/IT because these areas involve high costs, are critical to thesuccess of many organisations, can be used as a strategic weapon and affects internal andexternal stakeholders.
• IS/IT are sufficiently important and widespread to require proper planning and managementattention.
• IT developments have increased the amount of information available to organisations. It isimportant to ensure information is useful - that it is of good quality.
• Developing strategy involves taking a number of steps, from setting strategic objectives rightthrough to evaluating actual performance. Three basic issues are the organisation's overallbusiness objectives and in consequence its IS/IT needs, the organisation's current ITusage and the potential opportunities that IT can bring.
• Critical success factors are a small number of key operational goods vital to the success ofan organisation.



Post a Comment

Click here for Myspace Layouts