4.1 Organizations

An organization is a formal collection of people and other resources established to
accomplish a set of goals. The primary goal of a for-profit organization is to maximize
profits by increasing revenues while reducing costs. Nonprofit organizations or public
bodies include social groups, religious groups, universities, and other organizations that
do not have profit as the primary goal. The income of these organizations may not be
generated by the services provided. Income is probably indirect, through donation or
taxation, and the organization’s costs must be contained within the funds available. It
may not compete for customers but it does compete for available resources.

As explained in Chapter 1, an organization is a system. It has a goal, components,
inputs, processing and outputs. It can be analyzed to identify system boundaries and
environment in which they operate. Money, people, materials, machines and equipment,
data, information, and decisions are constantly in use in any organization. A general
model of an organization is illustrated in Figure 4.1, which shows that resources such as
material, people, and money input to the organizational system from the environment, go
through a transformation process and are output to the environment. The outputs from
the transformation process are usually goods or services. Although not shown in the
figure, input to the subsystem can come from internal and external sources, and output
from the subsystem can go to either internal or external systems.



The values of the goods or services produced by the organization are relatively higher
than the inputs alone. Within the transformation process contains various processes that
help turn inputs into goods or services of increasing value. These value-added
processes increase the relative value of the inputs on their way to becoming final outputs
of the organization. For example, consider a simple self-service car wash system. The
primary purpose of the car wash system is to clean automobile. The inputs to the system
are the dirty car, soap and water, and the instructions to the operator. The desired out of
the system is a clean and dry car. The first value-added process might be identified as
washing the car. A clean but wet car is worth more than the mere collection of soap and
water (messed car). The second value-added process is drying, which transform the wet
car into dry one. The value comes from the skill, knowledge, time and energy invested by
the organization. By adding a significant amount of value to their product and services,
organizations will achieve their goals.

All business organizations contain a number of processes. Providing value to a
customer, supplier, manager or employee is the primary goal of any organization. The
value chain concept developed by Michael Porter is a concept that shows how
organizations can add value to their products and services. The original value chain
model was based primarily on manufacturing business, but its structure can be applied to
most other types of business. The value chain views the organization as a chain of
business activities. Some business activities are primary processes and others are
support processes.

Primary processes include the following.

1. Inbound logistic: Obtaining, receiving, storing and provisioning key inputs and
resources required by the central operations of the business. This can include
recruiting staff, buying materials and services, and dealing with subcontractors.

2. Operations: Transforming inputs of all types into the products or services to meet
customer requirements. This involves bringing together the requisite materials,
resources and assets to produce the right quantity of products or services – for
instance in a university, delivering the courses in the prospectus and examining the
students.

3. Outbound logistic: Distributing the products or services to the place of sale, or to
customers directly, using channels of distribution by which the customer can obtain
the product or service and pay for it.

4. Sales and marketing: Making customers and consumers aware of the product or
service, and how they can obtain it; promoting the products in a way that the
customers are persuaded the product satisfies a need at an appropriate price.

5. Services: Adding additional value for the customer at the time of sale or afterwards;
for example by means of financial services, user training and warranty claims
processing.

Support processes include technology development, administrative support services,
human resources management and procurement of resources.

While these activities fulfill the value adding role of a business unit as seen in its
industrial context by its suppliers and customers, they must each be optimized
individually and the whole linked together if the best overall performance is to be
achieved. Depending on the customer perception, value may mean lower price, better
service, higher quality or uniqueness of product.

Supply chain and customer relationship management are two key aspects of managing
the value chain. Supply chain management (SCM) is the overall system of coordinating
closely with suppliers so that both the organization and its suppliers reap the benefits of
smaller inventories, smoother production and less waste. It helps determine what
supplies are required, what quantities are needed to meet customer demand, how the
supplies are to be processed (manufactured) into finished goods and services, and how
the shipment of supplies and products to customers is to be scheduled, monitored, and
controlled. For an automobile company, for example, SCM is responsible for identifying
key supplies and parts, negotiating with supply and parts companies for the best prices
and support, making sure that all supplies and parts are available when they are needed
to manufacture cars and trucks, and sending finished products to dealerships around the
country when and where they are needed.

Customer relationship management (CRM) programs help an organization manage all
aspects of customer encounters including marketing and advertising, sales, customer
service after the sale, and programs to help keep and retain loyal customers. An
important part of CRM is the collection of data from customer interactions such as
service calls, call center responses, sales transactions, and Web-site activity. Analyzing
these types of customer relationship data potentially helps in identifying patterns that are
useful in crafting marketing campaigns and building targeted sales pitches. It also
potentially helps in figuring out how to serve different groups of customers more
effectively and profitably.

What role does information play in these processes? From an information systems
perspective, the internal value chain is a valuable way of identifying where better
information and systems are needed, especially to show where integration through
systems could provide potential advantages over competitors (or reduce current
disadvantages).

A logical approach to identifying how an information system can improve
the business is:

1. Improving relationships with customers and suppliers in all aspects of their interface
with the organization.

2. Improving the critical information flows through the activities in the value chain,
namely removing bottle necks and delays, ensuring the accuracy and consistency of
information used.

3. Improving the systems within each activity in the value chain to achieve local
improvements in efficiency etc.

An information system can turn feedback from subsystems into more meaningful
information for employees’ use within an organization. This information might summarize
the performance of the systems and be used to change the way that the system
operates. Such changes could involve using different raw materials (inputs), designing
new assembly-line procedures (product transformation) or developing new products and
services (outputs). In this view, the information system plays an important role externally
through controlling and monitoring processes in ensuring effectiveness and efficiency of
the organization.

More importantly, information systems are best considered to be a part of the process
itself. From this perspective, the information system is internal and plays an integral role
in the process, whether providing input, supporting product transformation or producing
output. An example might be an information system that helps a farmer by collecting and
displaying information about soil condition in different parts of the farm. The main work
that is going on involves planting and tending to crops. The information system helps
with decisions that are important, but bulk of work involves physical activities rather than
information processing. In this situation, the information system is small, dedicated
component of the system. In other situation, the information system may significantly
overlap with the overall work of the system. An example is the process of granting and
monitoring loans in a bank’s student loan program. This process is information intensive
because it is mostly about processing information such as identification, qualifications,
references, payments and balance due. The information system itself is an integral part
of this process. It does not just monitor the process externally but works as a part of the
process to transform raw data into a product. This view of information system brings with
it a new perspective on how and why information systems can be used in business.
Rather than searching to understanding the value-added processes independently of
information system, the potential role of information system is considered within the
process itself. This will often lead to the discovery of new and better ways to accomplish
the process. Thus, the way an organization views the role of information system will
influence the ways it accomplishes its value-added processes.

4.1.1 Organization Structure

Organizational structure refers to organizational subunits and the way they relate to the
overall organization. An organization’s structure can affect how information systems are
viewed and used. Depending on the goals of the organization and its approach to
management, a number of structures can be used: i.e. hierarchical, project, team and
matrix.



In the hierarchical organizational structure, the hierarchy of decision making and
authority from the strategic management to non-management employees is shown in
Figure 4.2. The strategic level, including the president of the company and vice
president, has a higher degree of decision authority, more impact of corporate goals and
more unique problems to solve. In most cases, major department heads report to a
president or top-level manager. As shown in Figure 4.3, the major departments can
include marketing, manufacturing, human resource, information systems, finance,
planning and so on. Manufacturing and marketing supervisors report to vice presidents
of manufacturing and marketing respectively. Other positions may not be directly
involved with the formal chain of command but may assist a department or functional
area. For example, legal counsel reports to the president.



The trend, today, is to reduce the number of management levels in the hierarchy of
organizational structure. This can be achieved by empowering employees at lower levels
to make decisions and solve problems without needing permission from midlevel
managers. Information systems play an important role in empowering employees. They
can directly provide required information to employees at lower levels of the hierarchy or
the employees may develop or use their own personnel information systems.

The project organizational structure is focused around major products or services.
Traditional functions are positioned within the major products. For example, in an
aerospace firm that produces numerous types of aircrafts and satellites, each type is
produced by a separate unit. Traditional functions such as marketing, finance and
manufacturing are positioned within these major units (see Figure 4.4). When the project
is finished, the members may move to another project.



The team organizational structure is focused around work teams or groups, which may
be small or large. Each team has a leader who reports to a higher-level manager in the
organization. The team can be either temporary or permanent depending on the type of
work being performed.

A matrix or multidimensional organizational structure may have several structures at
the same time. For example, an organization may have both traditional functional areas
and major project units. A major disadvantage here is multiple lines of authority.
Employees in each group may have two bosses – a project leader and a head of a
functional area.

4.1.2 Organizational Culture

Discussions of systems often focus on formal procedures for performing tasks, but the
organization’s culture is often just as important as the system’s official rationale in
determining system’s success. Organizational culture is the shared understanding
about relationships and work practices that determine how things are done in a business,
cooperation or an organization. The understanding, which can include common beliefs,
values and approaches to decision making, are often not written as goals or formal
policies. But culture is subtle because it shows rules and practices that govern the way
people behave.

Organizational culture can significantly affect the development and operation of
information systems within an organization. A design of an information system might
conflict with an informal procedural rule that is part of organizational culture. A decision
maker’s view of the factors and priorities that must be considered in setting objectives
might also be influenced by the organizational culture.

4.1.3 The Effect of Culture to Organizational Change

Organizational change deals with how organizations plan for, implement and handle
change. Change can be caused by internal activities initiated by employees at all levels
or external activities formed by competitors, stockholders, government laws, community
regulations, natural occurrences and general economic conditions.

It is simply difficult to change the way an organization operates. Any particular change
that has positive consequences in some areas may have negative consequences in
other areas. For example, new efficiencies may mean that fewer employees are needed
or that hard-learned skills are no longer important. Differences of opinion and
uncertainties about the positive and negative impacts of proposed changes often
contribute to the tendency to continue doing things in the same way and therefore to
resist change. This resistance applies to any Organization when Information systems are
introduced initially.. Therefore overcoming resistance to change can be the hardest part
of bringing information systems into a business. Just changing an information system
may not have much impact unless other things are changed, such as the way work is
organized and the incentives that are established for the participants. When a company
introduces a new information system, a few members of the organization must become
agents of change. They can overcome resistance by understanding the organizational
change so that the new system can be used to maximum efficiency and effectiveness.