Chapter 2: Systems Integration (PDF)

# Enterprise Systems for Management - Chapter 2: Systems Integration ## Learning Objectives - Understand the impact of organizational structure on information systems. - Find out about the types of functional silos in organizations. - Learn about the evolution of information systems technology gen...

# Enterprise Systems for Management - Chapter 2: Systems Integration ## Learning Objectives - Understand the impact of organizational structure on information systems. - Find out about the types of functional silos in organizations. - Learn about the evolution of information systems technology generations and architectures and its influence on silo environments. - Know what systems integration is and why it is important for organizations. - Understand the role of Enterprise Resource Planning (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 longer time, errors and inaccurate. - Without system integration, Information sharing cannot happen in real time between the various organization stakeholders. E.g. warehouse employees do 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 alone with less or no interaction with other departments 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 departments** and also involve people in those departments. ### Diagram: Functional Silos The diagram depicts a simple organization structure divided by its business functions represented by three rectangular boxes: 1. Sales department which focuses on "Find customer". 2. Distribution department which focuses on "Deliver product". 3. Finance department which focuses on "Collect revenue". All three boxes are under a top rectangular box labeled "Management", representing the management of the organization. A bottom rectangular box labeled "Selling Process" connects all three boxes, indicating that all three departments are involved and interconnected in the "Selling Process", implying that the customer journey involves all of these departments in a coordinated fashion. ## 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 workflow of material, information and knowledge (set of activities). - Ways in which organizations coordinate work, information and knowledge, and the ways in which management chooses to coordinate work. - Every business can be seen as a collection of business processes. - Many business processes are tied to a specific functional area. - For example **sales and marketing** area function would be responsible for identifying customers, and **human resources** function would be responsible for hiring employees. - 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** pulls the product from inventory and finally product needs to be shipped. - **Can you provide other examples?** - Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales, accounting, and manufacturing functions. - The diagram highlights that a customer order journey passes through various departments: - **Sales**: Generate an order. - **Accounting**: Check and approve the order. - **Manufacturing and Production**: Assemble and ship the order. ## Functional Silos - Silos (tower of protecting products) are basically compartmentalized operating units isolated from their environment. - Why have **Information Systems** and organizations evolved into functional silos? - To understand the reason, we first need to look at the horizontal evolution of modern organizations and the system supporting their information requirements. ### Horizontal Silos - **The functional model POSDCORB** (Planning, Organizing, Staffing, Directing, Coordinating, Reporting and Budgeting) categorization proposed by Luther Gulick led to a set of formal organization functions such as **control, management, supervision and administation** starting in late 1930s. - Classification of organizations into departments like **Accounting** and **Human Resources** reflects the breaking of **complex tasks** into **smaller manageable tasks** that could be assigned to a group of people who could then be held responsible. ### Diagram: Functional Model of organization (POSDCORB) The diagram depicts a rectangular box labeled "Organization" divided into 8 cells, each representing a different management function, starting from left to right: - Planning - Organizing - Staffing - Directing - Coordinating - Reporting - Budgeting ### Vertical Silos - Organizations also divided **roles** in hierarchical (vertical) layers from **strategic planning** to **management control** and **operation control.** - CEOs and Presidents plan **long-term strategy**, midlevel management (e.g. VP, general managers) focuses on tactical issues and on the execution of organizational policy whereas the lower-level management task (e.g. supervisors) is to focus on the **day-to-day operations** 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 manage complexity as well as **specialize in activities** that enhance productivity and efficiency. ### Diagram: Hierarchical Model of Organization The diagram depicts a pyramid structure, with the top layer labeled "Strategic Management", a second layer labeled "Tactical Management" and a third layer labeled "Functional Operations". These three layers, representing different levels of organizational management, are connected to different functional departments located at the bottom of the pyramid: - Suppliers, Business Partners - Supply Chain Management Systems. - Customer Relationship Management Systems. - Knowledge Management Systems. - Sales and Marketing - Manufacturing and Production - Finance and Accounting - Human Resources The word "FUNCTIONAL AREAS" is highlighted at the bottom of the pyramid. ## Business Process and Silos - The problem of **functional silos** gave birth to **business process re-engineering (BPR)** - Organizations are re-oriented their management towards improving the efficiency and effectiveness by focusing on **business processes** such as selling products, product development, order processing, etc. - **Business process** provides an alternative view of grouping people and resources focusing on an organization's activity, 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-functional business process** 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 **functional department to business process.** - This organizational evolution from **functional silos to business processes** and to even **customer centric approaches** has had a big impact on the evolution of information systems. ### Diagram: Matrix Structure of Organisation The diagram depicts a triangular box divided into 3 layers, representing different levels of organizational management : - Strategic Management - Tactical Management - Functional Operations The bottom layer is further divided into 6 cells, each representing a functional department, starting from left to right: - H-R - Accounting - Finance - Marketing - Manufacturing - MIS ## Evolution of Information Systems in Organizations - As business **changes and expands,** the results is sometimes lead to a wide variety of **Information Systems** and computer architectures creating *heterogeneous independent nonintegrated systems (silos).* - These systems **lack control and configurations,** so they become breeding grounds for *inconsistency, inaccurate and incompatible data, and ultimately lead to mismanagement.* - A silo information system is **inefficient, inaccurate, and expensive.** - These systems **cannot share data** therefore require users to access multiple systems to integrate the data manually. - Silos systems focus on individual tasks or functions or both, rather than on **process or team.** - This makes it very difficult for organizations to be **customer-centric** because data cannot be assimilated from different functional areas to address customer needs. - Organizations have been designed around **functions** for a 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 Organizations - Silo environment is **inefficient, inaccurate, and expensive.** - Information is captured and re-entered several times and is not available in real time. - Silo environments **hamper enterprise decision making,** because key information never makes it out of the different pockets of the organization *in time for the decision maker*. - In Silo environment, only selective employees from that department have access to information, customers, partners, and suppliers are dependent on their employees to provide them with answers. ### Diagram: Functional Silos The diagram depicts a desktop computer, representing a user, connected to a network of functional departments, highlighted by circles. - Support - Inventory - Payables - Assets - Quality - Contacts - Orders - Billing - Sales - Service - Field Service - Help Desk - General Ledger - Benefits - Payroll - Travel - Assets - Inventory - Forecasting - Purchasing - Planning - **Example**: UPS package tracking system ## Information Systems Evolution Chart - Over the years, *Information Systems architecture* has evolved through four generations, represented as different eras: - **1940s-1950s**: UNIVAC Computer - **1960s-1970s**: Mainframe Computer with Centralized architecture - **1980s-1990s**: Personal computer with client / server architecture - **2000s - present**: Web services architecture systems - Each era has its unique characteristics, outlined in the following table: | Era | Architecture | Characteristics | |---|---|---| | **1940s-1950s** | Direct-access architecture | No operating system, No remote access, Only scientific computing, No software applications | | **1960s-1970s** | Centralized architecture | Operating system built-in within the hardware, Remote access available from client terminals, Application and data are centralized, Applications designed to function as silos | | **1980s-1990s** | Client / server architecture | Operating system separated from hardware, Application and data are distributed, Processing is shared between smart clients and distributed servers, Applications shared throughout the organization | | **2000s - present** | Web-services architecture | Virtual Machine operating systems, Application, data and services are distributed, Processing is shared and utilized intelligently within grid-computing or P2P application, Applications are shared between clients, suppliers and external partners | ## Information Systems Architectures - Three major types of information systems architecture have been commonly used in organizations: **Centralized, Decentralized, and Distributed Systems Architecture** - **Centralized approach**: Utilizing a mainframe computer (the central computer) to host all application systems and data resources of the organizations. - **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). ### Diagrams The diagram highlights three types of architectural systems, one each representing "CENTRALIZED", "DECENTRALIZED", and "DISTRIBUTED" Systems: **CENTRALIZED**: Depicts a mainframe computer labeled "Server" connected to multiple devices like "PC", "Printer", and "Net Device", via "Modern" (modem) and "File server" (server). **DECENTRALIZED**: Shows a simple network of computers labeled "PC", "PC1", "PC2" connected to a "File Server" via a "Printer" **DISTRIBUTED**: Illustrates two computers labeled "PC" and "PC" respectively, connected to a "File Server" via a "Printer", indicating a distributed network system ## IS Functionalization - In addition to serving the different management levels, IS also supports **major business functions**, such as manufacturing, marketing, accounting, finance, and HR. - Each **functional area** has different **information needs and report requirements.** - Each functional area in an organization also has **multiple levels 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)**: reporting systems that categorize and organize information as required by the midlevel managers. These reports can be **sales by product for a quarterly period.** - **Decision Support Systems (DSS)**: are analytical systems that 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 assist managers in their decision making using **qualitative analysis** that captures problem solving to identify solutions. - **Executive Support System (ESS)**: provide visual **dashboard of strategic information** to top level management in real time (snapshot of the organization performance). These systems are categorized for each functional area of the organization. ### Diagram: Dashboard of Strategic Information The page depicts a dashboard labeled "BUSINESS PERSPECTIVE" with a dropdown menu of different data views "Select View" - "Corporate", "Regional". The dashboard presents different sections with insightful information: **Corporate Revenue**: Depicts a circular gauge filled with a percentage marker, highlighting the revenue in millions of dollars. **Regional Performance**: Displays a trendline graph representing the performance of different regions, starting from "Northeast" to "South". **Category Analysis**: Presents a bar chart representing the analysis of a certain product category, highlighting different profit margin. **Subcategory Analysis**: Displays a table providing data on different subcategories like "Books", "Electronics", "Movies", and "Music", and their respective "Revenue Forecast" and "units sold". ## Integrated Systems - Integrated systems allow companies to accomplish something that has provided most to date: the **linking of demand and supply side functions** in a way that enables a quick and flexible response to changes. ### Logical (Human Level) Integration - Develop information systems that allow organizations to share data with all of its stakeholders based on need and authorization. - It means allowing **access to a shared data resource by people from different functional areas 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 **departmental goals** to **organizational goals** 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 To integrate systems effectively, organizations need to follow a series of key steps, outlined below: - **Silos functional organizations**: - **Step 1**: Resource categorization - Take an inventory of the various hardware and software resources focusing on vendors, operating systems platforms, IS architectures used in these resources. - **Step 2**: Compliance and standards - Check whether the **database** and other technologies used in various applications are such supporting standards as **JDBC/ODBC compliance** for database. - **Step 3**: Legacy systems support - Develop a policy in support of older **legacy applications.** - **Step 4**: Middleware tools - **Middleware tools** are essential for integration in the short term if existing applications must be used by the organization. - **Organizational structure and business processes**: - **Step 5**: Authentication and authorization policies - **Single sign-on policy** for application and data access because all employees and external partners will need **access** to an integrated system from anywhere, anytime. - **Step 6**: Centralized IT services and support - The IT staff needs to be able to support all applications and platforms with a centralized IT help desk support. - **Step 7**: Back-up, recovery, and security - A good **back-up and recovery system** is essential if there is a system failure or a major disaster. - **Step 8**: Hardware and software standardization - Develop organization standards and policy on acquisition of new hardware and software which is aligned with organization IT strategy. ## Benefits and Limitations of Systems Integration - When considering implementing systems integration, organizations need to weigh its potential benefits against its limitations, as highlighted here in the table: - **Benefits**: - Increased Revenue and growth - Leveling the Competitive Environment. - Enhanced Information Visibility. - Increased Standardization. - **Limitations**: - High Initial Set-up Costs - Power and Interdepartmental Conflicts (Due to the sharing of information) - Long-term and Intangible ROI (Usually several years). - Creativity limitations (Restricts Creativity and Independence). ## 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. - An ERP system is a **strategic tool** that helps the organization improve its organization and management by **integrating business processes** 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 **business process** rather than on functions. - ERP systems **come with built-in processes** 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 focus 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 **globally competitive environment**, 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. - **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. - **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 1. What are functional silos and how did they evolve in organizations? 2. what is the relationship between organizational functional silos and IS functional silos? 3. Compare and contrast centralized, decentralized, and distributed IT architectures. Which do you think is most appropriate for ERP and why? 4. List the horizontal and vertical levels of systems that exist in organizations. 5. What is logical integration and how is it different from physical integration? 6. Describe at least five steps involved in system integration. 7. What are the key benefits and limitations of system integration? 8. What is the role of ERP systems in system integration? 9. Summarize the role of management in systems integration.