ORGANIZATIONS AND INFORMATION SYSTEMS

An organizationis 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 shareholder value, often measured by the price of the company stock. Nonprofit organizations include social groups, religious groups, universities, and other organizations that do not have profit as their goal. As discussed in this chapter, the ability of an organization to achieve its goals is often a function of the organization’s overall structure, culture, and ability to change.

An organization is a system, which means that it has inputs, processing mechanisms, outputs, and feedback. An organization constantly uses money, people, materials, machines and other equipment, data, information, and decisions. Resources such as materials, people, and money serve as inputs to the organizational system from the environment, go through a transformation mechanism, and then are produced as outputs to the environment. The outputs from the transformation mechanism are usually goods or services, which are of higher relative value than the inputs alone. Through adding value or worth, organizations attempt to increase performance and achieve their goals. According to one chief information officer (CIO) for a large healthcare company, “As business executives, other than the CEO, CIOs are best positioned to help drive business outcomes … to increase top- and bottom-line performance.”⁵⁰

Information systems support and work within all parts of an organizational process. Although not shown in this simple model, input to the process subsystem can come from internal and external sources. Just prior to entering the subsystem, data is external. After it enters the subsystem, it becomes internal. Likewise, goods and services can be output to either internal or external systems.

Providing value to a stakeholder—customer, supplier, manager, shareholder, or employee—is the primary goal of any organization. The value chain, first described by Michael Porter in a 1985 Harvard Business Review article, reveals how organizations can add value to their products and services. The value chainis a series (chain) of activities that includes inbound logistics, warehouse and storage, production and manufacturing, finished product storage, outbound logistics, marketing and sales, and customer service . You investigate each activity in the chain to determine how to increase the value perceived by a customer. Depending on the customer, value might mean lower price, better service, higher quality, or uniqueness of product. The value comes from the skill, knowledge, time, and energy that the company invests in the product or activity. The value chain is just as important to companies that don’t manufacture products, such as tax preparers, retail stores, legal firms, and other service providers. By adding a significant amount of value to their products and services, companies ensure success.

Combining a value chain with just-in- time (JIT) inventory means companies can deliver materials or parts when they are needed. Ball Aerospace uses JIT to help reduce inventory costs and enhance customer satisfaction.

Managing the supply chain and customer relationships are two key elements of managing the value chain. Supply chain management (SCM) helps determine what supplies are required for the value chain, what quantities are needed to meet customer demand, how the supplies should be processed (manufactured) into finished goods and services, and how the shipment of supplies and products to customers should be scheduled, monitored, and controlled.⁵¹ Companies use a number of approaches to manage their supply chain. Some automotive companies, for example, require that their suppliers locate close to manufacturing plants. Other companies have considered purchasing suppliers to manage their supply chain.⁵² Sysco, a Texas-based food distribution company, uses a sophisticated supply chain management system that incorporates software and databases to prepare and ship over 20 million tons of meats, produce, and other food items to restaurants and other outlets every year.⁵³ The huge company supplies one in three cafeterias, sports stadiums, restaurants, and other food stores.

Customer relationship management (CRM) programs help companies of all sizes manage all aspects of customer encounters, including marketing and advertising, sales, customer service after the sale, and programs to retain loyal customers.⁵⁴ Often, CRM software uses a variety of information sources, including sales from retail stores, surveys, e-mail, and Internet browsing habits, to compile comprehensive customer profiles. CRM systems can also get customer feedback to help design new products and services. To be of most benefit, CRM programs must be tailored for each company or organization. Duke Energy, an energy holding company, uses Convergys (www.convergys.com) to provide CRM software that is specifically configured to help the energy company manage its customer’s use of energy grids and energy services.⁵⁵ Oracle, SalesForce, and other companies develop and sell CRM software.⁵⁶ CRM software can also be purchased as a service and delivered over the Internet instead of being installed on corporate computers.

LEXERCISES TO TEXT 8.

1. Write out from the text the phrases that contain words value, customer, profit, activity.