Lecture Notes on Functional Area Information Systems

Business firms traditionally have been organized in terms of the functions they are
performing. Almost all types of business organizations have accounting, marketing,
finance, and human resources functions. Organizations that produce tangible products
also have manufacturing function. Information systems can also be classified from a
functional perspective. Functional information systems are information systems that are
tailored to meet the information needs of the major functional areas of the organization.
In other words, information systems can be organized functionally based on the
functional physical systems of the organization.

1. Accounting Information System

The accounting function is responsible for maintaining and managing the firm's financial
records--receipts, disbursements, depreciation, payroll--to account for the flow of funds
in a firm. An accounting information system performs the organization's accounting
applications. These applications are characterized by a high volume of data processing.
More specifically, an accounting information system performs data processing tasks,
including data gathering, data manipulation, data storage, data dissemination, and
document preparation. An accounting information system gathers data describing the
organization's activities, maintains a detailed financial record of the organization's
operations, transforms the data into information, and makes the information available to
users both inside and outside the organization. The accounting information system
processes order entry, inventory, billing, accounts receivable, purchasing, receiving, and
accounts payable for business transactions. Accounting information systems contribute to
problem solving by producing standard management reports (balance sheet, income
statement, etc.) that summarize the firm's financial conditions and by providing the
database that is used by other information systems.

2. Manufacturing Information System

The manufacturing function is responsible for actually producing the firm's goods and
services. A manufacturing information system provides information concerning the
production operations. It deals with the planning, development, and maintenance of
production facilities; the establishment of production goals; the acquisition, storage, and
availability of production materials; and the scheduling of equipment, facilities,
materials, and labor required to fashion finished products. The output from the
manufacturing information system is used both in the creation and in the operation of the
physical production system.

The major input source of the manufacturing information system is the accounting
information system that provides internal data describing the manufacturing operation
and environmental data describing the transactions with suppliers. The manufacturing
information system also contains information concerning production standards provided
by industrial engineers. The industrial engineer's work involves studying the
manufacturing operation and setting up standards for the production processes.

The information from the manufacturing information system is used by the executives
and managers in the manufacturing area and other areas. The manufacturing information
system consists of four output subsystems that measure separate dimensions of the
production process. The production subsystem measures the production process in
terms of time -- tracking the workflow from one step to the next. Management uses the
production subsystem to operate existing production facilities and built new facilities.
The inventory subsystem measures the volume of the production process as the
inventory is transformed from raw materials into work-in-process and finally into
finished goods. This subsystem facilitates the two important decisions of when to place
an order and of how much to order. The quality subsystem measures the quality of the
materials as they are transformed. Management applies the fundamentals of total quality
management in the quality subsystem to achieve the high quality that is necessary to meet
international competition. The cost subsystem measures the costs that are incurred in the
production process. This subsystem assists management to achieve competitive
advantage by providing information that enables the firm to keep production costs low.
 3. Sales and Marketing Information System

The sales and marketing function is responsible for selling the organization's products
and services. Marketing is concerned with identifying the customers for the firm's
products and services, determining what they need or want, planning and developing
products and services to meet their needs, and advertising and promoting these products
and services. Sales is concerned with contracting customers, selling the products and
services, taking orders, and following up on sales. Marketing managers develop
marketing strategies to market the firm's goods, services, and ideas. Marketing strategies
consist of a mixture of ingredients called marketing mix: product, promotion, place, and
price.

A Sales and marketing information system is a computer-based system that works in

conjunction with other functional information systems to support the firm's management
in solving problems that relate to the marketing mix. The input sources of marketing
information system include the accounting information system and marketing research.
The accounting information system provides sales order data. Marketing research utilizes
a variety of data collecting techniques -- surveys, in-depth interviews, observations, and
controlled experiments. Many marketing information systems contain intelligence-
gathering capability to gather data online and communications capability to facilitate both
feed-forward and feedback information. Sales and marketing information systems
provide management with information about the firm's products, distribution network,
advertising, personal selling activities, and pricing. They also assist management to make
marketing-mix-related decisions through forecasting programs, mathematical
simulations, and expert systems.

The sales and marketing information systems can be used in a number of ways. At the
strategic level, the systems monitor trends affecting new product development and sales
opportunities, support planning for new products and services, and monitor the
performance of competitors. At the management level, the systems support market
research, advertising and promotional campaigns, and pricing decisions. They analyze
sales performance and the performance of the sales staff. At the operational level, the
systems assist in locating and contacting prospective customers, tracking sales,
processing orders, and providing customer service support.

4. Financial Information System

Every day, managers throughout an organization use financial information. The finance
function is responsible for managing the firm's financial assets, such as cash, stocks,
bonds, and other investments in order to maximize the return on these financial assets.
The finance function is also in charge of managing the capitalization of the firm (finding
new financial assets in stocks, bonds, or other forms of debt). In order to determine
whether the firm is getting the best return on its investments, the finance function must
obtain a considerable amount of information from sources external to the firm.

A financial information system is designed to provide information to people both inside

and outside the organization concerning the financial matters of the organization.
Information is provided in the form of periodic reports, special reports, results of
mathematical simulations, electronic communications, and the advice of expert systems.
The core input source of the financial information system is the accounting information
system, which provides detailed data concerning everything of a monetary nature that
happens to the organization.

The financial information system, using both quantitative and non quantitative
forecasting techniques, provides the basis for short- and long-term financial planning.
The funds management uses the system to manage the cash flow as it occurs, seeking to
keep it balanced and positive. An organization's outgoing cash flow is influenced by the
operating budget. Managers throughout the organization use the budget as a control
mechanism. The financial information systems produces the budget reports to advise
managers on how well they are performing compared to their budgets. The system also
provides the financial ratios to allow managers to compare their business units'
performance with standards established by the firm, the industry, and business in general.

People outside the organization also have an interest in the organization's financial
matters. The stockholders, members of the financial community, the government, and
suppliers require information describing the organization's financial condition. Also,
much financial information is directed to groups and organizations that are not directly
associated with the organization security analysts, educators, economists, and potential
investors.

5. Human Resources Information System

All larger organizations have a human resources function that handles tasks concerning
the personnel administration activities such as manpower planning, recruitment, transfer,
promotion, disciplinary action, etc. The human resources function is responsible for
attracting, developing, and maintaining the firm's work force. The human resources
information system helps managers manage human resource of the organization --
identifying potential employees, recruiting and hiring, maintaining complete records on
existing employees, creating programs to develop employee's talents and skills,
termination, and benefit administration.

Strategic-level human resources systems identify the manpower requirements (skills,

educational level, types of positions, number of positions, and cost) for meeting the firm's
long-term business plans. At the management level, human resources systems help
managers monitor and analyze the recruitment, allocation, and compensation of
employees. At the operational level, the systems track the recruitment and placement of
the firm's employees.