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By THOMAS CARSTENS F. W. Means & Co. Chicago, Ill. We live in exciting times. Only the Golden Age of Greece, the Italian Renaissance, and Elizabethan England approach our own amazing Mid-Twentieth Century. Some of you have seen during your lifetime more change in man's style of life than had previously accumulated since Neolithic times. In this century, modern man saw the first electric light illuminate his home. The automobile and the airplane swiftly passed from the stage of a tinker's toy to a necessary part of modern man's mobility. Companies increasingly send their managers back to school merely to keep pace with this accelerating change. Adult education and post-graduate education is now almost a necessity. As a citizen, the modern manager must be familiar with a broad area of exploding scientific, sociological and organizational changes. Almost all of the vast developments in technology are produced by private enterprise. Managers direct these enterprises and must keep current with changing factors or lose their markets to competitors who do. I would like to examine with you an area of management that—although it is not in any way new— has taken on increasing importance. It is the area of management information. To a great extent, this field has spawned new industries and gigantic corporations. It has created a new breed of manager on many organizational charts—the director of management information services; manager of information systems; manager of corporate systems, or some similar title. What is a management information system? Briefly it is a system which furnishes managers with the right information, in its most useful form, at the time they need it, enabling them to make quality decisions. Three Dimensions to System  Paul Gaddis of Westinghouse Electric Corp., writing in the fall 1967 issue of the INDUSTRIAL MANAGEMENT REVIEW, identifies three fundamental questions concerning the pace and direction of a corporate information system.
Slightly modifying Mr. Gaddis' breakdown, I would like to examine these three aspects of a management information system for I feel they give a three dimensional structure to what can easily be a mass of confusion. They are scope, extension and depth. By scope, we mean how inclusive is the information system? What are the information needs of the organization that should be satisfied by the system, and what are the relative priorities of those needs? The second dimension, that of extension, concerns the information requirements that have been identified, determines the extent to which they should permeate through the organization and prescribes the rate of implementation for that permeation. By depth, we mean involvement of management in the information system—both during its early planning and development and during actual use of the system. Scope of an Information System The first area to which we must direct our attention is that of scope. How much of the planning and control activities of the corporate organization should be included in the system? The answer is determined, to a large extent, by the basic philosophy underlying a corporate management information system. The basic orientation should be an information system designed to aid management in its decision making process. Such a system should not be conceived as a computerized cost-reduction program. "Management information system" is not synonymous with "computer." The information system may of necessity require the use of computers but only because they are valuable tools which help the system operate accurately and economically. Therefore, the first task in developing a truly business oriented information system is to determine the significant decisions that managers of the organization must make. To determine these decisions, the organization must:
Once these three steps are taken, a long range systems development plan is prepared which outlines the implementation of the total management information system in an evolutionary or stepping stone fashion. This approach should allow for some immediate paybacks from the system while at the same time progressively working toward a full integration. At F. W. Means we have identified a 10-stage implementation plan starting from the development of the corporate data base with customer service transactions in Stage 1 to the creation of large scale enterprise models in Stage 10. The development plan of the management information system must (1) allow for an integration of information; (2) give decision makers the ability to simulate future decisions; (3) provide feedback in- formation which tells the manager the results of his decisions; and (4) advance toward the creation of intelligence within the information system itself. (cf. Carroll and Zenneto's Toward the Realization in Intelligent Management Information Systems, in Proceedings of Third Congress on In formation Systems Science and Technology, May, 1967, the Thompson Book Co., Washington, D.C.) Linen Supply Examples The linen supply firm embarking on a management information system should examine its own understanding of its business in order to develop a plan for its system. For one linen supplier, the scope of the information system may be entirely different from that of another supplier. Some firms may feel that the basic orientation should be to provide information to help reduce their merchandise and delivery costs. To such suppliers the emphasis of the system may be upon a closely controlled delayed exchange or bundle distribution system with all soiled counting being done in the plant. The soiled count so collected provides the basis for the type of information needed to control the large cost items of merchandise and delivery. In addition, such data will lend itself to automated customer invoicing and load makeup documentation. In a similar manner, there may be linen suppliers to whom the marketing information provided by a computerized customer transaction history record will be of critical importance. In this case, a large disaggregate data base storage of historical customer transactions will be required. A firm will no doubt feel that knowledge of changing customer preferences is essential. It will want to have the ability not only to know historically the sales trends of its numerous items —by style, color, size, etc.—serviced to various groups of customer —organized geographically by type of business, etc.—but in addition, it will want to have the ability to statistically analyze these data for future projections of merchandise usage, sales—marketing planning, facilities planning and the like. Still other linen suppliers may want their information system oriented in other directions—production, systems, centralized control systems, etc.—and for them the scope of their information system will take on a somewhat different character. The point here is that each company must determine the scope of its own management information system. There is no one answer which is workable for all. In short, the scope of the system for each firm in the industry will depend upon that firm's basic underlying approach to the linen supply business—as that firm defines it—and on the goals and objectives it sets for itself. Extension of the System The second dimension of a management information system is that of extension. To what extent and at what rate of implementation should the various stages of the total system be put into effect in the organization? The question of extension is primarily economic. But economics of a nature that must go beyond the analyses we have made in the past. The economic evaluation directs its attention to the selection of computer hardware and software, to the determination of the costs of those computers, and to the necessary systems, programming, and computer operating personnel that go with them. The evaluation must also include a determination of the value of information that the system generates. If an enterprise should spend the dollars necessary to develop, implement and maintain an information system, it certainly must apply managerial economics to these costs in seeking the kind of savings that justify the system. Corporate information systems should be placed on a return-on-investment basis just as are other major corporate projects. However, the main difference here is that in general we have not yet developed the ability to easily identify the value of information that is the output of the system. How much is information worth? How do we quickly determine its value? The inability to readily answer these questions has caused many organizations to rush the computer into the outer office to replace clerical operations where direct savings can be identified easily and to delay the development of the computerized information which could reach into the inner office only because the systems could not be economically justified. For example, it is not an extremely difficult task for a linen supplier to measure the dollar savings he could anticipate by computerizing his route invoicing, route settlement and payrolls. This determination is normally done on a comparison of projected computer-connected costs with clerical hours reduced or eliminated. This "office automation" has been economically justified and has proved to be an effective means of reducing clerical costs in numerous firms. It is a considerably different matter, however, to be able to cost justify computer-connected management information system expenses. Of how much value is it to a linen supplier to receive his important management reports one day sooner than he receives them at present? Of how much value is it to be able to simulate "numerous" expenditure alternatives on a return-on-investment basis rather than working with only a few alternatives? Of how much value is a 99.9% accurate system as compared with a system of 90-95% accuracy? These are the tough economic questions. The economics of information and the economics of ac- counting are not necessarily synonymous. Extension of the management information system into the organization, therefore, takes the underlying logic of the system, converts it into a long range plan for development and implementation, and identifies the ingredients necessary to implement that plan. These ingredients include computer composition, manpower planning schedules, pilot test projects and communication and orientation programs. The total costs of this master plan must be determined using the economics of information and then compared with the anticipated savings the system is to make possible. The net result should be evaluated on a return-on-investment basis. This evaluation may cause the original plan to be delayed or speeded up. The evaluation may also indicate that certain areas of the master plan should be automated with the latest computer equipment available while other areas of the system should be manually operated. The computerized portions of the information system must also be technically feasible within the constraints of the economic feasibility. Given today's advanced equipment and software, few business systems are likely to prove technically impossible, but their feasibility in terms of available corporate resources cannot by any means be taken for granted. Depth of Management Involvement The third dimension of a management information system that deserves consideration is that of depth —the depth of management involvement in the system. Management's involvement comes in two phases. The first phase encompasses creation and initiation of the information system including its early developmental planning. Paul Strassmann, director of systems at National Dairy Products Corp., stresses the point that while 11 % of the total expenditure for the computer effort is devoted to administrative control, 10% of that administrative budget, or only 1% of the total systems cost, is devoted to planning. In other words 1% of the total systems cost will determine how the remaining 99% is spent. Management of the critical operations of the organization must be intimately involved in the basic planning and orientation of the system. Throughout actual development and implementation, the technical systems experts and computer experts will play an increasing role. However, they will be putting into effect the basic plans outlined by the management of the organization. I suggest that this is not a committee-type assignment to be added to an already busy executive schedule. It is a full time task which should be given to proven executives even if only on a temporary or task force basis. I also suggest that the managers working on the information system task bring to the assignment the same kind of profit motivation that they used in the direct operations. In addition, managers intimately involved in the planning of the system must have an objectivity which demands that old systems be subjected to the think and re-think analysis which has now been turned into a science called systems analysis. The old systems that these managers will be asked to re-evaluate are not necessarily bad but neither should they be sacred cows. The second phase of the depth of management's involvement with the information system is much more encompassing than the first, if only because it carries an umbrella under which all the organization's decision makers must come. This second phase deals with the use made by the decision makers of the information the system makes available. Most of the output coming from a computer is now presented to the decision makers in the printed format of reports. I know of one company that has measured the volume of their computer information by weighing the reports generated by the system. This measurement by the way, was made in tons. A recent issue of IBM's THINK magazine depicts a group of executives drowning in a sea of computer printed paper. One such drowning management friend recently told me that he believes his company is no longer in the widget making business but that it is now in the paper work business. I believe we will see some drastic changes in this area. Managers will receive reports in the form of graphs. Later, more advanced business systems will use much more time-sharing interaction between computer and decision maker than we see today. Simulation of important decisions that formerly took days to evaluate can be examined in seconds. Scientists and engineers now use visual display systems for such applications as automobile body styling and engineering drawing. More advanced business systems are using cathode ray tubes to present information on a visual screen for managers. With light pens and other devices, managers may change the variables making up simulation models to evaluate alternative actions limited only by their ability to be creative. Some companies are now working with decision making information presented, not merely in printed or picture tube form, but within an environment designed to optimize the communicating and decision-making content of the information. The decision rooms of United Air Lines and Sperry and Hutchinson are good examples. What will these kinds of developments mean to managers? What should the depth of management involvement be to utilize effectively the information which more advanced systems are today making available? Managers must learn to use the information which the system generates. More management decisions must be based on intelligent information rather than on intuition. For some managers, this will be impossible. For others this will present profit making opportunities on a broad scale. How can a manager best prepare for an intelligent information system? Let me offer three suggestions:
Summary A management information system is a decision-making tool, to aid managers by presenting to them accurate and timely information in the proper form for more profitable decisions. Such a system must have three broad dimensions to its com position. First, it must have scope to furnish information concerning the significant aspects of the organization's business. Second, it should extend throughout the organization and at a rate of implementation which is justified by the needs of the business as evaluated by managerial economics. And third, successful information systems must have an extensive depth of management involvement to ensure that the information furnished by the system is both significant and actively used by decision makers to meet goals and objectives of the organization. |