Managing Information Technology

Chapter 5 • Enterprise Systems 191

Critical Concepts

Before we turn to specific examples of the various
application areas, we must consider a number of important
concepts that are intertwined throughout all the applications.
An understanding of these concepts is a prerequisite to an
understanding of the applications.

Batch Processing versus Online Processing

One of the fundamental distinctions for computer applica-
tions is batch processingversus online processing. In the
early days of computers, all processing was batched. The
organization accumulated a batch of transactions and then
processed the entire batch at one time. For example, all
inventory transactions (in and out) were recorded on paper
during the day. After the close of business for the day, the
transactions were keyed into a type of computer-readable
medium, such as magnetic tape. The medium was then
physically carried to the computer center, and the entire
inventory was updated by processing that day’s batch
against the master inventory file on the computer. By the
beginning of the next business day, the master inventory
file was completely up-to-date and appropriate inventory
reports were printed. Figure 5.2 represents this batch pro-
cessing approach in a simplified form.
The major problem with batch processing is the time
delay involved before the master file is updated. Only at
the beginning of the business day, for example, will the
master inventory file be up-to-date. At all other times the
company does not really know how many units of each
product it has in stock.
As the technology improved, online processing was
developed to avoid the time delay in batch processing.
With a fully implemented online system, each transaction
is entered directly into the computer when it occurs. For
example, in an online inventory system a shipping clerk or

sales clerk enters the receipt or sale of a product into

a workstation (perhaps a sophisticated cash register)

connected by a telecommunications line to the server

computer, which holds the inventory master file. As soon

as the entry is completed, the computer updates the master

file within a fraction of a second. Thus, the company

always knows how many units of each product it has in

stock. Figure 5.3 depicts such an online system.

A fully implemented online system is also called an

interactive system, because the user is directly interacting

with the computer. The computer will provide a response

to the user very quickly, usually within a second. Not all

online systems, however, are interactive. Some systems,

often called in-line systems, provide for online data entry,

but the actual processing of the transaction is deferred until

a batch of transactions has been accumulated.

A fully online system has the distinct advantage of

timeliness. Why then aren’t all present-day systems online?

There are two reasons—cost and the existence of so-called

natural batch applications. In most cases, batch systems are

less expensive to operate than their online counterparts.

There are usually significant economies associated with

batching, both in the data-entry function and the transaction

processing. But if the data-entry function can be accom-

plished when the original data are captured (such as with a

sophisticated cash register), an online data entry/batch pro-

cessing system might be less expensive than a straight batch

system. The decision of batch versus online becomes a

trade-off between cost and timeliness. In general, online

costs per transaction have been decreasing, and the impor-

tance of timeliness has been increasing. The result is that

most applications today use online data entry, and an

increasing proportion also use online processing.

The exception to this movement to online process-

ing has been the natural batch applications. An organiza-

tion’s payroll, for example, might be run once a week or

once every two weeks. There is no particular advantage to

the timeliness of online processing; the organization

knows when the payroll must be run. Even in this

instance, there might be advantages to online data entry to

permit convenient changes in employees, exemptions,

Keying

Operation

Master Computer

File

Reports

Paper

Transactions

Batched

Transactions

FIGURE 5.2 Batch Processing (simplified)

Transaction

Entry from

Terminal

Computer Master

File

Reports

(as requested)

FIGURE 5.3 Online Processing