192 Part II • Applying Information Technology
deductions, and wage rates. Thus, hybrid online data
entry/batch processing systems will continue to exist.
Functional Information Systems
Instead of considering the two major categories and associ-
ated application areas of Figure 5.1, it is possible to create
a framework based strictly on the organization’s primary
business functions—a functional information systems
framework. For example, consider an organization in
which the primary business functions are production,
marketing, accounting, personnel, and engineering.
Applications may then be categorized as part of the
production information system, part of the marketing
information system, or part of the accounting information
system, and so on. This functional approach is simply an
alternative way of classifying applications.
In this alternative view, the overall IS is composed of
multiple subsystems, each providing information for various
tasks within the function. In turn, each functional subsystem
consists of a possibly interrelated series of subsubsystems.
For example, the production information system is likely to
include interrelated subsystems for sales forecasting, produc-
tion planning, production scheduling, material requirements
planning (MRP), capacity requirements planning, personnel
requirements planning, materials purchasing, and inventory.
The marketing information system may include subsystems
for promotion and advertising, new product development,
sales forecasting (hopefully tied into the production sales
forecasting subsystem), product planning, product pricing,
market research, and sales information. The accounting
information system, which is generally the oldest and most
fully developed functional system, is likely to include
computerized versions of the entire journal and ledger
system, plus a cost or responsibility accounting system and
a financial reporting system for preparing reports for
stockholders and other external groups.
One of the most important trends in latter 1990s and
the early 2000s is the movement toward integration of these
functional information systems. Often these integration
efforts have begun by focusing on a business process—the
chain of activities required to achieve an outcome such as
order fulfillment or materials acquisition—rather than on
functions. Such a focus on process makes it easier to recog-
nize where formerly distinct information systems are related
and thus where they should be integrated (e.g., use common
data and perform an activity only once). Sometimes the
internal IS department has developed these integrated sys-
tems, but more often software packages called enterprise
resource planning (ERP) systems have been purchased
from outside vendors. We will return to these ERP systems
later in the chapter.
Vertical Integration of Systems
Another important characteristic of some systems is that
they operate across levels of the organization or, in some
instances, across independent firms occupying different
levels in an industry hierarchy, such as an automobile
manufacturer and the associated independent dealers.
(More on these interorganizational systems will be covered
in Chapter 7.) A system that serves more than one vertical
level in an organization or an industry is called a vertically
integrated information system. For example, in a single
firm, a vertically integrated sales information system
might capture the initial sales data and produce invoices
(acting as a transaction processing system), summarize
these data on a weekly basis for use by middle managers in
tracking slow- and fast-selling items as well as productive
and unproductive salespeople (acting as a decision support
system), and further analyze these data for long-term
trends for use by top managers in determining strategic
directions (acting as an executive information system).
In a somewhat similar way, a national fast-food chain
might develop a sales information system with modules
both for operating units (company stores and franchises)
and for the national organization. Thus, data collected at
the store level using the operating unit module are already
in the appropriate form to be processed by the national
organization module. These basic data are transmitted via
telecommunication lines to the national organization on a
periodic basis, perhaps each night. The extent of vertical
integration is an important characteristic of applications.Distributed Systems
Distributed systems,sometimes called distributed data
processing, refers to a mode of delivery rather than a
traditional class of applications like transaction processing
or decision support systems. With distributed systems, the
processing power is distributed to multiple sites, which are
then tied together via telecommunications lines. Local area
networks (LANs) and wide area networks (WANs) are
both used to support distributed systems. Thus, distributed
systems are systems in which computers of some size
(microcomputers, midrange computers, mainframes, and
so forth) are located at various physical sites at which the
organization does business (i.e., headquarters, factories,
stores, warehouses, office buildings) and in which the
computers are linked by telecommunication lines of some
sort in order to support some business process.
The economics of distributed systems are not
perfectly clear but have tended to favor distribution. For
the most part, communication and support costs go up with
distributed systems while computer costs go down. Placing
smaller microcomputers and workstations at noncentral