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38 Chapter 2 • Systems Integration

(or instantly as it’s updated by others) between the various organization stakeholders. For
example, the warehouse employee does not know the product sales cycle, and the customer
service employee may not know the status of the shipped product. This breeds inefficiencies in
the operations of an organization, which reflects poor customer service, and in the long term
makes the organization ineffective in its competitive landscape. In fact, systems integration is a
key issue for an organization for its growth; therefore, management needs to pay close attention
to this issue. Enterprise information system plays a key role in systems integration, as discussed
in this chapter. ERP systems are a major kind of enterprise information system that allows
organizations to integrate the heterogeneous systems into one organization-wide application with
an integrated database management system.
This chapter will trace the origins of how information systems have evolved into a hetero-
geneous collection of isolated systems or silos over the last 50 years—their relationship with an
organizational structure, the value of systems integration, and the role of ERP in systems integra-
tion. Information systems have generally evolved around the needs of the organization. Before
discussing evolution of IS, therefore, it is important to understand the evolution of organizations.
This chapter takes a brief look at the evolution of functional silos in organizations, followed by a
discussion on the evolution of IS in an organization. This is followed by a discussion on systems
integration challenges, benefits of integrated systems, and the role of ERP in systems integration.
The chapter will conclude with a set of challenges faced by management on systems integration
and their role in resolving them.

FUNCTIONAL SILOS

According to Webster’s dictionary, silos are an airtight pit or tower for preserving products.
Silos are basically compartmentalized operating units isolated from their environment. Why
have information systems and organizations evolved into functional silos? In order to understand
the reasons, we first need to look at the historical evolution of modern organizations and the
systems supporting their information requirements.

Horizontal Silos
2
Management theorists Huber and McDaniel in their research study found that the complexity
and turbulence in the organization’s environment forces it to break complex tasks into smaller
manageable units. If we take a closer look at the evolution of a modern organization, the early
emphasis has always been on the horizontal or the functional paradigm. In the early 1900s, a
3
management philosopher named Henry Fayol was the first person to divide functionalized
organization into five basic areas: planning, organizing, coordinating, commanding, and
controlling. Fayol’s classification was extended and conceptualized in the 1930s by Luther
4
Gulick into the functional model of POSDCORB (planning, organizing, staffing, directing,
coordinating, reporting, and budgeting). The POSDCORB categorization (Figure 2-1) became
very popular and led to a set of formal organization functions such as control, management,

2 Huber, G., and McDaniel, R. (May 1986). The Decision-making Paradigm of Organization Design. Management
Science, 572–589.
3 Fayol, H. (1916). Administration Idustrielle et Generale. Paris: Dunod.
4 Gulick, L. (1937). Notes on the Theory of Organization. In: Papers on the Science of Administration. New York:
Columbia University Press.