Bis Chapter2

Chapter 2

Basic Concepts – an introduction to Business Information Systems

What is a system ?

System theory provides a powerful means of analyzing and improving business processes.

A system can be defined as a collection of interrelated components that work together towards a collective goal.

The overall goal of a business is often described within a mission statement.

The functions of a system is to receive inputs and transform these into outputs.

Figure 2.1 A basic model of a transformation process

What is a system ?

Examples of system

Natural systems such as the solar system may not have an obvious goal, business systems usually have multiple goals such as profit or improving the quality of a product.

Data are used as the input for a process that creates information as an output.

What is a system ?

Figure 2.1 is a system that is essentially static.

• The performance of the system cannot be adjusted and there are no checks to ensure that it works correctly.

• In order to monitor the performance of the system, some kind of feedback mechanism is required.

• In addition, control must be exerted to correct any problems that occur and ensure that the system is fulfilling its purpose.

What is a system ?

• If these additional components are added to the basic model of the system, it is called an adaptive system (Figure 2.2).

• Adaptive system is a system with the ability to monitor and regulate its own performance.

Figure 2.2 A generic model of a system

System components

A generic system includes 5 components:input, process, output, feedback and control• Input

– The input to a system can be thought of as the raw materials for a process that will produce a particular output.

– Inputs can take many forms including purely physical in nature.

– Examples of inputs might include data, knowledge, raw materials, machinery and premises.

System components

• Transformation process– Inputs are turned into outputs by subjecting

them to a transformation process.• Output

– The output is the finished product created by the system.

– The outputs can take many forms.– Examples include information, products and

services.

System components

Feedback mechanism– Information on the performance of the system is

gathered by a feedback mechanism– Customer feedback on a website is an example

of a feedback mechanism• Control mechanism

– If alterations are needed to the system, adjustments are made by some form of control mechanism.

– In general, control is exerted as the result of feedback information regarding the performance of the system.

System components

Control mechanism– The function is to ensure that the system is

working to fulfill its objective.– Control tends to be exerted by adjusting the

process and input components of the system until the correct output is achieved.

Common system characteristics

1. The components of a system work towards a collective goal

2. Systems do not operate in complete isolation 3. Systems can be complex and can be made

up of other, smaller systems (sub-systems)Examples of sub-systems are marketing and finance departments of an organization. They lie within the boundary of a system. The following elements lie outside as part of the business environment: customers, suppliers, competitors, government and legislation, etc.

Common system characteristics

4. Sub-systems in an information system interact by exchanging information

For example, sales orders must be passed from the sales subsystem to the finance subsystem and the distribution subsystem in a clear

repeatable way.5. The linkage or coupling between sub-systems varies 6. Systems are hierarchical in the sense that systems

are made up of subsystems that may themselves be made of other subsystems.

Control in organizational systems

• Figure 2.3 shows the relationship between different parts of an organization and how they are related according to systems theory.

• The control mechanism is indicated by the arrowed line from the output back to the input.

• The role of BIS is to provide information to management which will enable them to make decisions which ensure that the organization is controlled.

Figure 2.3 Business information systems as an organisational control mechanism

Open-loop control systems in business

• Figure 2.4 shows a generic open-loop system.• An open-loop control system is one in which

there is an attempt to reach the system objective, but no action is taken to modify the process or its input to achieve the targets once the process has begun.

• An example is a decision to manufacture to a predicted market demand.

Open-loop control systems in business

• Open-loop systems are inadequate in an organizational context because of the complexity of organizational systems and their environments.

• These systems would only be successful in attaining the system objectives in cases where we could plan with certainty the events that would take place during the system’s process.

Figure 2.4 A generic open-loop system

Closed-loop control systems in business

• Two types of control mechanism that can be employed are feedback control and feedforward control.

• Feedback control systems generally provide a relatively cheap method of reactive control and provide an effective method of bringing a system back under control.

• Figure 2.5 shows a generic closed-loop system.

Figure 2.5 A generic closed-loop feedback control system

Figure 2.6 A generic closed-loop feedforward control system

Closed-loop control systems in business

• Feedforward systems provide a pro-active way of overcoming the timing delays associated with feedback systems but depend upon the accuracy of the plans on which they are based.

• Feedforward control systems attempt to overcome the over-correction and time-delay disadvantages of feedback systems by incorporating a prediction element in the control feedback loop.

• Feedforward systems are not as common as feedback systems in business settings.

• Examples include inventory control systems which work to a planned sales level or material usage rate.

Negative feedback

• Negative feedback is used to describe the act of reversing any discrepancy between desired and actual output.– In a business setting a budget overspend would be

responded to with actions leading to a reduction in this variance.

Positive feedback

• Positive feedback responds to a variance between desired and actual output by increasing that variance.

• A rapid sales growth requiring increased production levels leading to increased sales.

• A positive feedback is unsustainable and some corrective action arising either from within the system or from the environment will occur. For example, the business may meet cashflow problems with expanding too fast.

Different types of systems

• Two classification of systemsClassification I Deterministic system Probabilistic system Adaptive systemClassification II Hard system Soft system

Classification of systems

• Deterministic system– In a deterministic (or mechanistic) system, all of

the system’s outputs can be predicted by examining its inputs.

– An example is an electronic calculator where the results of carrying out a calculation can be predicted with complete accuracy.


• Probabilistic system– In a probabilistic (stochastic) system, the outputs

of the system cannot be predicted with complete accuracy.

– An example is a production planning system used to schedule work. Although the system can predict how long the production run is likely to take, it cannot provide a precise figure.

– Another example is a sales forecasting system.


• Adaptive system– An adaptive system (or self-organizing or

cybernetic) responds to changes in the environment and modifies its operation accordingly.

– The outputs obtained from the system are sometime uncertain since the system may respond to the same stimuli in a different way.

– Examples of adaptive systems include human beings, plants and business organizations.

Hard and soft systems

• A hard system has an explicit objective and is governed by fixed rules and procedures such as those encountered for structured decision making.– The conditions in the system’s environment tend to be

stable and therefore more predictable– An example is a production line.

• A soft system operates in a relatively unpredictable environment where conditions may be uncertain or liable to rapid change.– Soft systems usually involve people or socio-technical

situations.

BIS defined

‘A business information system is a group of interrelated components that work collectively to carry out input, processing, output, storage and control actions in order to convert data into information products that can be used to support forecasting, planning, control, coordination, decision making and operational activities in an organization.’

Five major components of a typical BIS

1. People resources.

2. Hardware resources.

3. Software resources.

4. Communications resources.

5. Data resources.

BIS resources that need to be managed

1. People resourcesPeople resources include the users of an

information system and IS specialists are those who develop, maintain and operate the system.

Users of an IS are those staff members of departments in a company

IS specialists are those staff members of the IT department. They include technicians, programmers, system analysts and IT managers.


2. Hardware resources– They refer to all types of machines, not just

computer hardware.– Examples are telephones, fax machines,

printers, etc.– Hardware resources also include those media

used by these machines, such as magnetic disks or paper.


3. Software resources– Software resources does not only refer to

computer programs and the media on which they are stored.

– The term can also be used to describe the procedures used by people.

– Examples of software include documents like instruction manuals and computer policies.


4. Communication resources– Resources are required to enable different

systems to transfer data.– These include computer networks and the

network hardware and software needed to support them (to be discussed in Chapter 5).


5. Data resources– Data resources describes all of the data that

an organization has access to, regardless of its form.

– Computer databases like those created by the database software Microsoft ACCESS, paper files and measurements taken by sensors on a production line are all examples of data resources.

Information Technology

• The terms Information technology and information systems are different.

• IT stresses on the technology while IS not only refers to the technology, but also incorporates how it is applied and managed to contribute to the business.

Computer-based information system (CBIS)

• In modern organizations, most BIS make extensive use of IT such as personal computers.

• Advantages of processing by computer– Speed : help to complete a given task in a very short

time. – Accuracy : the result of a calculation carried out by

computers is likely to be completely accurate. – Reliability : CBIS can operate for 24 hours a day and

are ever halted for repairs or routine maintenance. – Progammability : the ability to modify the software

that controls them provides a high degree of flexibility.

– Repetitive tasks. CBIS are suited to highly repetitive tasks.

Disadvantages of IS

• Judgement/experience – CBIS are incapable of solving problems using their “own” judgement and experience.

• Improvisation/flexibility – CBIS are unable to react to unexpected situations and events.

• Innovation – computers lack the creativity of a human being

• Intuition – BIS does not have human intuition and therefore cannot be flexible in handing different “unusual” situations.

• Qualitative information – BIS cannot act upon qualitative information e.g. some verbal descriptions that had not been quantified and/ore recorded.

Business applications of BIS

• Figure 2.7 illustrates areas of applications for BIS in a typical organization.

• There will be fewer applications and therefore lower levels of usage at the strategic level. A need for higher levels of automation and the structure of the tasks carried out means that highest levels of usage will be at the operational level.

• The key operational activities referred to in Figure 2.7 include data processing or handling the large volumes of data that arise from an organization’s daily activities.

Figure 2.7 Usage and applications of computer-based information systems by organizational level (shading denotes usage of BIS)

Business applications of BIS

• Data processing includes transaction processing and process control.

• Transaction processing involves dealing with the sales and purchase transactions that an organization carries out in the course of its normal activities.

• Process control systems deal with the large volume of data generated by production processes.

Categories of BIS

• IS can be divided into two categories that support an organization’s business activities and systems that support managerial decision making.

• Operations information systems are generally concerned with process control, transaction processing, communications (internal and external) and productivity.

• Management information systems provide feedback on organizational activities and help to support managerial decision making.– Managerial decision making can occur at the

operational, tactical and strategic levels of an organization.

Table 2.1 Categories of computer-based information systems

Operations Information Systems

Management Information Systems

Transaction Processing Systems

Decision Support Systems

Process Control Systems Information Reporting Systems

Office Automation Systems Executive Information Systems

E-business and e-commerce• Electronic business (e-business): All electronically

mediated information exchanges, both within an organization and with external stakeholders supporting the range of business processes.

• Electronic commerce (e-commerce): All electronically mediated information exchanges between an organization and its external stakeholders.– Buy-side e-commerce: E-commerce transactions

between a purchasing organization and its suppliers.

– Sell-side e-commerce: E-commerce transactions between a supplier organization and its customers.

Figure 2.8 Buy-side and sell-side e-commerceSource: Chaffey (2004).

E-business and e-commerce (Continued)

• In addition to buy-side and sell-side transactions, Figure 2.8 also shows the internal (or inside) transactions that are part of e-business. They include transactions related to the buy-side such as procurement and sell-side-related transactions such as dealing with customer enquiries as well as basic administrative functions related to employee leave and pay.

• Figure 2.9 provides a convenient tool for discussing the interrelationship between e-commerce and e-business.

• Figure 2.9(c) illustrates that e-commerce can best be conceived as a subset of e-business.

Figure 2.9 Three alternative definitions of the relationship between e-commerce and e-business

A typical e-business (DELL)

Tangible benefits from e-business

Increased sales from new sales leads giving rise to increased revenue from:

• New customers, new markets• Existing customers (repeat-selling)• Existing customers (cross-selling)Marketing cost reductions from:• Reduced time in customer service• Online sales• Reduced printing and distribution costs of

marketing communications

Tangible benefits from e-business (Continued)

Supply-chain cost reductions from:

• Reduced levels of inventory

• Increased competition from suppliers

• Shorter cycle time in ordering

Administrative cost reductions from:

• More efficient routine business processes such as recruitment, invoice payment and holiday authorization.

Intangible benefits from e-business

• Corporate image communication• Enhanced brand• More rapid, more responsive marketing communications

including PR• Faster product development lifecycle enabling faster

response to market needs• Improved customer service• Learning for the future• Meeting customer expectations to have a website• Identifying new partners, supporting existing partners

better• Better management of marketing information and

customer information• Feedback from customers on products

Limitation of EC

• Security Problems Privacy Problems• Legal• Taxation

Enterprise resource planning (ERP) systems

• ERP systems were the forerunner of the e-business concept.

• Leading ERP solutions providers are SAP and Baan.

• ERP software provides functions for managing business areas such as production, distribution, sales, finance and human resources management.


• ERP systems provide a single solution from a single supplier with integrated functions for major business functions from across the value chain such as production, distribution, sales, finance and human resources management.

• ERP systems are normally purchased as an off-the-shelf package which is then tailored.


• The main reason for implementing an ERP system is explained by Figure 2.10.

• It compares an ERP application with the previous company arrangement of separate data silos and applications (sometimes known as “information islands”) in different parts of the company.

• The problem of information silos arose as decentralization of BIS selection became devolved, with the end-users in individual departments making their own purchasing decisions.

• This often lead to separate applications from different vendors in different departments, often with poor data transfer between applications.

Figure 2.10 ERP application in comparison to separate functional applications


The benefits of the ERP approach include:

• Integration of all internal and external value-chain processes, resulting in increased customer value

• Better sharing of information within the organization since all modules of the system are compatible

• Reduced cost of buying from a single supplier

• Simplified support and maintenance through a single supplier

• Use of “best-of-breed” solution applied by other companies.


The disadvantages of ERP systems are:

• High costs charged by suppliers and the implementation of the major organizational changed required by these systems.

• This high demand gives rise to skills shortages.

• Similar to off-the-shelf systems, the business often has to change its processes or way of working in order to fit the way the software operates.

BIS and strategic advantage

• In order to survive and grow in a competitive environment, organizations must seek to gain strategic advantage (or competitive advantage).

• BIS play a crucial part in gaining and sustaining a competitive edge over the other organizations operating in the same industry.

Competitive strategies

Cost leadership means simply providing goods or services at the lowest possible cost.

• This is usually achieved by reducing the organization’s costs in producing goods or providing services, e.g. by automating parts of the production process.

• It can also be achieved by helping suppliers and customers to reduce costs, usually by forming alliances and linkages that benefit all of the parties involved.


– It can also be achieved by causing a competitor’s costs to increase, e.g. by introducing new product features that will be expensive for a competitor to duplicate.

– Using Internet technologies for e-business can assist in achieving cost leadership.


Product differentiation involves creating a distinction between the organization’s products and those of its competitors.

• In many cases, differentiation is used to concentrate on a specific niche in the market so that the company can focus on particular goods and services.

• Example is Rolls-Royce produced cars that are perceived as luxury items that indicate status and importance in society.


• Innovation is concerned with finding new ways to approach an organization’s activities.

• Examples include improving existing products or creating new ones, forging strategic linkages, improving production processes and entering new markets.

Value chain analysis

• Michael Porter’s work includes the concept of a value chain: a series of connected activities that add value to an organization’s products or services.

• An analysis of an organization’s value chain can indicate which areas might provide an organization with a competitive advantage.

• To understand value chain analysis we need to consider an organization’s supply chain.

Value chain analysis• Supply chain management (SCM) is the

coordination of all supply activities of an organization from its suppliers through to production of goods and services and their delivery to its customers.

• The value chain is a related concept that describes the different value-adding activities that connect a company’s supply side with is demand side.


Traditional value chain analysis (Figure 2.11(a)) distinguishes between primary activities that contribute directly to getting goods and services to the customer (such as inbound logistics, including procurement, manufacturing, marketing and delivery to buyers, support and servicing after sale) and support activities which provide the inputs and infrastructure that allow the primary activities to take place.

Figure 2.11 Alternative models of the value chain: (a) traditional value chain model, (b) revised value chain modelSource: Chaffey (2004).


• Support activities include finance, human resources and information systems.

How information can impact the value chain

• Reach – a business can share information with more stakeholders or gain a larger audience at relatively low cost.

• Customization – information can be more readily tailored for sharing with a large number of partners.

• Dialogue -- interaction between the parties is two-way rather than the traditional push of information.

How information can impact the value chain

• The Internet technologies (to be described in Chapter 5) can also reduce production times and costs by increasing the flow of information and so integrating different value-chain activities.

• Through doing this the value chain can be made more efficient and services can be delivered to customers more readily.

Restructuring the internal value chain

• Traditional models of the value chain have been re-evaluated with the advent of global electronic communications.

• There are some key weaknesses in the traditional value chain model.– It is most applicable to manufacturing of

physical products as opposed to services.– It is a one-way chain involving pushing products to

the customer; it does not highlight the importance of understanding customer needs through market research and responsiveness through innovation and new product development.

Revised value chain model

• This value chain starts with the market research process, emphasizing the importance of real-time environment scanning made possible through electronic communications links with distributors and customers.

• For example, leading e-tailers now monitor, on an hourly basis, how customers are responding to promotional offers on their website and review competitors’ offers and then revise them accordingly.

Using IS for strategic advantage

BIS can be used to counter the 5 competitive forces of their environment described by Porter (1980).

The five forces are:• The threat of new entrants• The bargaining power of suppliers• The bargaining power of customers• The threat of substitute products or services• Rivalry among existing competitors


Porter’s work can be used to identify a number of ways in which BIS can be used to achieve competitive advantage. These include:

• Improving operational efficiency• Raising barriers to entry• Locking in customers and suppliers• Promoting business innovation• Increasing switching costs• Leverage

Figure 2.12 summarizes the main ways in which CBIS can be used to achieve competitive advantage.

Figure 2.12 Applying computer-based information systems for competitive advantage


Improving operational efficiency• CBIS is used to achieve competitive advantage by

improving operational efficiency• In a primary activity, such as production, and

inventory control system might be used to manage stock levels, reducing storage and transportation costs.

• Support activities such as management and administration, might achieve higher levels of productivity through the introduction of office automation systems.

• The organization might also realize additional benefits such as improved customer service.


Barriers to entry• Systems are often extremely complex and require

ongoing maintenance and development.• This means that newcomers to the industry must

be prepared to make a large initial expenditure so that they can acquire the CBIS they need to be able to compete effectively.

• The level of expenditure needed may be so high that an entry barrier is created that deters or prevents the new competitor from entering the industry.


Barriers to entry (continued)• Investing heavily in CBIS may also deter

existing competitors, since they too must invest in there is in order to maintain or improve their position in the industry.

• Example: HSBC has invested heavily in its electronic banking setup (http://www.hsbc.com.hk).

http://www.hsbc.com.hk/


Locking in customers and suppliers• Linking an organization’s CBIS to those of its

customer and suppliers can help to strengthen business relationships.

• CBIS can be used to provide higher levels of customer service, thereby encouraging clients to remain loyal to the company.

• The disadvantage of high levels of integration is that the organization may come to rely upon a relatively small number of suppliers. This reliance might lead to some suppliers’ taking advantage of the relationship, for example by raising prices.

Locking in customers and suppliers

Close integration with a supplier’s information systems can result in a number of business benefits which include:

• The availability of raw materials or parts is more certain

• Cost savings can be realized through reduced administration overheads

• Suppliers are less likely to abandon the business relationship

• The organization can negotiate favourable terms and prices

• Competitors are excluded from the business relationship


Promoting business innovation• Organizations that have invested in building

effective CBIS are well placed to support business innovation.

• Such organizations are likely to have established a resource base (such as hardware, software and trained personnel) that can be drawn upon to develop new ideas.


Increasing switching costs• In general, an organization that has invested time, money

and effort in developing a CBIS will be reluctant to bear the switching costs of moving to a new system

• In addition to the cost of new hardware and software, a range of other costs can be incurred.

• These might include costs connected with:– Converting data for use with the new system– Training staff– Interruptions to the company’s operations– Lost opportunities to gain new business


Increasing switching costs (continued)

• When an organization links its IS to those of its suppliers or customers, it will often ensure that switching costs are as high as possible.

• In this way, the supplier or customer is discouraged from switching to a competitor’s system and competition is excluded from the business relationship.


Leverage

• Leverage is a way of increasing returns without increasing investment, usually by maximizing the use of existing resources.

• As an example, a travel agent might create a mailing list from its customer database so that they can offer customers new products or services, such as travel insurance or car rental.

Café De Coral Corporation

Corporate Mission

"To establish Café de Coral Holdings as a distinguished corporation in the food and catering industry as the world's largest Chinese quick service restaurant group, maintaining a publicly recognized leadership position in the mass-market, quick service restaurant chain business, with vertical and horizontal diversification towards the food services, food processing and distribution, catering and hospitality sectors in the world arena."

Bis Chapter2

Business

Transcript of Bis Chapter2