Chapter 2 - Business Information Systems PDF

Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  CHAPTER 2 Basic Concepts – An Introduction to Business Information Systems Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Learning objectives: After studying this chapter,...

Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  CHAPTER 2 Basic Concepts – An Introduction to Business Information Systems Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Learning objectives: After studying this chapter, the students should be able to: LO 1. Identify systems and their components. LO 2. Understand what Business Information Systems are? LO 3. Describe the Resources That Support BIS. LO 4. Describe E-business Systems. LO 5. Describe Enterprise Systems. LO 6. Explain BIS and Strategic Advantage. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  Learning Objective 1: Identify systems and their components This objective covers the following point: LO 1. Introduction to Systems LO 1.1- What is a systems theory? LO 1.2- What is a system? Lo 1.3- System components LO 1.4- Other system characteristics LO 1.5- Control in organizational systems LO 1.6- Positive and negative feedback Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 1-1- What is a systems theory? - Systems theory provides a powerful means of analyzing and improving business processes. - It can be applied to a wide variety of different areas and is fundamental to gaining a good understanding of the managerial application of BIS. 1-2- What is a system? - A system can be defined as “a collection of interrelated components that work together towards a collective goal”. - The function of a system is to receive inputs and transform these into outputs. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.1, p.34 illustrates the organization of the input- process-output model. Figure 2.1. A basic model of a transformation process: Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 1.3- System components: - A system includes five components: input, process, output, feedback and control. - Each of these components can be described in more detail as follows: 1- Input: - The input to a system can be thought as the raw materials for a process that will produce a particular output. - Examples of inputs might include data, knowledge, raw materials, machinery and premises. 2- Process: - Inputs are turned into outputs by to a transformation process. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3- Output: - The output is the finished product created by the system. Examples might include information, products and services. 4- Feedback mechanism: - Feedback mechanism provides information on the performance of a system which can be used to adjust its behavior. 5- Control mechanism: - If alterations are needed to the system, adjustments are made by a control mechanism. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved - The function of the control component 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. - Figure 2.2, P.35 shows a generic model of a system. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.2. A generic model of a system Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 1.4- Other system characteristics: - All systems share these characteristics: 1- System objective: - The components of a system work towards a collective goal. This is known as the system objective. - The objective of a system is normally very specific and can often be expressed in a single sentence. - As an example, the objective of a car might be expressed simply as follows: to transport people and goods to a specified location. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 2- Systems do not operate in complete isolation: - They are contained within an environment that contains other systems and external agencies. - The scope of a system is defined by its boundary. Note the following: ** everything outside of the boundary is part of the system’s environment, ** everything within the boundary forms part of the system itself. ** Environment: The surroundings of a system, beyond its boundary. ** Boundary: The interface between a system and its environment. ** Interface: Defines exchanges between a system and its environment, or other systems. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3- Systems can be complex and can be made up of other smaller systems: - The smaller systems are known as subsystems. Note the following: ** Systems composed of one or more subsystems are sometimes referred to as suprasystems. ** The objective of a subsystem is to support the larger objective of the suprasystem. ** For an organization, the subsystems such as marketing and finance would lie within the system’s boundary while the following elements would lie outside as part of the business environment: ** customers, ** sales channel/distributors, Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved ** suppliers, ** competitors, ** partners, government and legislation, ** the economy. ** An organization will interact with all these elements which are beyond the system boundary in the environment. ** Systems that have a high degree of interaction with the environment are called open systems. ** Most information systems are open systems because they accept inputs and react to them. ** Systems that have no or limited interaction with the environment are called Closed system. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 4- Subsystems in an information system interact by exchanging information: - The interaction between subsystems by exchanging information is known as the interface between systems. Notice that for information systems and business systems, having clearly defined interfaces is important to an efficient organization. For example, sales orders must be passed from the sales subsystem to the finance subsystem and the distribution subsystem in a clear, repeatable way. - If this does not happen, orders may be lost or delayed and customer service will be affected. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 5- The linkage or coupling between subsystems varies: - The degree of coupling defines how closely linked different subsystems are. Note the following: ** It is a fundamental principle of systems theory and BIS design that subsystems should be loosely coupled. ** close-coupled systems are systems or subsystems that are highly dependent on one another. ** In such cases, the outputs of one system are the direct inputs of another. ** Loose coupling means that the modules pass only the minimum of information between them and do not share data and program code. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved ** Decoupled systems (or subsystems) are less dependent on one another than coupled systems and so are more able to deal with unexpected situations or events. ** Decoupled systems tend to have higher levels of autonomy, being allowed more freedom to plan and control their activities. ** Decoupled systems are more flexible and adaptive than close-coupled systems. 6- Systems are hierarchical: - Systems are made up of subsystems that may themselves be made up of other subsystems. - From this, one should realize that the parts of a system are dependent on each other in some way. - This interdependence means that a change to one part of a system leads to or results from changes to one or more other parts. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 1.5- Control in organizational systems: - Figure 2.3, P.37 shows the relationship between different parts of an organization and how they are related according to systems theory. - The role of an information system is to support managers in making decisions that will help the organization to function properly and achieve its objectives. - Control is being exercised correctly if the organization - including all subsystems - is moving towards its objectives as efficiently as possible. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.3- Business information systems as an organizational control mechanism Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Control systems can be classified into: 1- Open-loop control systems in business: - An open-loop control system is one in which there is an attempt to reach the system objective, but no control action to modify the inputs or process is taken once the process has begun. - It should be noted that: a- Open-loop systems have no mechanism for ensuring goals are met once the process is under way. b- Open-loop systems are inadequate in an organizational context because of the complexity of organizational systems and their environments. - Figure 2.4, P.38 provides a generic open-loop system. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.4- A generic open-loop system Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 2- Closed-loop control systems in business: - Two types of control mechanisms that can be employed in this situation are feedback control and feedforward control. a- Feedback control responds to changes in the system or its environment after they have taken place. - The output achieved is monitored and compared with the desired output and corrective action is taken if a deviation exists. Feedback control systems generally: ** Provide a relatively cheap method of reactive control, and ** Provide an effective method of bringing a system back under control. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved b- Feedforward control systems attempt to predict likely changes so that any delays before taking action are minimized. - The environment and system process are both monitored in order to provide corrective action if it is likely that the system goal will not be met. - Feedforward control systems provide a proactive way of overcoming the timing delays associated with feedback systems but depend upon the accuracy of the plans on which they are based. - Figure 2.5, P.38 shows a generic closed-loop feedback system, and Figure 2.6, P.39 shows a generic closed- loop feedforward system. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.5- A generic closed-loop feedback control system Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.6- A generic closed-loop feedforward control system: Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 1-6- Positive and negative feedback: 1- Negative feedback is used to describe the act of reversing any discrepancy between desired and actual output. - In a business setting, for example, a budget overspend in one area might be corrected by cutting spending in others. - The major difficulty with negative feedback systems is the potential for delay in the feedback control loop. 2- Positive feedback responds to a variance between desired and actual output by increasing that variance. - An example of positive feedback might involve a company experiencing rapid sales growth, leading to increased production and higher sales level. - Notice that if sales and production are increased, the company may experience cash flow problems caused by expanding too quickly. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  Learning Objective: 2 What are Business Information Systems? This objective covers the following point: - Definition of a Business Information System. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved What are business information systems? 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 ”. For example, an organization might use specialized information systems to support sales, marketing and human resource management activities. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  Learning Objective :3 Describe the Resources That Support BIS This objective covers the following points: LO 3.1- Resources that support BIS LO 3.2- Advantages of processing by computer LO 3.3- Disadvantages (Limitations) of computer-based Processing LO 3.4- Business applications of BIS LO 3.5- Categories of BIS Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3.1- Resources that support BIS: BIS typically rely on the following five basic resources: 1. People resources: People resources include the users of an information system and those who develop, maintain and operate the system. 2. Hardware resources: The term “hardware resources” refers to all types of machines, not just computer hardware. - The term also covers any media used by these machines, such as compact discs or paper. 3. Software resources: The term “software resources” does not refer just to computer programs and the media on which they are stored. - The term can also be used to describe the procedures used by people. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 4. Communications resources: Resources are also required to enable different systems to transfer data. - These include networks, and the hardware and software needed to support them. 5. Data resources: The term “data resources” describes all of the data that an organization has access to, regardless of their form. - Computer databases, paper files and measurements taken by sensors on a production line are all examples of data resources. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3-2- Advantages of processing by computer: - Some advantages of processing by computer include: 1- Speed: Computers can process millions of instructions each second, allowing them to complete a given task in a very short time. 2- Accuracy: The result of a calculation carried out by a computer is likely to be completely accurate. - In addition, errors that a human might make, such as a typing error, can be reduced or eliminated entirely. 3- Reliability: In many organizations, computer-based information systems operate for 24 hours a day and are only ever halted for repairs or routine maintenance. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 4- Programmability: Although most computer-based information systems are created to fulfill a particular function, the ability to modify the software that controls them provides a high degree of flexibility. 5- Repetitive tasks: Computer-based information systems are suited to highly repetitive tasks that might result in boredom or fatigue in people. - The use of technology can help to reduce errors and free employees to carry out other tasks. - Notice that these advantages combine to give major benefits to a business. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3.3- Disadvantages (limitations) of computer- based processing: Some disadvantages to computer-based BIS include: 1- Judgment/experience: Despite advances in artificial intelligence techniques and expert systems, computer- based information systems are considered incapable of solving problems using their own judgment and experience. 2- Improvisation/flexibility: In general, computer-based information systems are unable to react to unexpected situations and events. 3- Innovation: Computers are unable to think and therefore are restricted in their ability to discover new ways or solve problems. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 4- Intuition: Human intuition can play an important part in certain social situations. For example, one might use intuition to gauge the emotional state of a person before deciding whether or not to give them bad news. Notice that, BIS cannot use intuition in this way and are therefore unsuitable for certain kinds of situations. 5- Qualitative information: Managers often make unstructured decisions based on the recommendations of others. Their confidence in the person they are dealing with often has a major influence on the decision itself. Notice that, BIS cannot act upon qualitative information of this kind. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  3.4- Business applications of BIS: - The key operational activities include: 1- Data Processing: handling the large volumes of data that arise from an organization’s daily activities is described as data processing. 2- Transaction processing involves dealing with the sales and purchase transactions that an organization carries out in the course of its normal activities. 3- Process control systems: Systems which manage manufacturing and other production processes. - Figure 2.7 in P. 43 illustrates areas of applications for BIS in a typical organization. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3.5- Categories of BIS: - Information systems are commonly divided into two broad categories: ** systems that support an organization’s business activities (operations information systems) and ** systems that support managerial decision making (management information systems). (1) Operations information systems: - Systems required for the day-to-day activities of a business such as process control, transaction processing, communications (internal and external) and productivity. (2) Management information systems: - Systems providing feedback on organizational activities and supporting managerial decision making. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Table 2-1. Categories of computer-based information systems: Operations information Management information systems systems - Transaction processing - Decision support systems systems - Process control systems - Information reporting systems - Office automation - Executive information systems systems Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  Learning Objective 4: Describing E-business Systems This objective covers the following points: LO 4.1- Electronic business (e-business) LO 4.2- Electronic commerce (e-commerce) LO 4.3- Benefits of e-business Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved E-Business Systems: E-business systems include: 4-1- Electronic business (e-business): - E-business is part of a broader internet economy which encompasses all of the activities involved in using the Internet for commerce. 4-2- Electronic commerce (e-commerce): - A common activity associated with e-business is electronic commerce (e-commerce) which can be described as using technology to conduct business transactions, such as buying and selling goods and services. E-commerce activities can be broken down into five basic activities: Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 1- Business-to-business (B2B): Transactions take place between companies. 2- Business-to-consumer (B2C): Companies sell products directly to consumers. 3- Business-to-government (B2G): Transactions take place between companies and public-sector organizations. 4- Consumer-to-consumer (C2C): Transactions take place between private individuals. 5- Mobile commerce (m-commerce): M-commerce is a relatively new development and involves selling goods or services via wireless technology, especially mobile phones and tablets. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 4.3- Benefits of e-business: - In general, the benefits of e- business include: 1- Reduced costs: By automating many of the administrative tasks associated with ordering, supplying and delivering goods or services, the cost of a typical business transaction can be reduced significantly. 2- Improved efficiency: Adapting an e-business approach could help to enhance three main areas of business: ** production processes, ** customer-focused processes, and ** internal management processes. - This is often one of the benefits of restructuring the relationship between manufacturer, retailers, and customers. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3- Access to a larger market: The Internet provides access to a global marketplace, allowing manufacturers to sell to customers directly (called e-tailing), or from business relationships with retailers located anywhere in the world. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  Learning Objective 5: Describing Enterprise Systems This objective covers the following points: LO 5.1- What are Enterprise Systems? LO 5.2- Elements of an Enterprise System. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 5.1- What are Enterprise systems? - Enterprise Systems aim to support the business processes of an organization across any functional boundaries that exist within that organization. - They use Internet technology to integrate information within the business and with external stakeholders such as customers, suppliers and partners. 5.2- Elements of an Enterprise System: The main elements of an enterprise system are: 1- Enterprise resource planning (ERP) which is concerned with internal production, distribution and financial processes. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  2- Customer relationship management (CRM) which is concerned with marketing and sales processes. 3- Supply chain management (SCM) which is concerned with the flow of materials, information and customers through the supply chain. 4- Supplier relationship management (SRM) which is concerned with sourcing, purchasing and the warehousing of goods and services. - Note that enterprise 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 resource management (HRM). - Figure 2.8, P.48 shows an enterprise system in comparison to separate functional applications. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.8. Enterprise system in comparison to separate functional applications: Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved  Learning Objective 6: Explaining BIS and Strategic Advantage This objective covers the following points: LO 6.1- Competitive strategies LO 6.2- Value chain analysis LO 6.3- The virtual value chain LO 6.4- Using information systems for strategic advantage Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved - In order to survive and grow in a competitive environment, organizations must seek to gain strategic advantage (or competitive advantage) over their competitors. - BIS play a crucial part in gaining and sustaining a competitive edge over other organizations operating in the same industry. 6-1- Competitive strategies: - In order to gain or maintain competitive advantage, organizations can adopt one of Four basic strategies: 1- Cost leadership: - Cost leadership means simply providing goods or services at the lowest possible cost. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved - In most cases this is achieved by reducing the organization’s costs in producing goods or providing services, for example by automating parts of the production process. - Note that cost leadership can also be achieved by helping suppliers and customers to reduce costs. 2- Product differentiation: - 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. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 3- Innovation: - Innovation is concerned with finding new ways to approach an organization activities. Examples of innovation include: ** improving existing products or creating new one; ** improving production processes; and ** entering new markets. 4- Focus: - This approach is particularly suited to organizations that rely heavily on Internet technologies, such as social media. - In general, organizations can focus on specific groups of customers and partners, or on specialized products and services. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 6-2- Value chain analysis: - To understand value chain analysis, we need also to consider an organization’s supply chain. 1- 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. 2- Value chain is a model for analysis of how supply chain activities can add value to products and services delivered to the customer. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved - Traditional value chain analysis distinguishes between: ** primary activities that contribute directly to getting goods and services to the customers, and ** secondary activities which provide the inputs and infrastructure that allow the primary activities to take place. Figure 2.9, P.50 shows the value chain model which contains the primary and secondary activities of the value chain. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.9 The value chain model Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 6-3- The virtual value chain: - Rayport and Sviokla have suggested the concept of the virtual value chain (VVC) to explain how information can help to create competitive advantage. - In doing this, they refer to the physical marketplace and its virtual counterpart, the marketspace. - They suggest that companies adopting a virtual value chain tend to go through three phases. - In each phase, companies have the opportunity to reduce costs, improve efficiency or find new ways of doing things: Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Phase1: Visibility. Companies use information to examine the physical value chain more closely. - Technology is used to manage activities in the physical value chain more efficiently. Phase 2: Mirroring capability. Physical processes start to be replaced by virtual processes. - A parallel value chain is created in the marketspace. Put more simply, activities are moved from the marketplace to the marketspace. Phase3: New customer relationships. Information drawn from the virtual value chain is used to create new customer relationships by delivering value in new ways. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved 6-4- Using information systems for strategic advantage: - BIS can be also used to counter the five competitive forces of their environment described by Porter (1980). These five forces are: 1- The threat of new entrants; 2- The bargaining power of suppliers; 3- The bargaining power of customers; 4- The threat of substitute products or services; 5- Rivalry among existing competitors. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Porter’s work can also 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 2.10, P.52 summarizes the main ways in which computer- based information systems can be used to achieve competitive advantage. Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved Figure 2.10 Applying computer-based information systems for competitive advantage Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved End of Chapter Two Copyright 2019, 2015,2008 Pearson Education, Inc. All Rights Reserved