INFORMATION SYSTEM for BUSINESS (ISB)

Tutorial #02

Understanding the BUSINESS

The Motive of Business is to Make Profit
• Businesses satisfy people’s basic needs all the way to their lavish wants.
• Businesses supply goods and services with the motivation of making profits.
Without profit, a company cannot survive. Profit is the reward for satisfying the
needs and wants of consumers and businesses. The wealth created by
businesses benefits the entire community because businesses pay taxes and
provide jobs.

The Significance of Competition

• Competition and profit motivate these businesses to continually strive for your
business.
• Companies thrive on competition, the contest between businesses to win
customers.
• Competition is a direct response to wants and needs.
• Competition is possible because companies have the freedom to produce the
products they think will be the most profitable. These days, buyers can compete
to find the best products at the lowest prices. The result is that goods and
services are produced and sold at the lowest possible cost.
• Some companies find a competitive edge by focusing on
– making high-quality products
– making products with no defects
• A company to stay competitive in the global marketplace, they must offer quality
products with outstanding service at competitive prices

Competing at other levels

• Competing by Exceeding Customer Expectations Today’s customers want not
only good quality at low prices but great service as well.
• Competing by Restructuring and Empowerment To meet the needs of
customers, firms must give their frontline workers—for example, office clerks,
front-desk people at hotels, and salespeople—the responsibility, authority,
freedom, training, and equipment they need to respond quickly to customer
requests. They also must allow workers to make other decisions essential to
producing high-quality goods and services. The process is called empowerment,
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TYPES OF INFORMATION

STRATEGIC INFORMATION TACTICAL INFORMATION

• For long term planning • For medium term planning to run the
• Top level management business efficiently
• Unstructured • Middle level management
• Small volume • Less unstructured
• Difficult to obtain • Volume is more than strategic
• Source: EXTERNAL information
• Source: INTERNAL AND EXTERNAL

OPERATIONAL INFORMATION STATUTORY INFORMATION

• For short term planning (day to day • Imposed by law
operations of an organization) • Clearly specified
• Supervisory level management • Source: PROCESSING INTERNAL DATA
• Easy to obtain
• Volume is much more than tactical
information
• Source: INTERNAL

DECISION-MAKING LEVELS OF AN
ORGANIZATION

• Executive level (top)

• Long-term strategic decisions
• Unstructured decisions

• Managerial level (middle)

• Tactical Decisions covering
weeks and months
• Semi-structured decisions

• Knowledge and Data Workers level

• Experts and Consultants
• Analytics Team

• Operational level (bottom)

• Day-to-day decisions
• Structured decisions

COMPONENTS OF INFORMATION SYSTEMS

INFORMATION SYSTEM is an arrangement of people, data, processes, interfaces,
networks and technology that interact to support and improve both day-to-day
operations in a business as well as support the problem-solving and decision-making
needs of management.

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Set of interrelated components that collect, process, store and distribute data and
information, and provide a feedback mechanism to meet an objective

DIFFERENT COMPONENTS OF MIS

1. Resources of people: (end users and IS specialists, system analyst,
programmers, data administrators etc.).
2. Hardware: (Physical computer equipment's and associate device, machines and
media).
3. Software: (programs and procedures).
4. Data: (data and knowledge bases), and
5. Networks: (communications media and network support).

TYPES OF INFORMATION SYSTEMS

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A. OPERATIONS SUPPORT SYSTEMS
1. TRANSACTION PROCESSING SYSTEMS.
Transaction = an (business) event that generates or modifies data

Transaction Processing System are operational-level systems at the bottom of

the pyramid. They are usually operated directly by shop floor workers or front
line staff, which provide the key data required to support the management of
operations. This data is usually obtained through the automated or semi-
automated tracking of low-level activities and basic transactions.
Process data resulting from business transactions, update operational
databases, and produce business documents. Examples: sales and inventory
processing and accounting systems.
These support day-to-day operations and help organisation to conduct its
operation and keep track of its activities. The TPS program generates two types
of output. It sends messages back to the operator terminal and it generates
printed documents.

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Online Transaction Processing Systems is a type of TPS. On-line interactive
systems or simple on-line systems involve a direct connection between the
operator and the program.

A TPS collects and stores information about transactions, and controls some
aspects of transactions.
• Sub-species of TPS:
• Manufacturing and production systems
• Examples: Purchasing, Receiving, Shipping, Process Control,
Robotics, Inventory Systems, Scheduling, Engineering,
Operations, Quality Control, Resource Management etc.
• Sales and Marketing systems
• Sales support - keep customer records, follow-up
• Telemarketing - use phone for selling
• Order processing - process orders, produce invoices, supply
data for sales analysis and inventory control
• Point-of-sale - capture sales data at cash register often by
scanner
• Customer credit authorization - advise on credit to be allowed
to customer.
• Finance & Accounting Systems
• Examples: Cash Management, Loan Management, Check
Processing, Securities Trading
• Human Resources System
• Examples: Personnel Record Keeping, Applicant Tracking.

TPS System characteristics

Processes business events and transactions to produce reports
• Goal: to Automate Repetitive Information Processing Activities within
organizations
• Increases speed
• Increases accuracy
• Greater efficiency
• Supports the monitoring, collection, storage, processing, and
dissemination of the organization’s basic business transactions
• Mainly includes accounting and financial transactions
• Mainly used for providing other information systems with data.
2. Process control systems. Monitor and control industrial processes, say
SCADA. Examples: petroleum refining, power generation, and steel
production systems.

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 3. Enterprise collaboration systems. Support team, workgroup, and enterprise
communications and collaborations. Examples: e-mail, chat, and
videoconferencing groupware systems.

B. Management Support Systems

1. MANAGEMENT INFORMATION SYSTEMS (MIS)

DEFINITIONS OF MIS
• Management information system (MIS) is “an integrated user-machine
system for providing information to support operations, management and
decision making functions in an organization. The system utilizes computers,
manual procedures, models for analysis, planning, control and decision
making, and a database” ~ David Olson
• A Management Information System is “an integrated man/machine system
for providing information to hold up the operations, management and
decision making functions in an organization.” Here the system utilizes
hardware and software, manual procedures, management decision model
and data base. ~ G.B. Davis.
Objectives of MIS
• Provide summary information of organizational activity at periodical intervals,
in the form of pre-specified reports and displays to support business
decision making. Examples: sales analysis, production performance, and cost
trend reporting systems.
• MIS are built on the data provided by the TPS
• Operational control and efficiency
• Focus on INTERNAL INFORMATION
• Useful to structured decisions
• Management information systems are typically computer systems used for
managing the Business Operations. The five primary components:
• 1. Hardware
• 2. Software
• 3. Data (information for decision making),
• 4. Procedures (design, development and documentation), and
• 5. People (individuals, groups, or organizations).
• Management information systems are distinct from other information systems
because they are used to analyze and facilitate strategic and operational
activities
• MIS converts TPS data into information for monitoring performance and
managing an organization. Transactions recorded in a TPS are analyzed
and reported by an MIS. They have large quantities of input data and they
produce summary reports as output. Used by middle managers. An
example is an annual budgeting system.

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MIS Architecture

Role of MIS
• Based ON INTERNAL INFORMATION FLOWS
• Support relatively structured decisions
• Inflexible and have little analytical capacity
• Used by lower and middle managerial levels
• Deals with the past and present rather than the future
• Efficiency oriented

Some examples of MIS

• Sales management systems
• Inventory control systems
• Budgeting systems
• Management Reporting Systems (MRS)
• Personnel (HRM) systems

• MIS Systems usually based on a Client/Server (for both Internet/Intranet)

architecture.
Client/server is a term used to describe a computing model for the
development of computerized systems. The Client-server model is a
distributed application structure that partitions task or workload between
the providers of a resource or service, called servers, and service requesters
called clients. In the client-server architecture, when the client computer
sends a request for data to the server through the internet, the server
accepts the requested process and deliver the data packets requested back
to the client.

A Client is either a person or an organization using as a service. In the IT

context, the client is a computer/device, also called a Host that actually uses
the service or accepts the information for a user (single user). Client devices
include Mobile/Tablet, a Laptop/Desktop, IoT devices, Web Brower for web
based applications and similar network-friendly devices. Clients do not share
any of their resources. Examples of Client-Server Model are Email, World
Wide Web, etc.

A Server in the IT world is a remote computer that provides access to data

and services. A “SERVER” is a high-end computer with high processing power
with the capability to serve multiples users at time, i.e. multiuser and
multitasking, such as Rack Servers, though the rise of cloud computing has

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 brought virtual servers into the equation. The server handles processes like
e-mail, application hosting, Internet connections, printing, and more.

Advantages of Client-Server model:

 Centralized system with all data in a single place.
 Cost efficient requires less maintenance cost and Data recovery is
possible.
 The capacity of the Client and Servers can be changed separately.

INTEGRATING DIFFERENT BIZ. FUNCTIONS AND BIZ. PROCESSES

• Not all business activities are contained within a single business functional
area (sales, marketing, warehouse/Plant etc.), so you can’t just identify
applications by area
• We can also identify systems by processes
• Important because some business tasks are subsets of a business process
and some processes are cross-functional

Business processes
Definition: Manner in which work is
organized, coordinated, and focused
to produce a valuable product or
service.

A single business process is primarily

a chain of different business events,
designed to achieve a specific
business goal. These could be a single
event of multiple events (cross
functional). These gives flexibility to
design and articulate the service

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 delivery mechanism according to the business needs or to enhance the overall
customer experience.

Cross-Functional Business Processes

Definition: Transcend
boundary between sales,
marketing, manufacturing,
and research and
development (e.g., order
fulfillment process…)

2. DECISION SUPPORT SYSTEMS. Provide interactive ad-hoc support for the

decision-making processes of managers and other business professionals.
Examples: product pricing, profitability forecasting, and risk analysis systems.

A Decision Support System can be seen as a knowledge based system, used by

senior managers, which facilitates the creation of knowledge and allow its
integration into the organization. These systems are often used to analyze
existing structured information and allow managers to project the potential
effects of their decisions into the future. Such systems are usually interactive
and are used to solve ill structured problems. They offer access to databases,
analytical tools, allow "what if" simulations, and may support the exchange of
information within the organization.

Important points
• Considered as an extension of MIS
• Provides strategic information
• DSS manipulate and build upon the information from a MIS and/or TPS to
generate insights and new information
• Refers to systems which support the process of decision-making dealing with
unstructured problems
• May be defined as the “what-if” approach that assists management in
formulating policies and projecting the likely consequences of decisions
• An effective blend of human intelligence, information technology and
software

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3. Executive information systems.
Provide critical information from MIS, DSS, and other sources tailored to the
information needs of executives. Examples: systems for easy access to analyses
of business performance, actions of competitors, and economic developments
to support strategic planning.
1. The information systems that support the information needs of senior
executives are called ESS. They summaries and present data at the
highest levels of aggregation. Usually they involve presentation of reports
in standard formats, often involving graphics.
2. Also known as an Executive Support System (ESS), it provides executives
information in a readily accessible, interactive format.
3. They are an MIS for executive use. An EIS/ESS usually allows summary
over the entire Organisation and also allows drilling down to specific
levels of detail.
4. Used by top level (strategic) management. They are designed to the
individual. They let the CEO of an Organisation tie in to all levels of the
Organisation. They are very expensive to run and require extensive staff
support to operate.

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Can Information Systems Bring Competitive Advantage?
It has always been the assumption that the implementation of information
systems will, in and of itself, bring a business competitive advantage, especially
in the cost-saving or improve efficiency. The more investment in information
systems, the more efficiencies are expected by management.

In 2003, Nicholas Carr wrote an article, “IT Doesn’t Matter,” in the Harvard
Business Review (Carr, 2003) and raised the idea that information technology
has become just a commodity. Instead of viewing technology as an investment
that will make a company stand out, it should be seen as something like
electricity: It should be managed to reduce costs, ensure that it is always
running, and be as risk-free as possible.

Case: Walmart Uses Information Systems to Become the World’s Leading

Retailer

Walmart is the world’s largest retailer, with gross revenue of $534.6 billion and
a market of $366.7B in the fiscal year that ended on January 31, 2020 (source:
Yahoo finance on 7/13/2020). Walmart currently has approximately 11,500 stores
and e-commerce websites in 27 countries, serving nearly 265 million customers
every week worldwide (Wal-Mart, 2020). Walmart’s rise to prominence is due in
no small part to its use of information systems.

One of the keys to this success was the implementation of Retail Link, a supply-
chain management system. This system, unique when initially implemented in
the mid-1980s, allowed Walmart’s suppliers to directly access the inventory
levels and sales information of their products at any of Walmart’s more than
ten thousand stores. Using Retail Link, suppliers can analyze how well their
products are selling at one or more Walmart stores, with a range of reporting
options. Further, Walmart requires the suppliers to use Retail Link to manage
their own inventory levels. If a supplier feels that their products are selling out
too quickly, they can use Retail Link to petition Walmart to raise their inventory
levels. This has essentially allowed Walmart to “hire” thousands of product
managers, all of whom have a vested interest in managing products. This
revolutionary approach to managing inventory has allowed Walmart to continue
driving prices down and responding to market forces quickly.

However, Amazon’s fast rise as the leader in e-Commerce has given Walmart a
new formidable competitor. Walmart continues to innovate with information
technology combined with their physical stores to compete with Amazon,
locking the two in a fierce battle to retain the largest retailer's title. Using its
tremendous market presence, any technology that Walmart requires its
suppliers to implement immediately becomes a business standard.
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Competing in Information Age
Strategic Role of IT in business
 A strategy is a plan of action designed to
achieve a vision. Strategy is all about
gaining (or being prepared to gain) a
position of advantage over adversaries or
best exploiting emerging possibilities. As
there is always an element of uncertainty
about future, strategy is more about a set
of options ("strategic choices") than a
fixed plan. It derives from the Greek
"strategia”, "office of general, command,
generalship".
- Wikipedia (http://en.wikipedia.org/wiki/Strategy)
 So, Strategy is “The WINNING STATEMENT”
 Three tiers of strategy formulation

Strategy vs. Tactic

 Strategy focuses essentially on deciding on what the organization is trying to do,
what it is trying to become within its business environment. Changing strategy
is difficult and often causes problems.
 Tactic is the implementation of the strategy. It is the set of management
decisions focused on how to achieve the strategic objectives.
 Example: once the organization decides that it wants to be a widget
manufacturer, there are many decisions that must be made about how to
profitably manufacture widgets.

Using IT Strategically
 Businesses today must understand how IT can shape and refine business
strategy
 Porter’s Strategic Analysis Model
 Helps in understanding strategic forces affecting organizations in
particular industries
 IT can be applied to strengthen and support a specific business Strategy
 Value Chain
 Helps in identifying ways IT can improve the quality and efficiency of
organizational processes

Types of Strategies
The strategy can be pure or mixed, which can be classified into four broad classes:
1. Overall Company Strategy
– Considering long-term business prospective
2. Growth Strategy
1. In terms of Turnover OR
2. Expansion and Diversification
3. Product Strategy – Expanding in several directions
– A product can be developed as a family of products
4. Marketing Strategy
– Distributions, Services, Market Research, Advertising, Packing etc.

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Organizational Strategy Determines Information Systems

Competitive Advantage

 Competitive Advantage is created or maintained with the company succeeds in

performing some activity of value to customers significantly better than does its
competition. According to Porter, competitive advantage can be developed by
following one or more of these strategies:
 Cost Strategies: Becoming a low-cost producer in the industry allows the
company to lower prices to customers. Competitors with higher costs
cannot afford to compete with the low-cost leader on price.
 Differentiation Strategies: Some companies create competitive advantage
by distinguishing their products on one or more features important to
their customers. Unique features or benefits may justify price differences
and/or stimulate demand.
 Innovation Strategies: Unique products or services or changes in business
processes can cause fundamental changes in the way an industry does
business.
– For example, applying TQM, originally developed for manufacturing,
to the service industry helped Ritz Carlton when the Malcolm
Balridge Award for excellence.
 Growth Strategies: Significantly expanding production capacity, entering
new global markets, diversifying into new areas, or integrating related
products or services can all be a springboard to strong company growth.
– For example, Intel has increased its capacity (and lowered its
costs) just as competitors were close to matching its previous
technology in integrated chip manufacturing and design.
 Alliance Strategies: Establishing new business linkages and alliances with
customers, suppliers, former competitors, consultants, and others can
create competitive advantage

PORTER’S FIVE FORCES MODEL OF INDUSTRY STRUCTURE

Source: Based on Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance
(The Free Press, a Division of Simon & Schuster Adult Publishing Group).
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Copyright © 1985, 1998 by Michael E. Porter.

A firm can survive in the long run if it successfully develops strategies to confront five
generic competitive forces that operate in the firm's relevant environment. As
illustrated on the slide these forces include:

1. Threat of New Entrants. Many threats to long run survival come from
companies that do not yet exist or have a presence in a given industry or
market. The threat of new entrants forces top management to monitor the
trends, especially in technology, that might give rise to new competitors.
– This is especially true as the effects of globalization increase the
likelihood that previously "domestic only" competition will encounter
new international competitors.

2. Bargaining Power of Suppliers. Suppliers with access to key or limited

resources, or who dominate their industries, may exert undue influence on
the firm. Many firms seek to reduce their dependence on a single firm to
limit the suppliers' bargaining power.

3. Rivalry among Existing Firms. In mature industries, existing competitors are

not much of the threat: typically each firm has found its "niche". However,
changes in management, ownership, or "the rules of the game" can give rise
to serious threats to long term survival from existing firms.
– For example, the airline industry faces serious threats from airlines
operating in bankruptcy, who do not pay on the debts while slashing
fares against those healthy airlines who do pay on debt.

4. Bargaining Power of Customers. Customers can grow large and powerful as

a result of their market share. For example, Wal-Mart is the largest customer
for consumer package goods and often dictates terms to the makers of those
goods, even a giant like Procter & Gamble.
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 5. Threat of Substitutes. To the extent that customers can use different
products to fulfill the same need, the threat of substitutes exists.

Strategic Models: VALUE CHAIN ANALYSIS

In the value chain concept, some business activities are primary activities and others
support activities. For each activity, the role of strategic information systems (SIS) can
contribute significantly to that activity's contribution to the value chain:

1. Support Activities: Support activities create the internal infrastructure that

provides direction to and support for the specialized work of primary activities:
 Management and Administrative Services. The key role of SIS here is in
automated office systems.
 Human Resources Management. SIS role: Employee Skills Database.
 Technology Development. SIS role: Computer-Aided Design.
 Procurement of Resources. SIS role: EDI with suppliers.

2. Primary Activities: These activities directly contribute to the transformation process

of the organization. Five primary activities that form the sequence of the value
chain:
 Inbound logistics: receiving and handling inputs; SIS role: Automated
Warehousing, JIT.
 Operations: converting inputs to the product/service; SIS role: Computer-Aided
Manufacturing.
 Outbound logistics: collect, store, and distribute the product/service to buyers;
SIS role: Online Data Entry.
 Marketing and sales: the means/incentives for buyers to buy the
product/service; SIS role: Market Analysis
 Service: enhancements/maintenance of the value of the product/service; SIS
role: Diagnostic Expert System.
 It can be helpful to prioritize based on lack of current IT focus in the value chain
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Examples of IS/IT in the value chain

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:
(1) Break down a market/organization into its key activities under each of the major
headings in the model;
(2) Assess the potential for adding value via cost advantage or differentiation, or
identify current activities where a business appears to be at a competitive
disadvantage;
(3) Determine strategies built around focusing on activities where competitive
advantage can be sustained

STRATEGIC USES OF INFORMATION TECHNOLOGY

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MAJOR BUSINESS INITIATIVES: GAINING COMPETITIVE ADVANTAGE
WITH IT

Here are some major business initiatives and examples of Indian companies using IT to
gain a competitive edge:
1. E-commerce and Logistics Optimization:
Example: Flipkart, an Indian e-commerce giant, uses sophisticated algorithms and
data analytics to optimize its supply chain and logistics operations. They leverage
IT to ensure timely deliveries, reduce costs, and provide a better customer
experience.
2. Digital Payments and Financial Inclusion:
Example: Paytm, a leading Indian digital payments platform, has revolutionized the
way people transact in India. By providing a seamless and secure mobile payment
solution, Paytm has gained a competitive advantage in the rapidly growing digital
payments market.
3. Cloud-Based Services and SaaS:
Example: Freshworks, an Indian software company, offers cloud-based customer
engagement software as a service (SaaS). Their IT-driven approach allows
businesses to enhance customer support, streamline operations, and improve
overall productivity.
4. Big Data and Analytics in Healthcare:
Example: Practo, an Indian health-tech company, utilizes big data and analytics to
provide personalized healthcare recommendations and connect patients with
doctors. Their platform optimizes healthcare services and offers insights for both
patients and healthcare providers.

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5. Artificial Intelligence in Education:
Example: Byju's, an Indian ed-tech company, uses AI-powered adaptive learning
algorithms to deliver personalized learning experiences to students. Their IT-driven
approach has helped them become one of the largest and most valued ed-tech
companies globally.
6. IoT and Smart Manufacturing:
Example: Tata Steel, one of India's largest steel producers, has adopted IoT and
automation in its manufacturing processes. IT-driven analytics and data-driven
decision-making have helped them improve efficiency, reduce downtime, and
maintain product quality.
7. Fintech and Digital Lending:
Example: Lendingkart, an Indian fintech startup, uses IT to assess the
creditworthiness of small and medium-sized enterprises (SMEs). Their technology-
driven approach enables quick loan disbursals, making them a preferred choice for
SMEs seeking funds.
8. Mobile App-Based Services:
Example: Ola, an Indian ride-hailing company, utilizes mobile apps to connect
drivers and riders seamlessly. Their IT-enabled platform ensures efficient ride
allocation, real-time tracking, and dynamic pricing, giving them an edge over
traditional taxi services.
9. Online Food Delivery and Aggregators:
Example: Swiggy, a major food delivery platform in India, uses IT to optimize food
ordering and delivery processes. Their app offers a wide range of restaurant choices,
real-time order tracking, and personalized recommendations.

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