Common Business Applications of IT

CHAPTER FOUR
COMMON BUSINESS APPLICATIONS OF IT
After completing this chapter, you will be able to describe about the common applications of
information technology, namely:
 Financial Information Systems (FIS)
 Marketing Information Systems (MIS)
 Managerial Decision Support Systems (DSS)
 Transaction Processing System (TPS)

4.1 Financial Information Systems (FIS)

A financial information system (FIS) accumulates and analyzes financial data used for optimal
financial planning and forecasting decisions and outcomes. An FIS is used in conjunction with
a decision support system, and it helps a firm attain its financial objectives because they use a
minimal amount of resources relative to a predetermined margin of safety. An FIS can be
thought of as a financial planner for electronic commerce that can also produce large amounts
of market and financial data at once obtained from financial databases worldwide.

Functions of Financial Information Systems:

Automation is achieved through the use of financial accounting applications and database
management systems. The use of FMIS applications is designed to simplify the recording of
events, processing of transactions and reporting of financial information in your business. The
major functions are:
Quick Decisions:
The FMIS application provides timely, accurate, reliable and verifiable information that
accelerate your decision-making process. It provides advanced financial reporting and decision-
making procedures for evaluating the merits or shortcomings of your operational and strategic
approaches to business. This reduces uncertainties that may derail your implementation of
important business decisions.

Planning:
Implementation of FMIS enhances your scheduling and forecasting capacity. This enables you to
allocate your financial resources effectively and set realistic performance targets. Limit the scope

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of your plans to your financial resource capabilities. The realistic planning capacity also
accelerates the achievement of your goals within the desired time frame.

Efficiency:
You stand to achieve greater efficiency in financial operations and reporting procedures when
using FMIS applications. These systems entrench the controls you need to eliminate misuse of
financial resources, but also the mitigation measures you employ to protect your business against
the occurrence of expected and unexpected risks. The control measures also provide the
historical evidence of performance you need to regulate the current and future activities of the
business. Auditors also use this historical evidence to evaluate the progress of your business.

Integration:
FMIS provides you with a framework for integrating functional processes and financial resources
in your business. This accelerates the processing of transactions and conveyance of financial
information, in addition to eliminating duplicate activities and responsibilities along the
organization’s chain of command. Systems integration also provides you greater leverage for
centralizing shared services so as to reduce operational costs associated with running multiple
operational units for the shared services.

Competition:
The adoption of FMIS applications elevates the competitive advantage of the business. Indeed,
the strategic value of information technology is extremely important in the advancement of
customer satisfaction and growth of productivity. It enables the business to respond appropriately
to changes in target markets and stay ahead of its competitors.

4.2 Marketing Information Systems (MIS)

A marketing information system (MkIS) is a management information system designed to
support marketing decision making. Jobber (2007) defines it as a "system in which marketing
data is formally gathered, stored, analyzed and distributed to managers in accordance with
their informational needs on a regular basis."

In addition, the online business dictionary defines Marketing Information System (MkIS) as "a
system that analyzes and assesses marketing information, gathered continuously from sources
inside and outside an organization or a store."

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Furthermore, "an overall Marketing Information System can be defined as a set structure of
procedures and methods for the regular, planned collection, analysis and presentation of
information for use in making marketing decisions." (Kotler, et al, 2006)

The term market research informs relatively narrowly than Marketing Information System
(MkIS) which is altered from the term management information system. Market research
indicates that information is not collected for a specific reason or project; the major objective is
a one-time use.

"A marketing information system, which continuously collects the initial, routine and
systematic data, is not only used for one particular topic but is designed for monitoring the
degree of the marketing success to ensure the achievable of the operation as well."[2]

Importance of Marketing Information System

Developing an MkIS system is becoming extremely important as the strength of economies rely
on services and to better understand the specific needs of customers. Kotler, et al. (2006)
defined it more broadly as "people, equipment, and procedures to gather, sort, analyze,
evaluate, and distribute needed, timely, and accurate information to marketing decision
makers."

Insofar as an economy focuses on services, marketing is important to "monitor the marketing

environment for changes in buyer behavior competition, technology, economic conditions, and
government policies." In this sense, the role of marketing is becoming essential for an
organization to "adapt to changes in the market environment." (Harmon, 2003)

The main benefit of MkIS systems is to integrate market-monitoring systems with strategy
development and the strategic implementation of policies and processes that help capture and
act on customer management applications with marketing decision support systems. This area
constitute marketing intelligence that supports the analysis and market based activities that
support customer relations and customer service with real time information with real time
applications that support market based approaches.

Relevance of MkIS
Demands for the MkIS can be expressed by three crucial developments:

Firstly, when companies expand and diversify into new markets, both the companies and
customer's point of view are needed to be handled by the marketing managers. Therefore, there
would be greater need for marketing information.

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Secondly, when consumers obtain an increment in the level of their income, it causes a
tendency for them to be more discriminating during the purchasing procedure. A full
awareness of the points that drives a consumer prefer a brand and the points that distinguished
his brand from that of the rivals should be obtained by the marketers. This awareness is
possible only with the help of a well- designed effective MkIS.

Thirdly, the development of the markets and the movement from price to non-price grounds of
competition lead to an increase in the importance of adoption and implementation by the
competitors and finding the response of the consumers towards them.

Analyzing the needs for MkIS from a third person's angle, three more factors come to the
forefront viz.,

The information explosion,

Increasing complexity in decision making and
The technological developments.

Marketing Research (MR) and MkIS

Great demand of information gathering for marketing decisions results in the need of attention
by themselves. Though marketing research information can be generated by studies, which are
normally conducted in the market place whereas marketing information systems are designed
to gather, integrate, process and distribute marketing information comprehensively from all
sources, including that from marketing research.

The contrasting characteristics of MkIS and MR are presented in the following table.
Table: Showing contrasting characteristic of MR and MkIS

Marketing Research Marketing Information System

1.Emphasis is on handling external information 1. It handles both internal and external data.
2. It is concerned with preventing as well as
2. It is concerned with solving problems.
solving problems.
3. It operates in a fragmented fashion – on a
3. It operates continuously as a system.
project-to-project basis.
4. It tends to focus on past information. 4. It tends to be future oriented.
5. It is a source of input for marketing 5. It includes other subsystems besides
information system. marketing research.

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According to Robert Jamon (2003), MkIS systems are decomposed on four components: user
interfaces, application software, databases, and system support. The following is a description
of each one of these components.

1. User interfaces: The essential element of the MkIS is the managers who will use the system
and the interface they need to effectively analyze and use marketing information. The design of
the system will depend on what type of decision managers need to make.

2. Application software: These are the programs that marketing decision makers use to collect,
analyze, and manage data for the purpose of developing the information necessary for
marketing decisions.

3. Database marketing: A marketing database is a system in which marketing data files are
organized and stored.

4. System support: This component consists of system managers who manage and maintain the
system assets including software and hardware network, monitor its activities and ensure
compliance with organizational policies.

Along with these components, MkIS systems include Marketing Decision Support System
(MDSS), which in turn rely on simple systems such as Microsoft Excel, SPSS, and on-line
analytical tools that help collect data. Data compiled for analysis is stored and processed from
a data warehouse, which is simply a data repository system that helps store and further process
data collected internally and externally. (Harmon, 2003)

Advantages, Limitations & Possible Risks of MkIS

Advantages:
With an increasingly competitive and expanding market, the amount of information needed
daily by an organization is profound. So they have to establish a Marketing Information system.
There are several advantages of marketing information systems

 Organized Data collection – MkIS can help the managers to organize loads of data
collected from the market, thus results in an increment in the productivity.
 A broad perspective – With a proper MkIS in place, the organization can be tracked which
can be used to analyze independent processes. This helps in establishing a broader
perspective which helps us know which steps can be taken to facilitate improvement.

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 Storage of Important Data – The storage of important data is essential in execution and thus
proves again that MkIS is not important only for information but also for execution.
 Avoidance of Crisis – The best way to analyze a stock (share market) is to see its past
performance. Top websites like money control thrive on MIS. Similarly MIS helps you keep
tracks of margins and profits. With an amazing information system established, an
organizations direction can be analyzed and probably crises averted before they place.
 Co-ordination – Consumer durables and FMCG companies have huge number of processes
which needs to be co-ordinated. These companies depend completely on MIS for the
proper running of the organization.
 Analysis and Planning – MkIS plays a crucial role in the planning process, considering the
planning procedure requires information. For planning, the first thing which is needed is
the organizations capabilities, then the business environment and finally competitor
analysis. In a proper MkIS, all these are present by default and are continuously updated.
Therefore, MkIS is very important for planning and analysis.
 Control – Just like MkIS can help in a crisis, in normal times it provides control as you have
information of the various processes going on and what is happening across the company.

Possible risks:
Nevertheless, the collection of marketing information should obey a high-frequent manner due
to the rapid change in the external market. The possible risks the business may face if they
disobey the manner accordingly are:

 Opportunities may be missed.

 There may be a lack of awareness of environmental changes and competitors' actions.
 Data collection may be difficult to analyze over several time periods.
 Marketing plans and decisions may not be properly reviewed.
 Data collection may be disjointed.
 Previous studies may not be stored in an easy to use format.
 Time lags may result if a new study is required.
 Actions may be reactionary rather than anticipatory.

Maintenance, complexity and setting up a MkIS are one of the major hindrances to Marketing
information systems. Furthermore, wrong information being fed in MkIS can become
cumbersome and appropriate filters need to be established.

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Limitations:
Kotler and Philip have said that "both primary and secondary researches offer loads of the data
and information needed for the marketers, whereas the secondary data sources are relatively
superior in quick provision of data at lower cost. Simultaneously, a firm cannot find all the data
required by itself, but sometimes can be done with the help of secondary research.

However, researchers must assess those data collected from both primary and secondary data
sources to enable the accuracy, updates and fairness. Each primary data collection method –
observational, survey, and experimental – has its own advantages and disadvantages.

Similarly, each of the various research contact methods – mail, telephone, personal interview,
and online – also has its own advantages and drawbacks.

4.3 Managerial Decision Support Systems (DSS)

A decision support system (DSS) is a computer program application that analyzes business data
and presents it so that users can make business decisions more easily. It is an "informational
application" (to distinguish it from an "operational application" that collects the data in the
course of normal business operation).
A decision support system (DSS) is an interactive computer-based information system that, like
MIS also serves at the management level of an organization. However, in contrast to MIS (that
processes data), it processes information to support the decision making process of managers. It
provides middle managers with the information that enables them to make intelligent
decisions. A DSS in bank, for example, can enable a manger to analyze the changing trends in
deposits and loans in order to ascertain the yearly targets.

DSS’s are designed for every manager to execute a specific managerial task or problem.
Generally, they help managers to make semi-structured decisions, the solution to which can be
arrived at logically. However, sometimes, they can also help in taking complex decisions.

Components of Decision Support Systems (DSS)

Decision support systems consist of three main components, namely database, software system
and user interface.

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1. DSS Database: It contains data from various sources, including internal data from the
organization, the data generated by different applications, and the external data mined form
the Internet, etc. The decision support systems database can be a small database or a standalone
system or a huge data warehouse supporting the information needs of an organization.

 To avoid the interference of decision support system with the working of operational
systems, the DSS database usually contains a copy of the production database.

2. DSS Software System: It consists of various mathematical and analytical models that are used
to analyze the complex data, thereby producing the required information. A model predicts the
output in the basis of different inputs or different conditions, or finds out the combination of
conditions and input that is required to produce the desired output.

A decision support system may compromise different models where each model performs a
specific function. The selection of models that must be included in a decision support system
family depends on user requirements and the purposes of DSS.

 Note that the DSS software contains the predefined models (or routines) using which
new models can be built to support specific type of decisions.

Some of the commonly used mathematical and statistical models are as follows:-

 Statistical Models: They contain a wide range of statistical functions, such as mean,
median, mode, deviations etc. These models are used to establish, relationships
between the occurrences of an event and various factors related to that event. It can,
for example, relate sale of product to differences in area, income, season, or other
factors. In addition to statistical functions, they contain software that can analyze
series of data to project future outcomes.

 Sensitivity Analysis Models: These are used to provide answers to what-if situations
occurring frequently in an organization. During the analysis, the value of one

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variable is changed repeatedly and resulting changes on other variables are

observed. The sale of product, for example, is affected by different factors such as
price, expenses on advertisements, number of sales staff, productions etc. Using a
sensitivity model, price of the product can be changed (increased or decreased)
repeatedly to ascertain the sensitivity of different factors and their effect on sales
volume. Excel spreadsheets and Lotus 1-2-3 are often used for making such analysis.

 Optimization Analysis Models: They are used to find optimum value for a target
variable under given circumstances. They are widely used for making decisions
related to optimum utilization of resources in an organization. During optimization
analysis, the values for one or more variables are changed repeatedly keeping in
mind the specific constraints, until the best values for target variable are found. They
can, for example, determine the highest level of production that can be achieved by
varying job assignments to workers, keeping in mind that some workers are skilled
and their job assignment cannot be changed. Linear programming techniques and
Solver tool in Microsoft excel are mostly used for making such analysis.

 Forecasting Models: They use various forecasting tools and techniques, including the
regression models, time series analysis, and market research methods etc., to make
statements about the future or to predict something in advance. They provide
information that helps in analyzing the business conditions and making future plans.
These systems are widely used for forecasting sales.

 Backward Analysis Sensitivity Models: Also known as goal seeking analysis, the
technique followed in these models is just opposite to the technique applied in
sensitivity analysis models. In place of changing the value of variable repeatedly to
see how it affects other variables, goal seeking analysis sets a target value for a
variable and then repeatedly changes other variables until the target value is
achieved. To increase the production level by 40 percent using the backward
sensitivity analysis, for example, first, the target value for the production level can
be set and then the required changes to made in other factors, such as the amount of
raw material, machinery and tools, number of production staff, etc., to achieve the
target production level.

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3. DSS User Interface: It is an interactive graphical interface which makes the interaction easier
between the DSS and its users. It displays the results (output) of the analysis in various forms,
such as text, table, charts or graphics. The user can select the appropriate option to view the
output according to his requirement.

A manager, for example, would like to view comparative sales data in tabular form whereas an
architect creating a design plan would be more interested in viewing the result of analysis in a
graphical format. The present-day decision support system built using the Web-based interface
provides its users some special capabilities like better interactivity, facility for customization

4.4. Transaction Processing System (TPS)

A transaction process system (TPS) is an information processing system for business
transactions involving the collection, modification and retrieval of all transaction data.
Characteristics of a TPS include performance, reliability and consistency. TPS is also known as
transaction processing or real-time processing.

Features of Transaction Processing System

Transaction processing system has several different features in different managerial levels
within a certain business organization. Each level has its own dependents on specified data,
decision making responsibilities and time restrictions e.g. days/weeks.

Three levels of management and decision making are structured as a pyramid to show the
hierarchy structure, at the bottom of the pyramid the levels are Operational, Functional and
Strategic.

Operational Level:
The Operational Level of the organization is the lower tier management, for example workers
and their supervisors. At this level they work in real time or somewhat close to real time with
detailed data such as payroll, tax reporting, order tracking and all basic jobs that are all
important in running an organisation smoothly. All the employees at the organizational level
all have to be able to respond accordingly from what they have learned from their functional
information systems. At Operational Level decision making is instant or very frequent because

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the decisions are made to decide what happens on the day to day actions that need to be taken
for a smooth work flow. The main purpose of control is to know the deviations from targets
and plans as quickly as possible in order to take the appropriate action. Customer support, tax
reporting and order tracking are all examples of control activates. Internal data is very
important at the Operational Level.

To have a successful organization it all depends on the reliability of processing transactions to

be guaranteed that the customer’s order in met on time, and that investors and suppliers can be
paid. With the worldwide understanding of Transaction Processing Systems’ it has become a
vital part of running an efficient organization. Transaction Processing Systems’ enables
organizations the ability to quickly process transactions to guarantee smooth and steady flow of
data and efficiency to get processes throughout an organization completed.

Features of Transaction Processing System

Speed Processing:
The speedy process of transactions is important to the success of any enterprise, greater than
ever, with the changes in technology and client demand for immediate action. TPS’ are
designed to method transactions just about instantly to confirm that client data is out there to
process what is needed.

Controlled Access:
Since TPS systems are often such a strong business tool, access should be restricted to solely
those workers that need their use. Limited access to the system ensures that workers that lack
the talents to regulate it cannot influence the transaction process.

Real Time Processing:

In several circumstances the first issue is speed, as an example, once a bank client withdraws
an amount of cash from their account it's very important that the transaction be processed and
therefore the account balance updated as persistently as possible, permitting each the bank and
client to stay track of funds.

Batch Processing:

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Batch process could be a resource-saving group action sort that stores knowledge for
processing at pre-defined times. Batch processing is helpful for enterprises that require to
process massive amounts of information using restricted resources.
Examples of Batch processing is MasterCard transactions, that the transactions area unit
processed monthly instead of in real time. MasterCard transactions would solely be processed
once per month so as to provide a statement for the client, thus Batch processing saves IT
resources from having to process every transaction separately.

Functional Level:
The Functional Level is the middle level which management make plan of action decisions that
are important to the organisation, because they are thought of being more educated and more
responsible than the Operation Level management but don’t have as much authority as the
Strategic level management, their decisions tend to be more intermediate term issues that
answer the organizations needs to complete tasks.

Reach objectives and think up of strategies. Control is very important at the Functional Level.
Functional Level management set targets to be met for each department or business associates
in the organization that are in line with the main organizational targets set by Strategic Level
management. Internal and external data is important for making crucial decisions, which often
has a long term time horizon usually between one and three years. The Functional Level uses
four different management systems.

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