Business Information Systems 2T

Transcription

1 BACHELOR OF COMMERCE IN INFORMATION AND TECHNOLOGY MANAGEMENT (YEAR 2) Business Information Systems 2T Study Guide Copyright 2013 MANAGEMENT COLLEGE OF SOUTHERN AFRICA All rights reserved; no part of this book may be reproduced in any form or by any means, including photocopying machines, without the written permission of the publisher REF: BIS2T2013

2 Introduction This course in Business Information Systems is intended to provide a comprehensive guide to choosing the appropriate information system for an organization. It covers, in detail, the software and hardware technologies which form Information Systems, the activities involved in acquiring and building new Information Systems and the elements of strategy required to manage Information Systems effectively. The prescribed textbook is: Bocij P., Greasley A. and Hickie S. (2008). Business Information Systems. 4 th Edition. Essex. England: Prentice Hall. How to Use This Module This module should be studied using the study guide and the prescribed text book. You should read about the topic that you intend to study in the appropriate section of this Study Guide before you start reading in detail in the prescribed textbook. Ensure that you make your own notes/summaries as you work through both the textbook and this Study Guide. At the commencement of each section of this Study Guide you will find a list of learning outcomes. These learning outcomes outline the key areas of competence which you should develop as a result of working through the section with its supporting chapters in the prescribed textbook. Avoid reading all the material at once. Take a study session at a time. MANCOSA BCom ITM Year 2 1

3 Icons In the study guide a set of icons have been designed to communicate certain study process messages for you to participate. Important information Further/additional Reading Answers/solutions. This is used after a self-evaluation exercise, where you receive information about possible answers to the activity you just completed. As you work through the study guide, you will come also come across: Learning outcomes: list describing what readers should learn through reading the chapters Think point: a think point asks you to stop and think about an issue. Sometimes you are asked to apply a concept to your own experience or to think of an example Activity: An activity asks you to carry specific tasks Discussions questions: require longer essay-style answers discussing themes from the chapters Self assessment questions: short questions which will test your understanding of the chapters Examination questions: typical short answer questions which would be encountered in an exam and can also be used for revision. MANCOSA BCom ITM Year 2 2

4 Module Outcomes On completion of the Business Information System module, students should: have a thorough understanding of the value, use and management of information, information systems and information technology in order to revitalise business processes, improve managerial decision-making and gain a competitive advantage; and be able to apply the various principles and techniques in an integrative way to deal with the core dynamics of information management. The module outcomes imply that any student that has completed this module should: understand the fundamental behaviour and technical concepts of information systems management; comprehend how information systems solutions to business problems are developed by the use of fundamental problem-solving and development technologies; reflect on the major concepts, developments, and managerial issues in computer technology: hardware, software, telecommunications and database management ; be familiar with the major applications of information systems in operations, management, and for a competitive advantage of an enterprise; and grasp the major management, global and ethical challenges regarding information systems and technology. MANCOSA BCom ITM Year 2 3

5 TABLE OF CONTENTS PART CHAPTER PAGE 1 INTRODUCING INFORMATION SYSTEMS INTO BUSINESS 2 COMPUTER HARDWARE AND SOFTWARE 24 3 TELECOMMUNICATIONS AND NETWORKS 42 4 OPERATIONAL EXCELLENCE AND CUSTOMER INTIMACY: ENTERPRISE SYSTEMS 5 INFORMATION SYSTEMS IN PERSPECTIVE 81 6 BUSINESS INFORMATION SYSTEMS DEVELOPMENT 94 7 BUSINESS INFORMATION SYSTEMS PROJECT MANAGEMENT 8 INFORMATION SYSTEMS STRATEGY INFORMATION SYSTEMS MANAGEMENT MANAGING INFORMATION SECURITY AND ETHICAL CHALLENGES REFERENCES 157 GLOSSARY 159 MANCOSA BCom ITM Year 2 4

6 PART 1 INTRODUCING INFORMATION SYSTEMS INTO BUSINESS MANCOSA BCom ITM Year 2 5

7 At the end of this study unit, the learner should be able to: understand the basic concepts related information systems, including the characteristics of a system and components; explain the vital role information systems play in business operations and managerial decisionmaking; discuss the types of decisions taken at different levels of management; explain how knowledge management relates to information systems; explain the different types of system; and comment on the resources that support Business Information Systems MANCOSA BCom ITM Year 2 6

8 1.1. INTRODUCTION When beginning the study of the use of information systems (IS) in business, it is important to understand a number of concepts drawn from a variety of different fields. In order to create, improve and manage business information systems (BIS) one must combine an understanding of information, systems concepts, business organisations and information technology (IT). The purpose of this study unit is to introduce the field of information management. The user will gain a basic understanding of the importance of information systems by analysing how information systems relate to the student as a managerial end user. This study unit will also familiarise the user with the important role of information technology in your organisation. This study unit presents an overview of the basic areas of information systems knowledge needed by business professionals, including the conceptual system components and major types of information systems. Study Chapters 1 and 2 in Bocij et al. (2008) that deal with an introduction to the foundation of information systems in business. 1.2 WHY STUDY BUSINESS INFORMATION SYSTEMS? Information systems form an integral part of modern organisations and businesses. Computer-based IS are now used to support all aspects of an organisation s normal functions and activities. New technology creates new opportunities for forward-thinking companies. Higher levels of automation, high speed communications and improved access to information can all provide significant benefits to a modern business organisation. However, the benefits of new and emerging technologies can only be realised once they have harnessed and directed towards an organisation s goals. MANCOSA BCom ITM Year 2 7

9 1.3 WHY INFORMATION SYSTEMS ARE IMPORTANT? Information systems play a fundamental and ever-expanding role in all organisations. Therefore, an understanding of the effective and responsible use and management of information systems is important for all managers and other business knowledge workers in today s global information society. A knowledge worker is a person whose primary work activities include creating, using and distributing information. A high portion of workers employed by organisations can be classified as knowledge workers. Information systems have become a vital component of successful organisations. It constitutes an essential field of study in business administration and management. Information systems are considered a major functional area in business operations and it can play an important role in the success of an organisation. It integrates accounting, finance, marketing, production and human resource management in the organisation. It can provide the information an organisation needs for efficient operations, effective managerial decision-making and a competitive advantage. First, a clear understanding of the difference between efficiency and effectiveness is important. This difference is a basic principle in management and it is also applicable to the field of information systems. Efficiency can be defined as doing things right. It is a measure of the consumption of input resources in producing given system outputs. It focuses on productivity. An efficient data processing system can update thousands of employee records per minute. Historically, data processing systems have supported efficiency by automating routine paperwork processing tasks. Effectiveness can be defined as doing the right things. This means doing things that need to be done in order to achieve important business results. An effective information system is therefore a system that achieves its objectives. A database housed on a notebook may enable a sales manager to identify high potential sales prospects and to direct his staff s attention to take advantage of those prospects BASIC CONCEPTS Data and Information Much of a manager s work involves using information to make decisions and ensuring that information flows through the organisation as efficiently as possible. MANCOSA BCom ITM Year 2 8

10 Data Data are raw facts or observations, typically about physical phenomena or business transactions. More specifically, data refers to objective measurements of the attributes (characteristics) of entities, such as today s date, people, places, things, and events Information Information is processed data, which has been placed in a meaningful and useful context for an end user. Data is subjected to a value-added process where its form is aggregated, manipulated, and organised, its content analysed and evaluated and placed in a proper context for a human user. Information, therefore, is data that has been made relevant for a specific person to make decisions. Any report given to a foreman or area manager, remains data until it has been assimilated by them to make decisions Data Process A process used to convert data into information. Examples include summarising, classifying and sorting Value of Information It is often possible to measure the value of information directly. The tangible value of information is often measured in terms of financial value, an example can be the use of inventory information to improve stock control procedures. The intangible value of information is difficult or impossible to quantify, an example can be attempting to measure the extent to which information can improve decision behaviour Sources of Information Information can be gathered through both formal and informal communication. Formal communications can include reports and accounting statements. Informal communications can include conversations and notes Formal communication Formal communication involves presenting information in a structured consistent manner. MANCOSA BCom ITM Year 2 9

11 Informal communication. This describes less well-structured information that is transmitted by informal means such as casual conversations between members of staff Attributes of Information Quality A group of characteristics by which the quality of information can be assessed, normally grouped into categories of time, content and form. Table 1.1: Summary of attributes of information quality TIME CONTENT FORM ADDITIONAL CHARACTERISTICS Timeliness Accuracy Clarity Confidence in source Currency Relevance Detail Reliability Frequency completeness Order Appropriateness Time period Conciseness Presentation Received by correct person Scope Media Sent by correct channels (Bocij et al, 2008: 12) Knowledge Knowledge can be thought of as the combined result of a person s experiences and the information they possess. Knowledge management (KM) describes a range of activities intended to make sure an organisation uses its information resources as effectively as possible. Applications of KM include data mining, document image processing and business intelligence. Competitive intelligence is an area of knowledge management concerned with helping organisations to respond effectively to competition by gathering and analysing information about competitors. MANCOSA BCom ITM Year 2 10

12 1.5. MANAGERIAL DECISION MAKING In order for an organisation to function effectively all activities must be planned and monitored by managers according to well-informed decisions. The functions of management include forecasting, planning, organising and coordination and control. One of the key management functions that information systems seek to support is managerial decision making. The way in which managers make decisions and the factors that influence those decisions are often described as decision behaviour. Decisions can be classified as structured or unstructured or semi-structured. Structured decisions: situations where the rules and constraints governing are known, e.g., How would we process a sales order? Unstructured decisions: complex situations where the rules governing the decision are complicated or unknown, e.g., what should our distribution channels be? Semi-structured: Many decisions fall somewhere in between the two extremes, e.g., which foreign market should we target? LEVELS OF MANAGERIAL DECISION MAKING Strategic Level: managers are largely concerned with long term organisational planning. Tactical Level: Managers are largely concerned with medium term planning. Operational Level: Managers are largely concerned with short term planning and the day- to day - control of an organisation s activities. MANCOSA BCom ITM Year 2 11

13 Table 1.2: Decision characteristics and management level Management level Type of decision Timescale Impact of Frequency organisation decisions STRATEGIC Unstructured Long Large Infrequent LEVEL TACTICAL LEVEL medium Medium OPERATIONAL structured short small Frequent LEVEL (Bocij et al, 2008: 20) of 1.6 The real world of information systems ACTIVITY Case 1.1: Letters to the dead and other tales of data dereliction that of (Bocij et al., p14). This case dramatizes just one of the countless examples of the information that are duplicated or out of date. Read attentively through the Case 1.1: Letters to the dead and other tales of data dereliction that of (Bocij et al., p14). Answer the case study questions on p. 15 and read through the paragraph Competitive intelligence on page 29. Also answer Discussion Question 4 on p. 30. Do you think that your organisation could also benefit from such a strategy? After you have analysed the case study and answered the questions, consider the suggested answers given at the end of the study unit. Additional Reading Turn to pp of Bocij et al. The summary provides an outline of the major areas of information systems knowledge needed by a managerial end user. This includes foundation concepts of information systems, information system technology, and the application, development and management of information systems. MANCOSA BCom ITM Year 2 12

14 1.7 THE SYSTEMS APPROACH Systems theory provides a means of analysing and improving business processes within and between systems 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 What is Input? Input is the raw materials for a process that will produce a particular output What is process? Inputs are turned into outputs by a transformation process What is output? A product that is created by a system. Figure 1.1 illustrates the organisation of the input process-output model. (Source: Bocij et al, 2008:36) When these components are added to the basic model of the system, it can be illustrated in Figure 1.2 as follows Figure 1.2: A generic model of a system (Source: Bocij et al, 2008:37) What is feedback? Feedback provides information on the performance of a system which can be used to adjust its behaviour. MANCOSA BCom ITM Year 2 13

15 1.7.6 What is control mechanism? If alterations are needed to the system, adjustments are made by a control mechanism. In business there are familiar phrases such as I am not part of the system, The system is down, He has a good system, or Do not interfere with the system. Phrases like these suggest that almost everything can be a system. However, the term system is often misunderstood because the value and applicability of the systems theory to daily life is underestimated. More specifically, in the field of information systems, the value of the systems theory to solve information management problems is underestimated. Additional reading Turn to p 37 of Bocij et al., read the paragraph Systems Components and make sure you can explain all the different system components. Included are the definition of a system, input, processing, output, feedback, control, environment, boundary, subsystems and the interrelations between the components. Take note of Figure 2.1 (p.36) and Figure 2.2 (p.37) for graphical displays of the various system concepts. Other system concepts that are important to your body of knowledge include the following: Closed System: A system that does not interact with other systems or its environment, is a closed system. An example of a closed system is a battery that runs down after a while. This phenomenon of decay is called entropy. Open System: A system that interacts with other systems in its environment is called an open system (connected to its environment by exchanges of inputs and outputs). Adaptive System: A system that has the ability to change itself or its environment in order to survive is called an adaptive system. Cybernetic System: A system that includes feedback and control components. These systems are self-monitoring and self-regulating. Consider an example that will explain most of the system concepts. A medium sized furniture manufacturing business is used as an example. MANCOSA BCom ITM Year 2 14

16 The organisation is supposed to have a common purpose or goal, for example to make a profit. Furthermore, it consists of various functional departments, such as the Human Resource, Production (manufacturing), Sales, Marketing, and Financial, Research and Development and Information Technology departments. It is important that all the subsystems of this organisation (functional departments), work together to ensure that the organisation attains the common goal. The different subsystems (departments) are interrelated to each other and form a bigger system, in this case the manufacturing business. The business uses inputs (raw materials, labour, capital) and transforms or processes these (manufacturing process) into outputs (chairs, tables). The system, and subsystems, is influenced by the internal environment (business policies, productivity, organisational culture, strikes) and the external environment (government policies and the economic, socio-economical, political and technological environment). There is also a feedback and control process built into the manufacturing process. It is vital that all the departments work together to attain the common goal of the organisation. Each department (sub-system) may act in the best possible way as a sales system, but the sum of their actions may not be optimal for the organisation. This is the problem of sub-optimisation. An aggressive market strategy could lead to more sales, but if product quality (production) is not of the necessary standard, the organisation will over the long-term fail to be optimal and sales could drop. Therefore, the various subsystems must be aligned to achieve the goals of the system. If the subsystems complement each other, their effectiveness considered collectively as a system may be greater than the sum of the effectiveness of each subsystem considered separately. This phenomenon is called synergism. The effect of synergism must be understood and fostered because it can give an organisation a competitive edge. Although the systems theory is concerned with a holistic approach, it does not neglect the components of the subsystems. It recognises the activities of the components while also considering the activity of the whole system that contains it. That is important, because the system is only as strong as the individual entities being put together. The weakest link in the chain determines the strength. ACTIVITY Take a system that you are familiar with, and describe its various components. MANCOSA BCom ITM Year 2 15

17 1.8 WHAT IS A BUSINESS INFORMATION SYSTEM (BIS)? 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 organisation (Bocij et al, 2008). 1.9 RESOURCES THAT SUPPORT BUSINESS INFORMATION SYSTEMS People resources: People resources include the users of an information system and those who develop, maintain and operate the system. Hardware resources: The term hardware resources refers to all types of machines, not just computer hardware. Software resources: In the same way, the term software resources do 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. Communications resources: Resources are also required to enable different systems to transfer data. Data resources: Data resources describe all of the data that an organisation has access to, regardless of its form. Further reading Read paragraph on Business Information System Resources (Bocij et al., p.43) which provides information on information systems resources and products, which include people, hardware, software, data and network resources COMPONENTS OF AN INFORMATION SYSTEM. The components of an Information System are as follows: Input device: Hardware used to enter data, information or instructions into a computer-based information system. Central processing unit (CPU): The processor found in a computer system that controls all of the computer s main functions and enables users to execute programs or process data. Memory: A temporary means of storing data awaiting processing, instructions used to process data or control the computer system, and data or information that has been processed. Storage devices: A permanent means of storing data and programs until they are required. Output devices: Translate the results of processing output into a human readable form. MANCOSA BCom ITM Year 2 16

18 Figure 1.3 (Source: Bocij et al, 2008:67) Further reading For further reading on Components of an information system: Turn to pp of Bocij et al. ACTIVITY Is there a difference between data and information? If so, what is the difference? Give examples in your organisation to motivate your answer. Suggested answer Take note of the paragraph Data Resources on p. 43. MANCOSA BCom ITM Year 2 17

19 The terms data and information are often used interchangeably. Data is raw facts or observations, typically about physical phenomena or business transactions. More specifically, data refers to objective measurements of the attributes (characteristics) of entities, such as people, places, things, and events. Information is processed data, which has been placed in a meaningful and useful context for an end user. Data is subjected to a value-added process where its form is aggregated, manipulated, and organised, its content analysed and evaluated and placed in a proper context for a human user. Information, therefore, is data that has been made relevant for a specific person to make decisions. Any report given to a foreman or area manager, remains data until it has been assimilated by them to make decisions. Note, therefore, that one person's information may be another person's data. The value of information can be directly linked to how it helps decision-makers achieve the organisation s goals and objectives. For example, the value of information can be measured by the time required to make a decision or by the increased profits of an organisation. Consider a market forecast that predicts a high demand for a new product. If market forecast information is used to develop the new product and the organisation makes an additional profit of one million Rand, the value of the information to the organisation is one million Rand. However, it is in most cases difficult to quantify the value of information to the organisation in monetary terms. There are also intangible gains, such as a growth in market share, lower risk, better safety and a competitive advantage. MANAGEMENT RESPONSIBILITY Managers must answer the following questions regarding the gathering, processing and dissemination of data/information in an organisation: Do the team members know what happens to the data he or she gathered? Does anyone use the data in the decision making or problem solving process? Is there any feedback regarding the value and possible use of the data? Do the team members think that the gathering of data is worth the input? Does the organisation get the right information at the right time? Does the organisation utilise the quality and usable information? MANCOSA BCom ITM Year 2 18

20 1.11 Applications of Business Information systems The information or data processing activities that occur in an information system include the input of data resources, processing of data into information, output of information products, storage of data resources and the control of system performance Recognising Business information systems Managers should be able to recognise the fundamental components of information systems encountered in the real world. This means that managers should be able to identify the people, hardware, software and data resources they use, the types of information products they produce and the way they perform input, processing, output, storage and control activities. To fully understand a business information system, one needs to analyse it by identifying the resources the information system uses, the information processing activities it performs, and the information products it produces. This will enable managers to identify ways to improve the components and thus the performance of the information system. Information systems form part of the total system in an organisation with a common goal, for instance to maximise shareholder wealth. Therefore, a basic understanding of the systems theory and its application to business information systems is vital to any organisation. ACTIVITY Consider the discussion Questions on p. 60 of Bocij et al. and answer questions 4 and CONCLUSION This study unit has given an overview of the basic concepts of information system. It has also shown that much of a manager s work involves making decision about the best way to achieve the organisation s objectives. Further, the quality of a manager s decisions depends upon the quality of the information he or she has access to. Since information influences almost every activity within an organisation, it is an important asset and must be treated accordingly. Information systems have proved to be important subsystems in any organisation because it contributes to the common goal of the organisation. An information system uses the resources of people, hardware, and software to perform input, processing, output, storage, and control activities that convert data resources into information products. MANCOSA BCom ITM Year 2 19

21 Suggested answers Case Study 1.1: Letters to the dead and other tales of data dereliction 1. The case study identifies a number of problems with the way companies store and manages information. Using your own words, identify and describe these problems. In general, the problems described in the case study point to deficiencies in the data/information management processes and systems used by companies. This is not necessarily a technology issue; it is more to do with the management of information resources and the use of appropriate policies and procedures. Some examples that support this argument are as follows: Lazy sales staff entering data incorrectly. Staff should be monitored correctly and procedures should be in place to check the accuracy of data as it is entered. Advances in technology mean greater quantities of information are available but managers do not organise it properly information overload? There is a tendency to collect large quantities of data without regard for whether or not it is needed/useful. Mention of information management professionals suggests that these experts should be involved in (a) deciding what information to collect, (b) making sure it is accurate and (c) storing it in an organised manner. Duplication of information caused by allowing individual departments to keep their own copies of records, rather than keeping records centrally. Companies do not know what information they have and how it is being used! Information resources cannot be managed correctly if no one knows what they are. Inaccurate assumptions are being made about the meaning of information (e.g. sales spike), suggesting that it is not being processed/analysed correctly. Company systems are unsuitable for handling companies data processing needs (e.g. unable to hold separate addresses for joint account holders). Effective management should/would have identified and corrected such a problem before it became an issue. Data/information management processes and systems are unable to deal with new requirements (e.g. delivering information more quickly and handling unstructured data). MANCOSA BCom ITM Year 2 20

22 2. According to the case study, Bill Gates has claimed that almost a third of information workers time is spent searching for data. Why do you think this is? This question is intended to introduce the notion of information overload in the context of management. Following are some of the reasons why people spend a great deal of time searching for information: Too much irrelevant information exists; the required information is buried. Time is spent finding out if the information needed actually exists. Information is presented in a way that is difficult to understand, so it takes longer to search for and identify the required information. Information is badly organised, making it harder to search quickly. Information is spread out across a number of locations (e.g. across departments). Information is stored in different formats or presented in different ways. 3. What are some of the consequences of relying on inaccurate information? Refer to the case study in your answer. Answer: Some examples drawn from the case study: Negative publicity, loss of customer satisfaction: The families of deceased people would have been distressed by receiving Dear Mr. Deceased letters. Distress also caused by pension leaver letters. Lost business, cost of cleaning data: Listing customers as astronauts would cause insurance company to lose potential sales. Database records need to be corrected. Impaired productivity, loss of customer satisfaction. The case study points out that relying on inaccurate information damages efficiency; at worst it can destroy relationships and hamper efforts in crucial areas such as fighting fraud. Public safety, damage to company image, damages: The safety of some people might be jeopardized (letter containing the new address of a wife sent to her violent husband); the company would have suffered negative publicity and was forced to pay cost of rehousing the wife. MANCOSA BCom ITM Year 2 21

23 Discussion question Knowledge management is nothing new, it is merely a repackaging of existing information management techniques. Discuss. A suggested structure for this answer is: Definition of knowledge management (KM). Explanation of concept of tacit and explicit knowledge. Summary of what is new about KM, i.e. focus on making use of information (applying intelligence that is part of managers experience and skill set). Use examples of applications (e.g. Hansen et al., 1999 article in chapter references). It is a structured rather than ad hoc approach to capturing and disseminating knowledge. Assess whether or not it is repackaging using examples of applications and practice. For example, information on best practice has always been shared, with or without the KM label. To conclude, discuss whether or not KM has caused a change in practice or change in perspective. A combination of the two, but mainly in perspective. Discussion questions on page Discuss the following statement with reference to how an organisation should react to the Internet. Is the Internet a typhoon force, a ten times force, or is it a bit of wind? Or is it a force that fundamentally alters our business? (Andy Grove, Chairman of Intel). Suggested approach: This statement is useful in that it indicates that the impact of the Internet will vary according to the type of business that an organisation is in. Students should look at a range of industries from those where the impact is high, e.g. media and information services to those where the impact is low, e.g. retailer. Examples can be taken from those that have reacted, e.g. easyjet or General Electric in comparison to those that haven t. The analogy may also be apt, since the Internet phenomenon may be transitory. This can also be considered. MANCOSA BCom ITM Year 2 22

24 5. Enterprise resource planning software is likely to replace packages used in a single area of the organisation, such as accounting, logistics, production and marketing. Discuss. Answer: ERP is likely to be restricted to larger organisations due to the cost of customisation of the software for the client. Mass-produced and, thus, cheaper, off-the-shelf packages are likely to be the most suitable option for the small organisation. Enterprise resource planning (ERP) software is a single system that gives applications for all the major business functions discussed in this chapter such as production, distribution, marketing and sales, finance and human resources management. It is normally purchased as an off-the-shelf package, with modules for each major business process or business function that are tailored by a consultant. A single package typically replaces many different previous packages. The benefits of this approach include: reduced cost of buying from a single supplier; better transfer of information within the organisation since all the modules of the system are compatible; simplified support and maintenance through a single supplier; use of best-of-breed solutions employed by other companies. The main disadvantage of the use of ERP systems seems to be the high costs charged by suppliers due to the demand for this type of system. This high demand has also given rise to skills shortages. The other disadvantage of ERP systems is shared with all off-the-shelf systems, namely, that the business often has to change its processes or way of working in order to fit the way the software works. This may not present a problem if a company is looking to reengineer its processes since, then, the ERP software can provide a framework. Owing to the high cost of ERP solutions, only large companies can afford the cost of the software and the consultants, which will often be measured in millions of pounds. Smaller companies can take advantage of the features of integrated accounting packages that now provide modules beyond those of the basic accounting package. MANCOSA BCom ITM Year 2 23

25 In summary, there is overwhelming evidence that ERP will replace functional applications in large organisations. In smaller organisations, the role of ERP applications is likely to be assumed by integrated accounting packages with similar functions. MANCOSA BCom ITM Year 2 24

26 PART 2 COMPUTER HARDWARE AND SOFTWARE MANCOSA BCom ITM Year 2 25

27 At the end of this study unit, the learner should be able to: demonstrate knowledge of the trends and developments in microcomputer, midrange, and mainframe computer systems; understand the basic computer hardware concepts, as well as the major types of technologies used in peripheral services for computer input, output, and storage; identify the major types and uses of computer peripherals; identify several major types of system and application software; explain the benefits and features of network computer systems MANCOSA BCom ITM Year 2 26

28 2.1 INTRODUCTION The study unit deals with a managerial overview of computer hardware by reviewing the basic types of computer systems and the major types of computer peripheral devices used for input, output, and storage. An overview will also be given on computer software by analysing the functions, benefits and the limitations of major types of systems and application software packages. Study Chapter 3 and 4 in Bocij et al. (2008) that deal with the managerial overview of computer hardware and software. 2.2 WHAT IS MEANT BY PERIPHERALS? Peripherals is the generic name for all input/output equipment and secondary storage devices that depend on direct connections or Telecommunications links to the central processing unit (CPU) of a computer system. Thus, all peripherals are on-line devices, that is, separate from, but can be electronically connected to and controlled by a CPU. This is the opposite of off-line devices, which are separate from and not under the control of the CPU. 2.3 WHAT ARE INPUT AND OUTPUT DEVICES? Input devices: Hardware used to enter data, information or instructions into a computer-based information system Output devices: translate the results of processing output into a human readable form. These devices include: pointing devices such as electronic mice, trackballs, pointing sticks and touch-sensitive screens; pen-based computing such as light pens or digitisers; video and multimedia input and video output; printed output by means of printers and plotters to produce permanent (hard copy) output; voice recognition and voice response; and optical scanning and magnetic data entry. MANCOSA BCom ITM Year 2 27

29 2.4 STORAGE TRENDS AND TRADE-OFFS A Storage device is a permanent means of storing data and programmes until they are required. Storage devices of computers can be divided into: 1. Primary storage devices: The primary storage of most modern computers consists of the following: Volatile memory: Anything held in memory is lost once the power to the computer system is switched off. Non-volatile memory: Non-volatile memory retains its contents until altered or erased. Random access memory (RAM): RAM is used as volatile, working storage by a computer, holding instructions and data that are waiting to be processed. Read-only memory (ROM): The contents of ROM are fixed and cannot be altered. ROM is nonvolatile. EPROM (erasable programmable read-only memory): This is a form of ROM memory that retains its contents until changed using a special device known as a burner. Cache memory: Used to improve performance by anticipating the data and instructions needed by the processor. The required data is retrieved and held in the cache, ready to be transferred directly to the processor when required. 2. Secondary storage devices Secondary storage devices include the following: Floppy disk: Consists of a plastic disk, coated with a magnetic covering and enclosed within a rigid plastic case. Hard disk: A magnetic medium that stores data upon a number of rigid platters that are rotated at very high speeds. Personal video recorder (PVR): A PVR is a sophisticated video recorder that uses a hard disk drive to store programs. The use of a hard disk drive allows a PVR to offer a range of sophisticated features, such as the ability to pause live broadcasts. Flash drive: A flash drive is a portable storage device that connects to a computer via a standard USB port. Flash drives have no moving parts, so are reliable and robust. MANCOSA BCom ITM Year 2 28

30 Additional Reading: For further reading on Primary and Secondary storage devices, turn to pp of Bocij et al. ACTIVITY Analyse the Case 3.2 Did IT work? How Wall Street is eradicating down time (Bocij et al., p. 106). Analyse the case and answer the questions. After answering the questions, refer to the suggested answers at the end of the study unit. 2.5 COMPONENTS OF A COMPUTER SYSTEM What is a Computer System? A computer system is a number of interrelated components including hardware and software that work together with the aim of converting data into information. The components of a computer system include hardware and software Computer Hardware What is Computer Hardware? Computer hardware includes the physical components of a computer system: input devices, memory, central processing unit, output devices and storage devices. Input devices. Hardware used to enter data, information or instructions into a computer-based information system. Central Processing Unit (CPU): The processor found in a computer system that controls all the computer s main functions and enables users to execute programs or process data. Memory: a temporary means of storing data awaiting processing, instructions used to process data or control the computer systems and data or information that has been processed. Output devices: translate the results of processing output into a human readable form. Storage devices: a permanent means of storing data and programs until they are required. MANCOSA BCom ITM Year 2 29

31 Figure 2.1 (Source: Bocij et al, 2008:67) Further reading Read on Components of a computer system: Turn to pp of Bocij et al. 2.6 TYPES OF COMPUTER SYSTEMS There are several major categories of computer systems with a variety of characteristics and capabilities. Thus, computer systems are typically classified as: Mainframe computers: powerful computers used for large-scale data processing Minicomputers computers: computers that offer an intermediate stage between the power and mainframe systems and the relatively low cost of microcomputer systems. Microcomputers: computers that are considered less powerful than minicomputers and mainframes, but are more flexible and relatively inexpensive to purchase. These categories are attempts to describe the relative computing power provided by different computing platforms or types of computer. Therefore, they are not precise classifications. MANCOSA BCom ITM Year 2 30

32 Some experts predict the merging or disappearance of several computer categories. They feel that many midrange and mainframe systems have been made obsolete by the power and versatility of client/server networks of microcomputers and servers. Most recently, some industry experts have predicted that the emergence of network computers and information appliances for applications on the Internet and corporate intranets will replace many personal computers, especially in large organisations and in the home computer market. ACTIVITY To understand better the paragraph above on obsolete computer systems, attempt Discussion Question 3 p. 116 of Bocij et al. Computer systems are most commonly categorised according to size, processing speed and storage capacity. Further reading Turn to the paragraph Major categories of computers (Bocij et al., p. 68), which gives a short overview of the various types of computers, (Figure 3.3 on p. 68). Figure 2.2: Different forms of computer system. (Source: Bocij et al, 2008: 68) MANCOSA BCom ITM Year 2 31

33 2.7 NETWORKED COMPUTER SYSTEMS Network computer systems are very important in organisations. The benefits of network computer systems are: Networked computer systems allow end users to communicate electronically and share the use of hardware, software, and data resources. Networks of small computers have become a major alternative to the use of larger computer systems, as many organisations downsize their computing platforms. For example, a local area network (LAN) of microcomputers can replace the use of groups of end user terminals connected to a minicomputer or mainframe. The features of networked computer applications include: Networked microcomputer systems are used in place of minicomputers and mainframes; Are easy to install, use, and maintain; and provide a more efficient, flexible, lower-cost alternative to large computer systems for many applications; and Can share computer power, software, and databases required in time-sharing and resourcesharing applications. Networked computers also support work group computing (communicate electronically and share data on joint projects); and Are used in transaction processing applications. Additional Reading Network computer systems form a vital part of today s information systems. Increasingly, computers are being networked or interconnected by Telecommunications links with other computer systems. Further reading: Turn to p. 74 of Bocij et al. and read through the paragraph Network Computers. MANCOSA BCom ITM Year 2 32

34 ACTIVITY The mini case study on p. 75 of Bocij et al., relates how Panalpina uses network computers to reduce costs, please study the paragraph and make notes. Then analyse Case 3.1 When Systems converge but people don t and answer the questions on p.81 as well as Essay Question 1 on p Take note of the use of computer systems. ACTIVITY Work through the following exercises on network computing. Refer to Discussion Question 1 on p 115 of Bocij et al. Do you think that client/server networks make minicomputers and mainframe computers obsolete? Explain MANAGEMENT RESPONSIBILITY Managers may argue that it is unnecessary to be an expert on information system technology. Computer hardware and software are vital resources to support business operations, managerial decision making and strategic advantage. Therefore, you need to understand the basic terminology and concepts which are part of the basic literacy of business people and managers in an information era. The responsibility as a manager would be to manage the end users and the effective utilisation of computer technology in the work environment. MANCOSA BCom ITM Year 2 33

35 Additional reading It is recommended that you refer on a regular basis to the Glossary page for short descriptions of most of the relevant terms as follows. You can also discuss the terms with a computer expert at work or with fellow students. Refer to the glossary page for the following terms: Application generator Artificial intelligence Batch processing Business ethics Business Information Systems Business Process Reengineering Chip theft Client/Server model Competitive Advantage Computer criminals Cost of ownership Critical Success Factors Cross licensing agreement Database Data warehouse Decision Support Systems Electronic Data Interchange Electronic Commerce Executive Information Systems Expert Systems Extranet Groupware Information Intelligent Agent MANCOSA BCom ITM Year 2 34

36 Local Area Network Management Information System Neural Networks Online Analytical Processing Prototyping Systems analysis 2.8 APPLICATION SOFTWARE: END USER APPLICATIONS Software can be defined as a series of detailed instructions that control the operation of a computer system. software exists as programmes that are developed by computer programmers. Systems software: this form of software manages and controls the operation of the computer system as it performs tasks on behalf of the user. Application software directs the processing required for a particular use, or application, that you as an end user want to accomplish. Application software can be divided into two categories, general purpose programs and application-specific programmes. The various types of application software for end users are discussed in this study unit. General purpose programmes are those that perform common information processing jobs for end users. Examples are word processing programmes, spreadsheets programmes, database management programmes, integrated packages, and graphics programmes. Application-specific programmes are programmes that support specific applications of end users. Major categories of application-specific programmes include business application programmes, scientific application programmes, and other application programmes. The major software trends important to managerial end users are: there is a trend away from custom-designed one-of-a-kind programs developed by the professional programmers or end users of an organisation, and there is, however, a trend towards the use of off-the-shelf software packages acquired by end users from software vendors. MANCOSA BCom ITM Year 2 35

37 There is also a trend towards the use of user-friendly fourth-generation programming languages. That makes it easier for end users to develop their own applications You have to take note of these trends in order to use the available technology to the benefit of the organisation. Additional Reading For further reading on software: Turn to p of Bocij et al. (Chapter 4). 2.9 GENERAL-PURPOSE SOFTWARE General-purpose applications are programmes that can be used to carry a wide range of common tasks, for e.g a word processor. It is often referred as productivity software as it helps to improve the efficiency of an individual. General-purpose software commonly used by end users include: Software Suites and Integrated Packages ; Web-Browsers; Electronic Mail; Word Processing and Desktop Publishing Packages; Electronic Spreadsheets; Database Management Packages; Presentation Graphics and Multimedia Packages; Personal Information Managers; Groupware and Other business Software APPLICATION-SPECIFIC SOFTWARE Application-specific software comprises programs intended to serve a specific purpose such as software in the accounting and marketing function. MANCOSA BCom ITM Year 2 36

38 Further reading Turn to Bocij et al. p. 125 and read through the paragraph Application Software. The concepts General-Purpose Application Programmes and Application-Specific Software Packages are introduced. ACTIVITY Which application software (also known as software packages) are you familiar with? Do you use it to support your work tasks? Explain Do you think that these software packages are helpful tools? Suggested answers Case Study 3.1: When systems converge but people don t 1. In brief, what is VoIP? If necessary, use the Internet to carry out any research you need. VoIP stands for Voice over Internet Protocol. It is a service that is used for transmitting telephone calls over a network, such as the Internet. In order to use VoIP, both users must be connected to the network and both must have an appropriate handset (or a microphone and speakers) and a computer running a suitable software. The very latest systems do not need a computer; they can be connected directly to a router and use wireless handsets. MANCOSA BCom ITM Year 2 37

39 2. What are the benefits of VoIP to a business organisation? Refer to the case study in your answer. The case study lists a number of significant business benefits as follows: Replacing two networks with one reduces the amount of hardware needed to be bought and maintained. In turn, this reduces other costs such as training. IP-based phone networks are easier to manage, resulting in time and cost savings. Call costs are reduced. The system can be the basis for new applications e.g. unified messaging. 3. Can you think of any disadvantages associated with this technology? Some major disadvantages: The company becomes reliant on its network system; any failure also means the loss of telephone communications. Staff needs to be trained to handle new technologies. Adopting this approach can result in conflict between departments (IT and telecoms). Case Study 3.2 Did IT work? How Wall Street is eradicating downtime 1. Suggest at least three ways virtual computing can help an organisation to reduce costs. Some ways in which virtualisation can reduce costs: Virtual machines can be created to emulate legacy systems, removing the need to maintain outdated equipment. Since a virtual machine often runs more quickly than the legacy system being emulated, it can remove the need to migrate to a new, faster system. Developers can programme and test applications on several operating systems using only a single PC. Snapshots make it quick and easy to deploy new machines and install updates. Virtual machines can make use of spare capacity, reducing the need to buy additional hardware. MANCOSA BCom ITM Year 2 38

40 New software can be tested on a virtual machine before being installed on the company s network. This reduces the possibility of crashing the network and makes it easier to determine the source/cause of any problems. 2. The case study suggests that when you focus on recovery: the hardware and software you buy becomes less important. How true is this? This is only true to the extent that virtual machines can be created using almost any kind of hardware/software platform. However, the following points should be considered: Even if emphasis is placed on recovery, hardware and software must still be reliable. Poor quality hardware or buggy software, for example, may cause repeated crashes. The text makes it clear that virtual machines run more efficiently when multi-core processors are used. Hardware that is slow or inefficient may make virtual machines unusable. After all, the case study states, If a system is on, but running slowly, it is, in effect, down. The views of Steve Randich are based on a faulty assumption: robustness no longer needs to be engineered, at great expense, into the application or its operating system. Robustness describes the ability of a system to carry on working in spite of errors, partial failures or abnormal conditions. In terms of software, this usually means that an application should be able to cope with erroneous data and other, unexpected problems. An unstable operating system that crashes frequently will not become more reliable because it runs on a virtual machine it will remain unreliable and will continue to crash frequently. In this way, it is clear that the software you buy is important. 3. In your own words, explain how virtual machines can be moved around, backed up, or diverted to adjacent or remote systems. Two features of virtualisation technology allow these actions: Virtual machines allow the use of snapshots disk files containing an exact image of the virtual machine s memory and the contents of its hard disk at a specific point in time. These files can be used as backups and are easily copied to other machines. Software such as VMWare s Distribution Resource Scheduler (DRS) constantly monitors available computing resources and can automatically set up new VMs using spare resources if it detects a need, such as a sudden increase in web traffic. MANCOSA BCom ITM Year 2 39

41 Discussion questions 1. Will network computers and clients make personal computers obsolete? Using relevant examples, make a case for one side of this argument. Some of the arguments that might be discussed are given below: Network computers are the point at which computer technology and television converge. As interactive television becomes more popular, consumers will begin to see network computers in the same way as video recorders and satellite receivers. Compared to a typical personal computer, network computers have limited functionality. Since there is sometimes only a small difference in cost, consumers are likely to opt for a more flexible and more powerful personal computer. This argument also applies to thin clients. To date, network computers have failed to make an impression on the consumer electronics market. They are still considered expensive luxuries and have yet to deliver a killer app. Network computers are able to deliver some services more effectively and at lower costs than other methods. Video telephony, for example, is awkward and expensive to provide via a personal computer. Such applications will ensure the success of network computers. This argument also applies to thin clients. As technology progresses, it becomes possible to build dedicated devices that offer levels of power and sophistication similar to that of a personal computer. Since these devices are often multifunctional and are relatively cheap to buy, they are likely to replace the need for a personal computer for many people. A good example is the mobile telephone; recent models provide the ability to transmit pictures, access the Internet, manage appointments and so on. Although the primary purpose of the telephone is communication, it can also serve other purposes, such as allowing users to play games or access information services. MANCOSA BCom ITM Year 2 40

42 3. Despite still being functional, an obsolete computer system is of little value to a business organisation. Organisations should continually upgrade or replace systems in order to keep abreast of changes in technology. Make a case in favour of or against this argument. Although this is a relatively complex area, students might consider some of the following points: All organisations undertake a cycle of improvement and replacement for their computer systems. In a college or university, for example, all of the institution s hardware and software might be replaced or renewed during a five-year cycle. In view of this, it could be said that already organisations continually upgrade or replace systems in order to keep abreast of changes in technology. Changing an existing system or adopting a new one carries a number of risks; for example, a large financial outlay may be required to purchase the new system. Such risks are unacceptable when the potential gains to be made are unclear or uncertain. Although the hardware and software used by an organisation may be obsolete, it would be difficult to prove that obsolescence automatically renders a given system worthless. A fully functional system, no matter how old, will have an intrinsic value to an organisation. Consider the following: what expense would be involved in carrying out a given set of tasks without the system? If the system performs such tasks more quickly, more accurately or less expensively, then it has a clear, quantifiable value. Although a new system may carry out tasks more quickly or more accurately than an existing system, it may still not be viable in financial terms. The costs associated with implementation may be so high that they outweigh any benefits gained by adopting the system. New hardware and software often allow an organisation to maximise the use of its data resources. The ability to use data-mining software, for example, might allow the organisation to realise cost savings or identify new products and new markets. MANCOSA BCom ITM Year 2 41

43 In general, as technology moves forward, the expense involved in purchasing new hardware and software tends to decline. A system that might have cost many thousands of pounds five years ago may be available for just a few hundred pounds today. In many cases, it may be possible to adopt a new system for less than the cost of upgrading an existing one. MANCOSA BCom ITM Year 2 42

44 PART 3 TELECOMMUNICATIONS AND NETWORKS MANCOSA BCom ITM Year 2 43

45 At the end of this study unit, the learner should be able to: explain the importance of telecommunications in your organisation; explain the business benefits and disadvantages of networks; identify the trends in telecommunication; explain the types of telecommunications network specify the advantages and disadvantages of the client/server computing explain how internet is enhancing value to business organisations describe the models of e-commerce and discuss the key features of e-commerce. MANCOSA BCom ITM Year 2 44

46 3.1 INTRODUCTION For the modern organisations to operate effectively, the links connecting its people and their computers are vital. The network links provide the channels for information to flow continuously between people working in different departments of an organisation, or in different organisations. This allows people to collaborate much more efficiently than before the advent of networks when information flow was irregular and unreliable. These links allow hardware such as printers and faxes to be shared more costeffectively. This chapter focuses on the use of computer networks from the global network of the internet through to small-scale networks. The benefits of networks are discussed. The basic trends and functions of telecommunications networks are also explained. 3.2 WHAT ARE COMPUTER NETWORKS? A computer network can be defined as: a communications system that links two or more computers and peripheral devices and enables transfer of data between the components (Bocij et al, 2008: 184). Computer networks are themselves constructed on different scales. Small-scale networks within a workgroup or single office are known as local-area networks (LANs). Larger-scale networks which are national or international are known as wide-area networks (WANs). The internet is the best known example of wide-area network. Further Reading Turn to p. 184 of Bocij et al and read through the paragraph on Introduction to computer Networks What are the business benefits of networks? Networks are vital to a business. They are important for the cost savings and improved communications that arise from an internal network. Beyond this, they are truly vital, because they help a business reach out and connect with its customers, suppliers and collaborators. Through doing this a company can order new raw materials more rapidly and cheaply from its suppliers and can keep in touch with the needs of its customers. MANCOSA BCom ITM Year 2 45

47 The following figure indicates the links that may exist between different partners. (Source: Bocij et al, 2008: 185) Benefits of networks The benefits that networks provide are as follows Reduce cost compared to traditional communications Reduce time for information transfer Enable sharing and dissemination of company information Enable sharing of hardware resources such as printers, back up, processing power. Promote new ways of working Operate geographically separate business as one. Restructure relationships with partners. (Bocij et al 2008:186) MANCOSA BCom ITM Year 2 46

48 HINT! Further Reading For further reading on benefits that networks provide: Turn to p. 186 of Bocij. et al. ALSO Further Reading The mini on case benefits study on that page networks 187 of provide: Bocij et Turn al highlights to p. 186 the of advantages Bocij. et al. that ALSO executives The mini case feel study that network-enabled on page 187 Bocij technology et al highlights such as the video advantages conferencing that and executives deliver. feel that network-enabled technology such as video conferencing and deliver. Please study it What are the disadvantages of network technology? To balance against the many benefits, there are, of course, disadvantages with introducing networks. The main disadvantages are: Overreliance on networks for mission-critical applications Cost of initial set-up and maintenance Disruptions during initial set up and maintenance Reduced security due to more external access points to the networks on wide-area networks and the internet. Additional Reading For further reading on disadvantages of network technology: Turn to p. 188 of Bocij et al. 3.3 What is meant by Telecommunications? The method by which data and information are transmitted between different locations (Bocij et al, 2008:185) MANCOSA BCom ITM Year 2 47

49 3.3.1 The Importance of Telecommunication Networks And Networking In An Organisation Telecommunications networks and the use of these networks for communication (networking) is important in today s organisation for the following reasons: Networking permits the sharing of scarce, critical resources such as software, printers, fax machines and other peripherals. Networking allows users to share data. Users from different areas within the organisation, as well as those in different organisations, can all access common databases and this permits the more efficient use of data. Networking is the key in making distributed data processing and client/server systems feasible. It interconnects the computer systems of an organisation so their computing power can be shared by end users throughout the whole organisation. Networks exchange the communication within the organisation and between organisations. Networking, therefore, can be used for applications such as information distribution and to build strategic information systems. There is a trend towards electronic trade. Computer networks form the basis for electronic trade. It enhances collaboration and communication among individuals both inside and outside an organisation. Manager as end user and organisations need to electronically exchange data and information with other end users, customers, suppliers, financial institutions and other organisations. Only through the use of Telecommunications can managers work their activities, manage organisational resources, and compete successfully in today s fast changing global economy. Many organisations today could not survive without interconnected networks of computers to serve the information processing and communications needs of their end users A telecommunications network model The conceptual model below shows a telecommunications network. It illustrates that a communications network is any arrangement where a sender transmits a message to a receiver over a channel consisting of some type of medium. A telecommunications network consists of five basic categories of components, those are terminals, telecommunications processors, telecommunications channels, computers, and telecommunications control software. Turn to the Glossary page for descriptions of unfamiliar terms. MANCOSA BCom ITM Year 2 48

50 (Source: Bocij et al, 2008: 185) 3.4 TYPES OF TELECOMMUNICATIONS NETWORK There are many different types of telecommunications networks. From an end user point of view, there are two basic types: wide area networks (WAN) and local area networks (LAN). It is important to note that there is a growing trend toward the increased use of LAN s and WAN s as an alternative to the use of terminals connected to minicomputers or smaller mainframes for end user computing in many organisations Wide Area Network (WAN) Wide area networks (WAN s) are telecommunications networks that span a large geographical distance. These networks cover areas such as: a large city or metropolitan area; a whole country; or many countries and continents. WAN s may consist of a variety of cable, satellite, and microwave technologies. MANCOSA BCom ITM Year 2 49

51 Figure 3.2: A wide-area network (WAN) Local area network (LAN) A local area network (LAN) is a telecommunications network that requires its own dedicated channels and that encompass a limited distance, usually one building, or several buildings in close proximity, for example a manufacturing plant. Some of the characteristics of LAN s include the following: LAN s use a variety of telecommunications media, such as ordinary telephone wiring, coaxial cable, or wireless radio systems to interconnect microcomputer workstations and computer peripherals. LOCAL AREA NETWORK (LAN) (Source: Bocij et al 2008: 217) Local Area Network (LAN) A LAN consists of a single network segment or several connected segments that are limited in extent, hence local. LAN s use a powerful microcomputer with a large disk capacity as a file server or network server that contains a network operating system program (e.g. Novell) that controls telecommunications and the use of network resources. LAN s may be connected to WAN s by communications processors forming a common interface called a gateway. LAN s allow end users in a work group to communicate electronically; share hardware, software, and data resources; and pool their efforts when working on group projects. MANCOSA BCom ITM Year 2 50

52 Figure 3.3: a small workgroup network connecting a single server to three PCs and a laser printer. (Source: Bocij et al, 2008:217) 3.5 CLIENT SERVER COMPUTING Client Server computing is a grown trend in most organisations. Computing power has rapidly become distributed and interconnected throughout many organisations through networks of all types of computers Characteristics of a client/server network are: End user microcomputer workstations are the clients; Clients are interconnected by local area networks and share application processing with LAN servers, which also manage the networks; and LANs may be interconnected to other LANs and wide area networks of client workstations and servers Benefits of client server computing include: clients (end users) can perform some or most of the processing of their business applications; LAN servers can share application processing, manage work group collaboration, and control common hardware, software, and databases; data can be completely processed locally, where most inputs and outputs must be handled; MANCOSA BCom ITM Year 2 51

53 provides access to the workstations and servers in other networks; computing processing is more tailored to the needs of the end users; increases information processing efficiency and effectiveness as users are more responsible for their own application systems; allows large central-site computers to handle the jobs they do best, such as high-volume transaction processing, communications network security and control, and maintenance and control of large corporate databases; and clients at local sites can access the corporate superservers to receive corporate wide management information or transmit summary transaction data reflecting local site activities. ACTIVITY To understand better the concept of client/server computing, attempt discussion question on p. 226 of Bocij et al 3.6 NETWORK COMPUTING The growing reliance on the computer hardware, software, and data resources of the Internet, Intranets, extranets, and other networks has emphasized that for many users the network is the computer. This network computing, or network-centric, concept views networks as the central computing resource of any computing environment. It appears to be the architecture that will take computing into the next century Features of network computing include: Network computers provide a browser-based user interface for processing small application programs called applets. Network computers are microcomputers without floppy or hard disk drives that are designed as lowcost networked computing devices. Servers provide the operating system, applets, databases, and database management software needed by the end users in the network Peer-to-Peer networks The emergence of peer-to-peer (P2P) networking technologies and applications is being hailed as a development that will revolutionize E-business and E-commerce and the Internet itself. It is a simple type of LAN which provides sharing of files and peripherals between PCs. MANCOSA BCom ITM Year 2 52

54 3.6.3 Inter-Enterprise Networks Many applications of telecommunications can be classified as inter-enterprise networks. Businesses are using telecommunications to: Link a company s wide area and local area networks to the networks of customers and suppliers both domestically and internationally. Build new strategic business relationships and alliances with their stakeholders in an attempt to increase and lock in their business, while locking out competitors. Reduce transaction-processing costs. Increase the quality of service. Connect to information service providers, and other external organisations to provide better information for management decision-making. Distributed Processing is where information-processing activities in an organisation are accomplished by a network of computers interconnected by telecommunications links instead of relying on one large centralised computer facility or on the decentralised operation of several independent computers. ACTIVITY AND THINK POINT Why do you think organisations use telecommunications? What are the benefits? Suggested answer Businesses are using telecommunications to: cut costs; improve the collaboration of work groups; develop on-line operational processes; share resources; lock in customers and suppliers; develop new products and services; breaking down of time, geographic and structural barriers; MANCOSA BCom ITM Year 2 53

55 link a company s wide area and local area networks to the networks of customers and suppliers both domestically and internationally; build new strategic business relationships and alliances with their stakeholders in an attempt to increase and lock in their business, while locking out competitors; increase the quality of service; and the connection to information service providers, and other external organisations provides better information for management decision-making. ACTIVITY Case study 5.1(Finders Keepers) on p. 199 has to do with RFID technology. To understand better the concept of telecommunication attempt the case. Also turn to p. 198 of Bocij et al. and do Discussion Questions 2 and 3. The suggested answers are given at the end of the study unit. 3.7 TRENDS IN TELECOMMUNICATIONS There is definitely a change in the business use of telecommunications. The trend toward more vendors, services, advanced technologies, and open systems dramatically increase the number of feasible applications. Telecommunications, therefore, is playing a more important role in support of the operations, management, and strategic objectives of both large and small companies. The difference between analogue and digital network technologies, the various communication media, the trend towards open systems and the application trends should be noted. The trend is towards the pervasive use of telecommunications networks in support of business operations, managerial decision-making, and strategic advantage in domestic and global markets Key Concepts in telecommunications Analogue: analogue data are continuous in that an infinite number of values between two given points can be represented Digital: Digital data can only represent a finite number of discrete values. ACTIVITY Describe the current trends that have been observed in the telecommunication sector with regards to business organisations. MANCOSA BCom ITM Year 2 54

56 telecommunications. Bocij et al., pp gives an idea about the various trends occurring in the field of MANAGEMENT RESPONSIBILITY Telecommunications is so important in organisations that any manager has to be aware of the telecommunications trends in the industry, otherwise, the organisation could fall in the trap of poor decisions or investments in this minefield. This could lead to a situation where the organisation is unable to compete with rival organisations. A basic knowledge of the technology trends is also important to enable the managers to make the right decisions in obtaining and managing telecommunications technology in your organisation. 3.8 THE INTERNET The simplest way in which the internet can be described is as a global network system made up of smaller systems. The history and origin of the internet as a business tool is surprising since it has taken a relatively long time to become an essential part of business. The internet was conceived by the Defense Advanced Research Projects Agency (DARPA), an American intelligence organisation in The internet began to achieve its current form in 1987, growing from systems developed by DARPA and the National Science Foundation (NSF). The internet is only the latest of a series of developments through which the human race has used technology to disseminate information The distinguishing features of the Internet can be summarised as follows: The Internet does not have a central computer system or telecommunications centre. Instead each message sent on the Internet has an address code so any computer in the network can forward it to its destination. The Internet does not have a headquarters or governing body. MANCOSA BCom ITM Year 2 55

57 The usage of the Internet is growing rapidly. This high level of traffic on the net makes it very slow. That is a major problem. The most popular Internet application is . Other applications include assessing files and databases from libraries and organisations, and holding real-time conversations with other Internet users. The Internet supports bulletin board systems. 3.9 DIFFERENCE BETWEEN INTRANET AND EXTRANET Intranet is a private network within a single company using internet standards to enable employees to share information using and web publishing. Extranet is formed by extending the intranet beyond a company to customers, suppliers and collaborators Important Key Concepts Firewall: a specialised software application mounted on a server at the point where the company is connected to the internet. Its purpose is to prevent unauthorised access into the company from outsiders. World Wide Web: the most common technique for publishing information on the internet. It is accessed through web browsers which display web pages of embedded graphics and HTML/XML-encoded text. Businesses use of the Internet is expanding rapidly for several reasons: ease of world-wide communications with colleagues, consultants, customers and suppliers; links workstations together to form virtual work groups to work on joint projects such as product development, marketing campaigns, and scientific research; allows for collaboration through Internet s global and bulletin board systems (BBS); access to a vast range of information provided by the networks on the Internet; the Internet represents the wave of the future in business telecommunications and special software programs are required to access the Internet. Examples include Gopher, Mosaic, Netscape and Explorer. MANCOSA BCom ITM Year 2 56

58 Additional reading For further reading on The Internet, refer to pp of Bocij et al. ACTIVITY AND THINK POINT Are you familiar with the Internet? Do you think that the Internet can be to the benefit of managers? Explain. Do you agree with the following statement: The only way to compete in the global society, is to do business electronically. Therefore, organisations should use the Internet as a vehicle for international trade. Explain E-COMMERCE Electronic commerce (e-commerce) is defined as sharing business information, maintaining business relationships, and conducting business transactions through the use of telecommunication networks. What is referred to as traditional e-commerce has been conducted using EDI, enterprise-wide messaging systems, fax communication, bar coding, and other private local area network and wide area network systems. E-commerce is also about reorganizing internal business processes and external business alliances and creating new consumer-oriented products and services globally. The term e-business is sometimes used interchangeably with the term e-commerce to refer to this broader concept.(bocij et al 2008:48) E-Commerce Models There are several forms of e-commerce, or e-commerce models, based on who is involved in the transaction: Business-to-business (B2B). The business-to-business (B2B) model represents interorganizational information systems in which a company handles transactions within its own value chain or with other businesses and organizations. Business-to-consumer (B2C). The business-to-consumer (B2C) model represents retailing transactions between a company and individual customers. MANCOSA BCom ITM Year 2 57

59 Consumer-to-consumer (C2C). The consumer-to-consumer (C2C) model represents individuals who are selling and buying directly with each other via a Web site The key features of E-commerce Most of us have become so used to the Internet that we take it for granted. Let s look at the factors that make e-commerce so different from anything we ve seen before. Ubiquity: 24/7 365 days a year, anytime, anywhere. New market spaces change the balance of power from being business-centric to customer-centric. Transactions costs for both businesses and customers are reduced. Global Reach: The Internet opens markets to new customers. If you live in New York City and yearn for fresh Montana-grown beef, you can order it from a Web site and receive it the next day. You benefit from new markets previously not available, and the Montana rancher benefits from new customers previously too expensive to reach. Universal standards: One of the primary reasons e-commerce has grown so quickly and has become so wide-spread is due to the universal standards upon which the technology is built. Businesses don t have to build proprietary hardware, software, or networks in order to reach customers thereby keeping market entry costs to a minimum. Customers can use the universally accepted Internet tools to find new products and services quickly and easily thereby keeping search costs to a minimum. It truly is a win-win situation for both sides. Richness: The richness of information available to customers, coupled with information that merchants are able to collect about them, is opening up new opportunities for both businesses and consumers. Consumers can access more information than was previously available and businesses collect more information than they were previously able to. Now, instead of trying to gather information about businesses or consumers from multiple sources, both parties can use the Internet to cobble together more information than ever. And do it much easier and faster than ever before. Interactivity: E-commerce originally presented simple, static Web sites to customers with limited possibilities of interactivity between the two. Now, most major retailers and even small shops, use a variety of ways to communicate with customers and create new relationships around the globe. MANCOSA BCom ITM Year 2 58

60 Information Density: While many people complain about having too much information pouring from the Internet, it provides information density like no other medium. Consumers enjoy price transparency allowing them to comparison shop quickly and easily. Cost transparency is another benefit consumers enjoy that they ve never had available as readily as what they can find on the Internet. On the other hand merchants gather much more information about customers and use it for price discrimination. Personalization/Customization: The neighbourhood merchant probably knows most customers by name and remembers their personal preferences. That same comfortable relationship can now be extended to the Internet through a variety of personalization and customization technologies. Interactivity, richness, information density, and universal standards help make it possible. Social Technology: User Content Generation and Social Networking: Social networks are no longer limited to those people living in your immediate, physical neighbourhood or even the same town or city. Your social network can now extend to all four corners of the world. More and more content is being generated by users like video, audio, graphics, and pictures. MANCOSA BCom ITM Year 2 59

61 Suggested answers 1. Do you think that the introduction of client/server system has been worthwhile to businesses? This question is a straight analysis of the business benefits compared to the disadvantages of client/server system. It is a specific instance of a general issue facing businesses with the introduction of any new technology. Client/server system can be compared to a previous situation in a business where the PCs are not networked or more likely, a mainframe is used with character-based dumb terminals. The key benefits of client/server system are as follows: The cost-reduction available through downsizing to lower-cost hardware and software Improved flexibility for the end users to deploy specialised applications and to write their own applications using tools such as MS Excel or Access Improved ease of use on the client side since traditional applications tend to be character based rather than using a WIMP interface (Chapter 4) The main disadvantages are as follows: The cost-reduction argument is not clear. The experience of implementing client/server system is that although the purchase price of hardware and software may be lower, the lifetime or total cost of ownership (TCO) may be higher. Much analysis of TCO has been conducted by the Gartner Group ( and is briefly referred to in Chapter 16. The high TCO of client/server systems arises from the cost of supporting them; since it is easy to modify the configuration, it is also possible to stop applications working. MANCOSA BCom ITM Year 2 60

62 This problem is compounded by the range of networking drivers and software applications that are available from different vendors. In a traditional mainframe environment, the software would typically be sourced from a smaller number of vendors. The stability or reliability of client/server system is questionable. There are many examples of client/server system failures mentioned in the UK trade papers such as and A recent example is that of the rollout of a UK-wide system for the National Westminster bank that is based on Windows NT. This rollout has experienced technical difficulties resulting from software incompatibilities. The control and administration of traditional mainframe systems tend to be easier since they are more centralised, with less opportunity for the end user to configure the software. This is similar to the TCO argument. The security of client/server systems may be less robust than mainframe systems. System designers are still learning about the best way to construct client/server systems. Early implementations tended to be error prone and difficult to maintain since two-tier architecture had been adopted in which the application logic and data access routines are mixed with the program code for interacting with the user. Many of the disadvantages of client/server systems result from the relatively new introduction of client/server techniques in the late 1980s and 1990s. Mainframe technology has been in existence for 30 years and many of the mistakes currently being made with client/server systems have already been learned by companies and rectified for mainframes. This is true for many new technologies. For example, both UNIX and Windows NT operating systems can be used as a basis for developing client/server, but UNIX has a reputation for being more secure and reliable since it has existed longer. So it can be argued that some of the disadvantages of client/server systems are greater if the Windows NT environment is used for the implementation. Since there is no clear cost-reduction argument either way, the overall balance in this discussion is governed by how important a business considers the improved usability and flexibility of client/server systems are in comparison to the likelihood of poorer reliability and control. MANCOSA BCom ITM Year 2 61

63 Students should consider figures on the adoption of client/server systems. Since many businesses have now adopted them it could be argued that the business benefits are clear, but there are still many disadvantages inherent in deploying client/server systems. 2. There are many possible benefits of company-wide networks. Is it possible for them to be achieved without changing working practices? Discussion of this issue can be in two main parts a brief review of the benefits and disadvantages of adopting networks. The benefits are mentioned in Essay question 1 below. The principal disadvantages are the cost and potential disruption during implementation and the need to change working practices. This discussion should focus on the disruption and the changed working practices. The arguments in favour of the need to change working practices are based on taking advantage of the new technology. Gains to the business will not occur if existing bad practices are continued. Reasons for the need for change in practices include the following: New software systems will often be introduced as part of the installation of a network. This might include tools such as or groupware, or enterprise resource planning (ERP) software (Chapters 6 and 14). Such software will often require new working practices. For example, will only work effectively for a business if there are guidelines stating it is used in preference to paper or ensuring replies within a set period. This is particularly true for s received from customers a company could introduce a rule stating that each should be replied to within two days. ERP software may require new business structures to be adopted as part of a business process redesign exercise (Chapter 14). A network can be used to help a company move towards a paperless office. This will only occur if there is management commitment to this. If commitment does not occur, the advantages of the network may be wasted. MANCOSA BCom ITM Year 2 62

64 A network can also help promote teamwork in an organisation using groupware (Chapter 6) and intranets (Chapter 16). These help the staff to collaborate, communicate and work in new ways. For example, the need for travel to meetings can be reduced through the use of videoconferencing and discussion forums. A change in purchasing policy is needed in buying shared devices such as printers, rather than purchasing them by individual departments. Arguments against changing working practices are weak, but could include the following: The cost of training and disruption The risk of the new working practices being resented by staff. 3. Discuss the merits and disadvantages of locating company e-business services inside a company, in comparison with outsourcing to an ISP or ASP. Select particular type(s) of e-business services to refer to in answering this question, e.g. site hosting, management for questions and accounting packages. Review the benefits of external location: maintenance costs, expertise, responsiveness to short term problems, e.g. a new virus and longer-term technological trends. Review the benefits of internal location: control and security. Assess the benefits and risks overall. Case Study 5.1: Finders keepers 1. Discuss the benefits and limitations of RFID technology. Benefits: Decreasing cost Requires no line of sight between tag and reader. MANCOSA BCom ITM Year 2 63

65 Allows tracking and monitoring of virtually everything that moves. Provides real-time information on movement of stock in supply chain permitting quick response. Disadvantages: Costly compared to bar codes. Limited range between tag and reader. MANCOSA BCom ITM Year 2 64

66 PART 4 OPERATIONAL EXCELLENCE AND CUSTOMER INTIMACY: ENTERPRISE SYSTEMS MANCOSA BCom ITM Year 2 65

67 At the end of this study unit, the learner should be able to: Identify and describe the major components of an enterprise system. Explain how enterprise systems help businesses achieve operational excellence Explain enterprise resource planning, its advantages, disadvantages, business value, the challenges and trends. Discuss the role of supply chain management, its benefits and also the challenges. Explain the trends in supply chain management. Discuss the role of customer relationship management (CRM), the phases in CRM its benefits and also the challenges. Comment on the applications of CRM. Discuss the role of Supplier Relationship Management (SRM) with regards to procurement Outline the benefits and barriers of SRM MANCOSA BCom ITM Year 2 66

68 4.1 INTRODUCTION The value of Business information systems (BIS) to an organisation is dependent on how the hardware, software and network technologies described in the previous chapters are applied to support the organisation s objectives. This is achieved through deployment of specific business applications that support different organisational processes and functions. This chapter considers enterprise systems and their major components of enterprise resource planning (ERP), supply chain management (SCM) customer relationship management (CRM) and supplier relationship management (SRM). 4.2 WHAT IS MEANT BY ENTERPRISE SYSTEMS? Enterprise systems aim to support the business processes of an organisation across any functional boundaries that exist within that organisation. 4.3 BUSINESS VALUE OF ENTERPRISE SYSTEMS Done correctly, enterprise systems can offer big rewards. Conversely, done incorrectly can cause firm huge headaches, loss of business, employee turmoil, and wasted dollars. The changes in the enterprise will be tremendous: Management: improved management decision making, with a comprehensive view of performance across all functional areas. More efficient operations and customer-driven business processes: all functional areas can focus more on the customer and respond to product demand more efficiently. A more uniform organization: a more disciplined approach to business throughout the entire firm, regardless of physical location and/or organizational structure. Bottom Line: Enterprise systems force a company to fully integrate all business processes. These systems usually require massive changes in the structure and organization of a business and are difficult to implement. However, the changes can make a tremendous improvement in a firm by using the best practices of the industry and requiring all functional areas to focus more on the customer. MANCOSA BCom ITM Year 2 67

69 4.4 WHAT IS ENTERPRISE RESOURCE PLANNING (ERP)? Enterprise resource planning (ERP) systems serve as a cross-functional enterprise backbone that integrates and automates many internal business processes and information systems within the manufacturing, logistics, distribution, accounting, finance, and human resource functions of a company. Additional Reading Remember ERP is a business operating system. Make sure that you understand this concept as it forms a crucial part of E-business. Please note the definition on p.232 of Bocij et al Characteristics of ERP software include: ERP software is a family of software modules that supports the business activities involved in vital back-office processes. ERP is viewed as a necessary ingredient for the efficiency, agility, and responsiveness to customers and suppliers that an E-business enterprise needs to succeed in the dynamic world of E- commerce Business value of ERP software: ERP creates a framework for integrating and improving back-office systems which results in major improvements in customer service, production, and distribution efficiency. ERP provides vital cross-functional information quickly on business performance to managers to significantly improve their ability to make better business decisions across the enterprise Advantages of ERP Integration of all internal and external processes resulting in increased efficiency and quality of customer service Better sharing of information within the organisation due to integration of modules leading to better decision making and a more agile organisation MANCOSA BCom ITM Year 2 68

70 Additional Reading Read the mini case study Did it work? Huge benefits from tidying up on page 234 of Bocij et al. Simplified support and maintenance through a single supplier rather than dealing with many legacy systems Use of best-of- breed ERP solution applied by other companies. The main disadvantage of ERP systems are: High costs charged by suppliers for what is a large complex system. Implementation of the major organisational change required by these systems-a major planning, training and development effort is needed to successfully introduce a system that will radically change both the information systems and business processes of the organisation. Additional Raeding Read the mini case study Workforce complain of too little training on page 235 Bocij et al The Cost of ERP Costs and risks involved in implementing ERP are considerable. Hardware and software costs are a small part of the total costs. The cost of developing new business processes (reengineering) and preparing employees for the new system (training and change management) make up the bulk of implementing a new ERP system. Converting data from previous legacy systems to the new cross-functional ERP system is another major category of ERP implementation costs Causes of ERP Failures: Business managers and IT professionals underestimate the complexity of the planning, development, and training that are needed to prepare for a new ERP system that would radically change their business processes and information systems. MANCOSA BCom ITM Year 2 69

71 Failure to involve affected employees in the planning and development phases and change management programs Trying to do too much too fast in the conversion process. Insufficient training in the new work tasks required by the ERP sys4em. Failure to do enough data conversion and testing. Over reliance by company or IT management on claims of ERP software vendors Trends in ERP Four major developments and trends that are evolving in ERP applications include: ERP software packages are gradually being modified into more flexible products. In relation to the growth of the Internet and corporate intranets and extranets prompted software companies to use internet technologies to build Web interfaces and network capabilities into ERP systems. Development of inter-enterprise ERP system that provide Web-enabled links between key business systems of a company and its customers, suppliers, distributors, and others. ERP software companies have developed modular, Web-enabled software suites that integrate ERO, customer relationship management, supply chain management, procurement, decision support, enterprise portals, and other business applications and functions. Additional Reading For further reading on ERP: Turn to pp of Bocij et al. ACTIVITY Attempt Self-assessment Question 1 on p. 271 of Bocij et al. 4.5 SUPPLY CHAIN MANAGEMENT (SCM) As mentioned earlier, another major component of enterprise systems is supply chain management (SCM). MANCOSA BCom ITM Year 2 70

72 4.5.1 What is meant by Supply chain? The supply chain consists of the series of activities that moves materials from suppliers, through the organisation to customers. A representation of the structure of a supply chain is shown in the figure below. Figure 4.1: The structure of a supply chain (Source: Bocij et al, 2008: 237) What is meant by Supply chain management? Supply chain management and logistics are terms used to refer do the management of the flow of materials through the entire supply chain. The following figure gives an overview of the terms used to describe the management of the supply chain. MANCOSA BCom ITM Year 2 71

73 Figure 4.2: terms used to describe the management of the supply chain (Source: Bocij et al, 2008: 237) Terms used in the supply chain management are: Upstream suppliers: Suppliers that supply the organisation with goods or services. Downstream customers: customers of the organisation such as wholesalers and retailers. Inbound logistics: the activities of moving material in from supplier. Outbound logistics: the activities of moving material to customers Materials management: the movement of materials within the organisation. (Source: Bocij et al, 2008: 237) Bullwhip effect This effect occurs when there is a lack of synchronisation between supply chain members. Even a slight change in consumer sales will ripple backwards in the form of magnified oscillations in demand upstream described `bove THE ROLE OF SCM SCM supports the objectives of the top three management levels of an organisation (strategic, tactical, and operational). The role of information technology in SCM is to support these objectives with interenterprise information systems that produce many of the outcomes a business needs to effectively manage its supply chain. MANCOSA BCom ITM Year 2 72

74 Supply chain management is a cross-functional inter-enterprise system that uses information technology to help support and manage the links between some of a company s key business processes and those of its suppliers, customers, and business partners. The goal of SCM is to create a fast, efficient, and low-cost network of business relationships, or supply chain, to get a company s products from concept to market BENEFITS AND CHALLENGES OF SCM Major business benefits that are possible with effective supply chain management systems include: Faster, more accurate order processing, reductions in inventory levels, quicker time to market, lower transaction and materials costs, and strategic relationships with suppliers. Companies can achieve agility and responsiveness in meeting the demands of their customers and the needs of their business partners. Major business challenges include: Lack of proper demand planning knowledge, tools, and guidelines is a major source of SCM failure. Inaccurate or overoptimistic demand forecasts will cause major production, inventory, and other business problems, no matter how efficient the rest of the supply chain management process is constructed. Inaccurate production, inventory, and other business data provided by a company s other information systems are frequent causes of SCM problems. Lack of adequate collaboration among marketing, production, and inventory management departments within a company, and with suppliers, distributors, and others. SCM software tools are considered to be immature, incomplete, and hard to implement by many companies who are installing SCM systems TRENDS IN SCM Three possible stages in a company s implementation of SCM systems. First stage a company concentrates on making improvements to its internal supply chain process and its external processes and relationships with suppliers and customers. Second stage a company accomplishes substantial supply chain management applications by using selected SCM software programs internally, as well as externally via intranet and extranet links among suppliers, distributors, customers, and other trading partners. MANCOSA BCom ITM Year 2 73

75 Third stage company begins to develop and implement cutting-edge collaborative supply chain management applications using advance SCM software, full-service extranets links, and private and public e-commerce exchanges. ACTIVITY Attempt Self-assessment Question 3 on p. 271 of Bocij et al. 4.6 CUSTOMER RELATIONSHIP MANAGEMENT (CRM) As mentioned earlier, another major component of Enterprise systems is customer relationship management (CRM). Customer-focused business is one of the top business strategies that can be supported by information technology. Many companies are implementing customer relationship management (CRM) business initiatives and information systems as part of a customer-focused or customer centric strategy to improve their chances for success in today s competitive business environment What is meant by CRM? CRM is described as a cross-functional E-business application that integrates and automates many customer-serving processes in sales, direct marketing, accounting and order management, and customer service and support. CRM systems create an IT framework that integrates all the functional processes with the rest of a company s business operations. CRM systems consist of a family of software modules that perform the business activities involved in such front office processes. CRM software provides the tools that enable a business and its employees to provide fast, convenient, dependable, and consistent service to its customers. It is important to bear the following in mind: It costs six times more to sell to a new customer than to sell to an existing one. A typical dissatisfied customer will tell eight to ten people about his or her experience. A company can boost its profits 85 percent by increasing its annual customer retention by only 5 percent. The odds of selling a product to a new customer are 15 percent, whereas the odds of selling a product to an existing customer are 50 percent MANCOSA BCom ITM Year 2 74

76 Seventy percent of complaining customers will do business with the company again if it quickly takes care of a service snafu. More than 90 percent of existing companies do not have the necessary sales and service integration to support E-commerce CUSTOMER RELATIONSHIP MANAGEMENT (CRM) SYSTEMS Further reading Study Paragraph on CRM Systems on page 241 Bocij et al. CRM systems are built around a database and when this database is accessed by employees and customers using a website the technology is often referred to as e-crm. Common applications which would be integrated in a CRM system include: Customer data collection: This includes personal details such as age, sex and contact address and also a record of purchase transactions undertaken Customer data analysis: The captured data allow the categorisation and targeting of customers according to criteria set by the firm. This information can be useful for marketing campaigns. Salesforce automation: The entire sales cycle from lead generation to close of sale and after-sales service can be facilitated using CRM. CRM programmes typically include: Sales. CRM software tracks customer contacts and other business and life cycle events of customers for cross-selling and up-selling. Direct Marketing and Fulfilment. CRM software can automate tasks such as qualifying leads, managing responses, scheduling sales contacts, and providing information to prospects and customers. Customer Service and Support. CRM helps customer service managers quickly create, assign, and manage service requests. Help desk software assists customer service reps in helping customers whom are having problems with a product or service, by providing relevant service data and suggestions for resolving problems. MANCOSA BCom ITM Year 2 75

77 Examples of business benefits of customer relationship management include: CRM allows a business to identify and target their best customers; those who are the most profitable to the business, so they can be retained as lifelong customers for greater and more profitable services. CRM enables real-time customisation and personalisation of products and services based on customer wants, needs, buying habits, and life cycles. CRM can keep track of when a customer contacts the company, regardless of the contact point. CRM enables a company to provide a consistent customer experience and superior service and support across all the contact points a customer chooses. The three phases of CRM CRM can be viewed as an integrated system of Web-enabled software tools and databases accomplishing a variety of customer-focused business processes that support the three phases of the relationship between a business and its customers. Acquire a business relies on CRM software tools and databases to help it acquire new customers by doing a superior job of contract management, sales prospecting, selling, direct marketing and fulfilment. The goal of these CRM functions is to help customers perceive the value of a superior product offered by an outstanding company. Enhance Web-enabled CRM account management and customer service and support tools help keep customers happy by supporting superior service from a responsive networked team of sales and service specialists and business partners. CRM sales force automation and direct marketing and fulfilment tools help company s cross-sell and up-sell to their customers, thus increasing their profitability to the business. The value perceived by customers is the convenience of one-stop shopping at attractive prices. Retain CRM analytical software and databases help a company proactively identify and reward its most loyal and profitable customers to retain and expend their business via targeted marketing and relationship marketing programs. o The value perceived by customers is of a rewarding personalized business relationship with their company. MANCOSA BCom ITM Year 2 76

78 4.6.4 BENEFITS AND CHALLENGES OF CRM CRM allows a business to identify and target their best customers; those who are the most profitable to the business, so they can be retained as lifelong customers for greater and more profitable services. CRM enables real-time customization and personalization of products and services based on customer wants, needs, buying habits, and life cycles. CRM can keep track of when a customer contacts the company, regardless of the contact point. CRM enables a company to provide a consistent customer experience and superior service and support across all the contact points a customer chooses. CRM Failures: Major reason for the failure of CRM systems is the lack of understanding and preparation TRENDS IN CRM Four types or categories of CRM that are being implemented by many companies today include: Operational CRM most businesses start out with operational CRM systems such as sales force automation and customer service centres. Analytical CRM analytical CRM applications are implemented using several analytical marketing tools, such as data mining, to extract vital data about customers and prospects for targeted marketing campaigns. Collaborative CRM CRM systems to involve business partners as well as customers in collaborative customer service. Portal-based CRM Internet, intranet, and extranet Web-based CRM portals as a common gateway for various levels of access to all customer information, as well as operational, analytical, and collaborative CRM tools for customers, employees, and business partners. ACTIVITY Attempt Discussion Question 1 on p. 271 of Bocij et al. MANCOSA BCom ITM Year 2 77

79 4.7 SUPPLIER RELATIONSHIP MANAGEMENT (SRM) What Is Meant By Supplier Relationship Management (SRM)? Supplier Relationship Management (SRM) refers to all activities involved with obtaining items from a supplier, which includes procurement, but also inbound logistics such as transportation and warehousing. Procurement is an important aspect of SRM as the cost of materials can represent a substantial amount of the total cost of a product or service. Another issue that has increased the importance of procurement is that the efficient use of automated systems requires a high quality and reliable source of materials to be available. This is also the case with the adoption of production planning systems such as JIT which require the delivery of materials of perfect quality, at the right time and the right quantity. Figure 4.3: Steps in the procurement process. DIAGRAM (Source: Bocij et al, 2008:243) MANCOSA BCom ITM Year 2 78

80 Additional Reading Study Paragraph on SRM on page 243 and Figure 6.7 on page 243 of Bocij et al., relating to the steps in the procurement process. Refer to Mini case study Lloyds TSB Banks on SAP SRM on page 244 of Bocij et al., for a better understanding of e-procurement Advantages of SRM SRM can achieve significant savings and other benefits which directly impact the customer including faster purchase cycle times leading to a need for less material in inventory and less staff time spent in searching and ordering products and reconciling deliveries with invoices. SRM enables greater flexibility in ordering goods from different suppliers according to best value. SRM allows the integration of the many information systems that are used to cover different parts of the SRM process Disadvantages of SRM The major barrier to the use of SRM is in the difficulty of linking systems with suppliers whose systems may be incompatible or non-existent. Additional Reading For further reading on SRM, study Paragraph on SRM on page 243 of Bocij et al. MANCOSA BCom ITM Year 2 79

81 ANSWERS TO SELF-ASSESSMENT QUESTIONS 1. What is the difference between an enterprise system and an enterprise resource planning (ERP) system? Enterprise systems and ERP can refer to the same concept. In this text the term enterprise system refers to a collection of systems that aims to support business processes across functions within an organisation. ERP is one of these systems that deals with internal production, distribution and financial processes. Other enterprise systems include customer relationship Management (CRM), supply chain management (SCM), supplier relationship management (SRM) and product lifecycle management (PLM). 3. How can information systems support the manufacturing process? Support for the manufacturing process includes: Production planning and materials management* Information is provided in the progress of work through the manufacturing system in relation to the due date for a customer order. Enables plans to be developed for resources (e.g. labour, materials and equipment) needed for production and to schedule order and quantity of components on a day-to-day basis. Materials management approaches include Materials requirements planning (MRP), Just-in-time (JIT) and optimised production technology (OPT). Product/service design. A database of information required for aspects such as customer needs and material costing for the design process, Computer-aided design (CAD) provides graphic design assistance. Facility design. Software allows the use of the statistical process control (SPC) technique for quality control. Computer integrated manufacture (CIM). Provides a range of facilities coordinated over a network system using the manufacturing automation protocol (MAP). MANCOSA BCom ITM Year 2 80

82 ANSWERS TO DISCUSSION QUESTIONS 1. Discuss the concept of customer relationship management (CRM). CRM covers the whole process by which relationships with Customers are built and maintained. CRM systems are designed to integrate the range of information systems that contain information regarding the customer. These include applications such as customer details and preference databases, sales order processing applications and sales force automation. The idea is to acquire customers, retain customers and increase customer involvement with the organisation. Common applications which would be integrated in a CRM system include the following: Customer data collection: This can include personal details such as age, sex and contact address also a record o& purchase transactions undertaken in terms of factors such as location, date, time, quantity and price. This information can be used by call centre staff to improve and tailor their services to individual customers. Customer data analysis: The captured data allows for the categorisation and targeting of customers according to criteria set by the firm. This information can be used to improve the effectiveness of marketing campaign. Salesforce automation: The entire sales cycle from lead generation to close of sale and after sales service can be facilitated using CRM. MANCOSA BCom ITM Year 2 81

83 PART 5 INFORMATION SYSTEMS IN PERSPECTIVE MANCOSA BCom ITM Year 2 82

84 At the end of this study unit, the learner should be able to: explain the features of the different information systems; discuss how Management Information System (MIS), Decision Support System (DSS), Group Decision Support System (GDSS), Executive Information System(EIS) Geographic Information System(GIS) and Expert System (ES), can support different parts of an organisation; explain the decision types and their relation to different types of system. MANCOSA BCom ITM Year 2 83

85 5.1 INTRODUCTION Information systems fall into the categories of Management Information Systems (MIS), Decision Support System (DSS), Executive Information System, or Expert System. Any specific system can have a mix of their features. The design features to incorporate into an information system should be chosen based on the communication and decision-making requirements of the managerial users. This unit deals with the features and benefits that the different systems entail. Further the section gives an overview of how different systems support the activities of a business organisation and also the classifications of decisions by decision types and their relation to different types of system. 5.2 WHAT ARE MANAGEMENT INFORMATION SYSTEMS? Management Information systems are defined as systems providing feedback on organisational activities and supporting managerial decision making The features of management information systems (MIS) are: MIS support structured and semi-structured decisions at the operational and management control levels. They can also be useful for planning purposes of senior management; MIS are generally reporting and control oriented; MIS information products include pre-specified reports and displays; MIS rely on existing corporate data and data flow; MIS have little analytical capability; MIS generally aid in decision-making using past and present data; MIS are relatively inflexible; MIS have an internal rather than an external orientation; and Information requirements are known and stable. 5.3 DECISION TYPES The identification of problems according to their degree of structure dates back to Garry and Scott- Morton (1971) but it still provides a useful framework for defining decision types. Figure 5.1 indicates that at the operational level, structured decisions predominate. Decision Support systems are mainly used to support the tactical, semi-structured decisions that need to be made as part of the evaluation and planning of the business. Executive information systems are targeted at strategic decision making, which often involves unstructured decisions. MANCOSA BCom ITM Year 2 84

86 (Source: Bocij et al 2008:259) Additional Reading Read through the paragraph Management Information Systems (MIS) and Decision Types on page 258 of Bocij et al. 5.4 WHAT IS DECISION SUPPORT SYSTEMS (DSS)? DSS provide information and models in a form to facilitate tactical and strategic decision making The features of DSS are: DSS offer users flexibility, adaptability and quick response; DSS allow users to initiate and control input and output; DSS operate with little or no assistance from professional programmers; DSS provide support for decisions on the semi-structured and unstructured levels whose solutions cannot be specified in advance; and MANCOSA BCom ITM Year 2 85

87 DSS use sophisticated analysis and modelling tools. Models are an important component of decision support systems. A model can be defined as a simplified abstraction of reality that illustrates the fundamental components and relationships of a system or other phenomena. Models can be physical, verbal, graphical or mathematical. Further reading For further reading on Decision Support Systems (DSS): turn to pp of Bocij et al. The software resources needed by decision support systems should integrate the management and use of the model bases, databases, and dialogue generation capabilities of a DSS. DSS software resources should support the following capabilities: Dialogue management: DSS software provides an attractive user interface that supports the dialogue between an user and the DSS which are vital for the interactive analytical modelling needed (commands, menus, icons etc.). Model base management: DSS software supports the development, storage, retrieval, revision, and control of the models in a DSS model base. It also help linking models together to construct integrated models, and supports the analytical modelling needed to assist the decision making process. Database management: The creation, use, and maintenance of a DSS database are accomplished by database management software. It helps define and modify the structure of the data records and relationships in the database, the storage and retrieval of data, the updating of the database, and the control of the integrity of the database. Further reading Turn to p.260 of Bocij et al. and refer to where DSS software is discussed in the paragraph of DSS Components. Refer to the suggested answers at the end of the study unit. MANCOSA BCom ITM Year 2 86

88 5.5 GROUP DECISION SUPPORT SYSTEMS (GDSS) Group decision support systems (GDSS) are designed to improve the productivity of decisionmaking meets by enhancing the dynamics of collaborative work. The GDSS also includes specific communication-oriented software tools that support the development and sharing of ideas. 5.6 GEOGRAPHIC INFORMATION SYSTEMS (GIS) A geographic information system (GIS) is a special type of decision support system designed to work with maps and other spatial information. A GIS is used to support a wide variety of managerial decisions that involve geographic information. 5.7 EXECUTIVE INFORMATION SYSTEMS (EIS) The features of EIS are: executive workstations in an EIS are typically networked to mainframe or microcomputer systems or LAN servers for access to EIS software; EIS packages work with telecommunications and database management software to provide easy access to internal, external, and special databases with almost instantaneous response times; EIS provide information about the current status and projected trends regarding a company s critical success factors, as determined by its top management; an analytical modelling capability to evaluate alternatives for DSS is also available; and information is presented in forms tailored to the preferences of the executive using the system. Further reading For further reading on Executive Information Systems (EIS): turn to Bocij et al., pp MANCOSA BCom ITM Year 2 87

89 ACTIVITY Do you use DSS or EIS in your work environment? Explain. If you do not use support systems at this stage, contact the information systems department and ask them what support tools are available that could help you in your decision making role. Answer essay questions 2 (Bocij et al., p. 271). 5.8 ENTERPRISE PORTALS AND DECISION SUPPORT Major changes and expansion are taking place in traditional MIS, DSS, and EIS tools for providing the information and modelling that managers need to support their decision making. Some of these changes include: Decision support in business is changing, driven by rapid developments in end user computing and networking; Internet, web browser, and related technologies, and the explosion of E-commerce activity. Growth of corporate intranets, extranets, as well as the Web, has accelerated the development and use of executive class information delivery and decision support software tools by lower levels of management and by individuals and teams of business professionals. Dramatic expansion of E-commerce has opened the door to the use of such E-business DSS tools by the suppliers, customers, and other business stakeholders of a company for customer relationship management, supply chain management, and other E-business applications. Enterprise information portals are being developed by companies as a way to provide webenabled information, knowledge, and decision support to executives, managers, employees, suppliers, customers, and other business partners. Enterprise information portals are described as a customized and personalized web-based interface for corporate intranets, that give users easy access to a variety of internal and external business applications, databases, and services. MANCOSA BCom ITM Year 2 88

90 Enterprise information portal is the entry to corporate intranets that serve as the primary knowledge management systems for many companies. They are often called enterprise knowledge portals by some vendors. Knowledge management systems are defined as the use of information technology to help gather, organize, and share business knowledge within an organisation. Enterprise information portals can play a major role in helping a company use its intranets as knowledge management systems to share and disseminate knowledge in support of its business decision-making. 5.9 EXPERT SYSTEMS An expert system (ES) supports decision making by providing managers with access to computerized expert knowledge. An ES is designed to replicate the decision-making process of a human expert. Today s expert systems are based on years of artificial intelligence (AI) research devoted to replicating elusive human cognitive abilities in machines. A knowledge base is similar to the database component in an MIS or a DSS. In addition to facts, a knowledge base contains a system of rules for determining and changing the relationship between those facts. Along with the knowledge base, an ES includes a user interface and an inference engine. The inference engine combines the user input with the knowledge base, applies logical principles, and produces the requested expert advice. Expert systems are difficult to build. To simplify the process, many software companies sell expert system shells generic expert systems containing human interfaces and inference engines. These shells do not include the difficult-to-create knowledge base. A knowledge engineer a specialist who interviews and observes experts and converts their words and actions into the knowledge base usually constructs the knowledge base. MANCOSA BCom ITM Year 2 89

91 THINK POINT Some modern expert systems are organized as blackboard systems. In a blackboard model, the task of expert decision-making is broken down into three basic components. One is a knowledge base, often composed of several mini-experts on related topics. The second part is a control module that carries out the recognise-act feedback cycle that drives the system. The final part is the blackboard itself, a working area of memory that the system can use for storing intermediate results. ACTIVITY Answer essay questions 2 on 271 of Bocij et al ELECTRONIC DATA INTERCHANGE (EDI) EDI is one of the most important developments in the world. Electronic trade is the revolution of the future and a lot of overseas trade is done by means of telecommunications and the use of electronic data interchange and electronic funds transfer. The main concern is that South Africa is lagging behind the rest of the world in using this technology. It is, therefore, one of the major challenges of the modern South African manager to use this technology to gain a competitive advantage. If not, your organisation could suffer significantly. Electronic data interchange (EDI) involves the electronic exchange of business transaction documents over the Internet and other networks between supply chain trading partners (organisations and their customers and suppliers). Data representing a variety of business transaction documents are electronically exchanged between computers using standard document message formats Characteristics of EDI software include: EDI software is used to convert a company s own document formats into standardized EDI formats as specified by various industry and international protocols. Formatted transaction data are transmitted over network links directly between computers, without paper documents or human intervention. MANCOSA BCom ITM Year 2 90

92 Besides direct network links between the computers of trading partners, third-party services are widely used. EDI eliminates the printing, mailing, checking, and handling by employees of numerous multiplecopy forms of business documents. (Source: Bocij et al 2008:219) The benefits of EDI are numerous. It allows the transmission of data without paper documents or human intervention. EDI can help the organisation to: eliminate the handing of numerous multiple-copy forms of business documents by employees; reduce paper, postage, and labour costs; speed up the flow of transactions; reduce errors; increase productivity; provide a just-in-time (JIT) inventory policy; reduce inventory levels; and provide better customer service. (Source: Bocij et al 2008:219) EDI may also provide strategic benefits by helping the organisation to lock in customers, making it easier for customers or distributors to order from them rather than from competitors. Another possibility with excellent strategic benefits, is when an organisation provides EDI and material requirements planning (MRP) links to its customers and suppliers. With the EDI and MRP links, the organisation can download information daily from its manufacturers and distributors, yet the other organisations can process their own information locally. These links can lay the foundation of accurate forecast or a justin-time (JIT) system. Further reading For further reading on EDI: Turn to pages of Bocij et al. MANCOSA BCom ITM Year 2 91

93 ACTIVITY Does your organisation make use of EDI? What are the benefits and limitations that your organisation experiences? Suggested answers Answers to Essay Questions 2. Review the changing tools available for decision making at a strategic level within the organisation. What does this mean for senior managers? There is a move away from executive information systems (EIS) to the use of online analytical processing (OLAP) to interrogate data warehouses. Question 2 in the Discussion questions section discusses whether or not this represents a genuine change in facilities available to users. For senior managers there is now a greater choice of tools available. The data warehouse provides the facility in a single system to analyse data from across an organisation and drill down to identify the source of problems. Such facilities were not always available in earlier generations of EIS. 3. Was the promise of expert systems in the 1980s delivered in the 1990s? Justify your answer. Expert systems have not widely replaced human experts in many fields as had been envisaged. It has been found difficult to match the flexibility of humans. Expert systems are most relevant to complex problems in a well-defined subject area, such as assessing the credit risk of a loan applicant. The justification is that ES are not used in the majority of businesses. Which information systems tools can be used to support the marketing function? Marketing information systems include: Sales information systems. Employees involved in the sales area are required to identify potential customers, negotiate the sale of goods and services with those customers and provide a follow-up service. Systems are available to support each of these tasks. Prospect information systems provide lists of potential customers by categories such as product range or geographic area. MANCOSA BCom ITM Year 2 92

94 Distribution information systems. Speed of delivery is often an important aspect of service to the customer. In order to ensure this, it is important that tracking systems that can locate products during the distribution process are in place. Sales order processing (SOP) systems. The sales order processing (SOP) system is usually based in the financial area and provides a variety of data that can be used for marketing purposes such as assessing the timing and value of orders from customers. These can be used for applications such as sales forecasting, which is a major input into the sales planning process. Other data supplied by the SOP system include inventory levels. If inventory levels are high, then this might trigger a discount programme for a particular product line. Sales and campaign management information systems. The sales management information system provides information in support of decision making at the tactical level. It will hold information on such aspects as sales performance by geographical area, by product group and by sales person. This information can be used to determine sales effort in different areas and products and level of bonus payments to an individual sales person. The data can also be used to investigate the strength of relationship between such factors as customer types and product sales. This information can be used as the basis for a marketing plan based around advertising and promotion scheme aimed at a particular customer segment (e.g. targeting designer label drinks at people in the age range). Product pricing information systems. The price of a product will be dependent on a variety of factors such as the cost of producing the product or providing the service, the required profit margin and the price of competitors goods. The price may also be affected by a marketing strategy to build market share by lowering the price. The product pricing information system will collate information on costs and predicted market demand at different price points and discounts in order to support the pricing decision. More sophisticated software in the form of a pricing model enables the user to input various market and product attributes, and provides a suggested price on the basis of relationships formalised in the model. MANCOSA BCom ITM Year 2 93

95 Sales forecasting information systems. At a strategic level it is necessary to provide sales forecast data in order to help form the long-range strategic plan. Sales forecast data is essential so that demands can be met and resources employed in the correct areas. For instance, marketing needs to inform other functions such as operations of a predicted demand so that they can organise their resources to meet this demand. The information system is required because of the range of data that goes into the forecast and the need to continually update the database in order that the forecast is as accurate as possible. Marketing research and analysis information systems. In order to ensure that there is a demand for the goods and services of the organisation, it is necessary to undertake market research. For a new product this may include information on demographic changes and customer feedback from questionnaires and interviews that indicate customer preferences. Competitive tracking. Knowledge of competitors prices, products, sales and promotions is an important factor in the development of a marketing strategy. For example, the organisation would need to consider its reaction to a competitor s move to build market share. Telemarketing software. This software is designed to dial potential customers automatically based on customer files maintained in a database. The software will also allow notes to be stored on customer requests, generate follow-up letters and display information gathered on the customer for reference as the call is taking place. Geographical information systems (GIS). GIS are used to display information on maps. Performance of distribution channels such as branches can be shown by colour coding them. Colour-coded areas on the map can be used to show variation in the demand from customers for products or the characteristics of people living in different areas such as average disposable income. MANCOSA BCom ITM Year 2 94

96 PART 6 BUSINESS INFORMATION SYSTEM DEVELOPMENT MANCOSA BCom ITM Year 2 95

97 At the end of this study unit, the learner should be able to: explain the functions of each step in the System Development Life Cycle (SDLC) Understand the role of prototyping process, rapid application development( RAD) and end user system development MANCOSA BCom ITM Year 2 96

98 6.1 INTRODUCTION There are many examples which demonstrate the use of information systems in a variety of disciplines. A manager at a hotel chain can use an information system to look up client preferences. An accountant at a manufacturing company can use an information system to analyse the costs of a new plant. A sales representative can use an information system to determine which goods to order. Information systems have been designed and implemented for almost every career and industry. This study unit gives the user an overview how the project can be planned, aligned with corporate goals, rapidly developed. This chapter gives the user an overview of the system development process. 6.2 OVERVIEW OF SYSTEM DEVELOPMENT Systems development includes every resource and every step that goes into producing an information system that solves a problem or helps the organization take advantage of new opportunities. The systems development process is also called a systems Development life Cycle (SDLC) because the activities associated with it are ongoing. Several common systems development life cycles exist: traditional, prototyping, rapid application development (RAD), end-user development and others. In addition, companies can outsource the systems development process. Systems development is a problem-solving process of investigating a situation; designing a system solution to improve the situation; acquiring the human, financial, and technological resources to implement the solution; and finally evaluating the success of the solution. After a steering committee determines that a proposed project is desirable, a project team of end users and systems analysts is formed to develop the system. An end user is a person who will use the information system or the information it provides. A systems analyst is the IT professional who develops the system. Usually the systems analyst is part of the organization. However, the organization sometimes may choose to contract, or outsource, the systems analyst from an outside consulting firm. MANCOSA BCom ITM Year 2 97

99 Many small-scale projects can be developed without the direct involvement of a professional systems analyst. This approach, called end-user development, is popular in organizations where end users have access to and training in the use of spreadsheet and database management packages and fourthgeneration languages The Systems Development Life Cycle An information system has a systems development life cycle (SDLC) a sequence of steps or phases it passes through between the time the system is conceived and the time it is phased out. The phases of the systems life cycle include: investigation, analysis, design, development, implementation, maintenance, and retirement Investigation System investigation involves defining the problem identifying the information needs of the organization, examining the current system, determining how well it meets the needs of the organization, and studying the feasibility of changing or replacing the current system. After completing the initial investigation of the problem, a systems analyst produces a feasibility study to help management decide whether to continue with the system analysis. Types of feasibility are: Technical. Economic. Operational. Organizational Analysis During the analysis phase, the systems analyst gathers documents, interviews users of the current system (if one exists), observes the system in action, and generally gathers and analyses data to help understand the current system and identify new requirements. The systems analyst identifies the requirements related to each subsystem of the proposed system: Input/output requirements. Processing requirements. Storage requirements. Control requirements. MANCOSA BCom ITM Year 2 98

100 Design The investigation phase focuses on why, the analysis phase focuses on what, and the design phase focuses on how. The systems analyst considers important how-to questions in three categories: User interface design. Database design. Process design. In many cases, the design phase produces a prototype system a limited working system or subsystem to give the users and management an idea of how the completed system will work. With prototyping, the systems analyst can modify the prototype until it meets the needs and expectations of the organization Development After the design is completed, the actual system development can begin. A large part of the development schedule is devoted to testing the system. Members of the system development team perform early testing to locate and eliminate bugs. This initial testing is known as alpha testing. Later, potential users who are willing to work with almost-finished software perform public beta testing and report bugs to the developers Implementation When the testing is completed and known bugs have been eradicated, the new system is ready to replace the old one. In some cases, the new system is run in parallel with the old system until the analyst is confident that the new system is stable and reliable. The systems analyst can choose one of four approaches for converting to the new system: Direct cutover. Parallel systems approach. Phase-in approach. Pilot approach. MANCOSA BCom ITM Year 2 99

101 Maintenance The maintenance phase involves evaluating, repairing, and enhancing the system. For large custom systems, maintenance involves a continual process of evaluating and adjusting the system to meet organizational needs. In either case, maintenance usually lasts throughout the lifetime of the system Retirement At some point in the life of a system, ongoing maintenance is not enough. Because of changes in organizational needs, user expectations, available technology, and other factors, the system no longer meets the needs of the users or the organization. At that point, it s time to phase it out in favour of a newer system and begin another round of the system life cycle. 6.3 SYSTEMS DEVELOPMENT TOOLS AND TECHNIQUES Data Collection Techniques Systems analysts use several data collection techniques, including: Document review. Interview. Questionnaire. Observation. Sampling Modelling Tools Modelling tools are graphic representations of a system. Some of the tools are: A system flowchart is a graphical depiction of the physical system that exists or is proposed. A data flow diagram (DFD) is a simple graphical depiction of the movement of data through a system. A data dictionary, also called a repository, is a catalog or directory that describes all the data flowing through a system. A decision table shows, in a row-column format, the decision rules that apply and what actions to take when certain conditions occur. MANCOSA BCom ITM Year 2 100

102 6.3.3 Computer-Aided Systems Engineering (CASE) Today, many of the systems development tools and techniques are included in commercially available software packages referred to as computer-aided systems engineering (CASE). Most CASE tools software packages include the following: Charting and diagramming tools. A centralized data dictionary. A user-interface generator. Code generators that automate much of the computer programming. Further Reading For further reading on SDLC, turn to p. 286 of Bocij et al. Self Check Questions 1. Outline and describe the major steps in the systems development life cycle. 2. Describe the data collection techniques used by systems analysts. 3. Describe the systems modelling tools used by systems. 6.4 PROTOTYPING Prototyping is a preliminary version of part of a framework of all of an information system which can be reviewed by end users. Prototyping is an iterative process where users suggest modifications before further prototypes and the final information system is built (Bocij et al, 306). Prototyping is the rapid development and testing of working models, or prototypes, of new applications in an interactive, iterative process involving both IS specialists and business professionals. Prototyping makes the development process faster and easier for IS specialists and business professionals. MANCOSA BCom ITM Year 2 101

103 Prototyping makes the development process faster and easier, especially for projects where end user requirements are hard to define. Thus, prototyping is sometimes called rapid application design (RAD). Prototyping has also opened up the application development process to end-users because it simplifies and accelerates systems design. These developments are changing the roles of end users and information systems specialists in systems development The Prototyping Process Prototyping can be used for both large and small applications. Typically, large e-business systems still require using the traditional systems development approach, but parts of such systems can frequently be prototyped. A prototype of a business application needed by an end user is developed quickly using a variety of application development software tools. The prototype system is then repeatedly refined until it is acceptable. Prototyping is an iterative, interactive process that combines steps of the traditional systems development cycle, and allows the rapid development and testing of a working model. Further Reading Four further reading on Prototyping turn to p.309 of Bocij et al. MANCOSA BCom ITM Year 2 102

104 (Source: Bocij et al, 2008:309) MANAGEMENT RESPONSIBILITY Managers are responsible for working with the information systems specialist or the systems developer to prepare a thorough analysis of the proposed system, including a thorough description of what the system is intended to do (systems requirements) and a cost/benefit analysis. The feasibility study is one of the most important aspects for the development of successful information systems. Managers should also have the vision to define new systems or applications that will be beneficial to the organisation. 6.5 RAPID APPLICATIONS DEVELOPMENT A method of developing information systems which uses prototyping to achieve user involvement and faster development compared to traditional methodologies. 6.6 END USER DEVELOPMENT End user development represents a major trend in the use of information technology in organisations. McGill et al. (2003) explain that user-developed applications (UDAs) are computer-based applications for which non-information systems assume primary development responsibility. They support decision making and organisational processes in the majority of organisations. End user development has become much more popular in the last few years and involves the development of applications by the business end user. MANCOSA BCom ITM Year 2 103

105 Additional Reading For further reading on End User Development: Turn to pp of Bocij et al. Pay special attention to the paragraph on Managing EUC as part of IS Strategy on p. 625 and Table 16.2 on p. 625 that emphasises that end users should focus on the fundamental activities and basic components of an information system. ACTIVITY Attempt essay question 1 on p. 629 of Bocij et al. Suggested answers ANSWER TO DISCUSSION QUESTION 1. The rise of rapid applications development is mainly a response to the failure of traditional systems development methodologies to deliver the right system at the right price and at the right time. Discuss. This question asks students to reflect on whether or not a traditional approach to systems development (such as SSADM) is inevitably going to result in systems that take longer to develop (and are therefore more expensive) than alternative methods. The question also points to the assertion that since business requirements change much more rapidly today, development methods which are more longwinded may result in systems developers solving what has become yesterday s problem rather than today s or tomorrow s. Students need to analyse whether or not methodologies such as SSADM inevitably result in longer development times or if they can be modified to compete with alternatives such as Dynamic Systems Development Methodology (DSDM). MANCOSA BCom ITM Year 2 104

106 It should also be remembered that RAD looks at the whole lifecycle of systems development, whereas many methods concentrate on analysis and design activities. With RAD, the distinction between analysis and design becomes blurred through the use of evolutionary prototyping. Not only is prototyping used as a means of refining further what users actually want from an information system but it is also used to identify the design requirements (input, output, processing etc.). Finally, prototypes are developed and refined (using 4GLs and application generators) so that they are implementable as the finished solution. RAD is also characterised by the use of time boxes (typically 90 days) where system products are delivered to end-users at the end of each time box. ANSWER TO EXAMINATION QUESTION 1. Explain the terms bespoke development, off-the-shelf package and end-user computing. Illustrate your answer with some of the reasons cited in favour of each of these methods of application software acquisition. The student should present an answer along the following lines. Bespoke development occurs when either in-house IS/IT staff or a third party such as a software house develops applications software for a business. The software is tailored to the organisation s specific requirements. Bespoke solutions are required where packaged software cannot be procured which offers the necessary functionality and/or would require changes in working practices that are unacceptable to the organisation. An off-the-shelf package is a software product that has been written by a company with the intention of selling it to many customers. Benefits include the ability to purchase sophisticated software solutions at a much lower cost than bespoke development, the increased probability that the software will be free from bugs when implemented and access to upgraded versions of the software in return for an annual maintenance charge. MANCOSA BCom ITM Year 2 105

107 End-user computing occurs when non-it professionals develop software solutions themselves, often using PC-based tools such as spreadsheet, database and report generator packages. These applications are usually for personal and departmental use, although, in the case of small businesses, the software may have organisation-wide use. The benefits include the ability to produce tailored solutions without the expense of using IS/IT personnel, the freeing up of IS/IT professionals to concentrate on developing corporate information systems and also the sense of ownership that comes from having developed software oneself. ANSWERS TO ESSAY QUESTION 1. End-user applications development poses a new set of management problems in companies that adopt this approach. Identify the nature of these problems and suggest measures to overcome them. Management problems are mainly a consequence of end-users missing out part of the life cycle, viz: feasibility study assessment of whether or not existing software is available may often be omitted; analysis users may have their own opinions of the features that the software should fulfil, so they do not consult with other potential users; design users often progress straight on to programming since they do not have the design skills or are more interested in programming a solution; testing and documentation. Solutions include these aspects of EUC strategy: training; suitability review; standards for development; guidance from end-user support personnel; software and data audits; ensuring corporate data security. MANCOSA BCom ITM Year 2 106

108 PART 7 BUSINESS INFORMATION SYSTEMS PROJECT MANAGEMENT MANCOSA BCom ITM Year 2 107

109 At the end of this study unit, the learner should be able to: After you have worked through this study section you should be able to: explain the three key objectives of project management identify the typical stages in an information systems project; explain the reasons for projects failure; and understand approaches used by project managers to control projects. MANCOSA BCom ITM Year 2 108

110 7.1 INTRODUCTION Projects are unique, one time operations designed to accomplish a specific set of objectives in a limited timeframe. Examples of projects include a building construction or preparing for the FIFA 2010 World Cup in South Africa. Management issues that involve typical questions facing managers related to this topic are: What are the success criteria for a BIS project? What are the attributes of a successful project manager? Which project management activities and techniques should be performed by the project manager for a successful outcome? In this unit the focus is on providing the technical knowledge that is necessary to manage information systems projects. Large information systems projects like construction projects may consist of many activities and must therefore be carefully planned and coordinated if a project is to meet its objectives. The three key objectives of project management are shown in the following figure. (Source:Bocij et al, 2008: 344) ACTIVITY Attempt case study Putting an all-inclusive price tag on successful IT on page 344 of Bocij et al. The job of project managers is difficult since they are under pressure to increase the quality of information system within the constraints of fixed costs, budget and resources. MANCOSA BCom ITM Year 2 109

111 7.2 WHY DO PROJECTS FAIL? In general terms Lyytinen and Hirscheim (1987) researched the reasons for information systems projects failing. They identified five broad areas which still hold true today: Technical failure Data failure User failure Organisational failure Failure in the business environment Additional Reading For more information on the success and failure of IT project management, read case study 9.1 Putting an all-inclusive price tag on successful IT on page 344 of Bocij et al. 7.3 PROJECT MANAGEMENT FUNDAMENTALS Project deliverables are any measurable, tangible, verifiable outcome, result, or item that is produced to complete a project or part of a project. Examples of project deliverables include design documents, testing scripts, and requirements documents. Project milestones represent key dates when a certain group of activities must be performed. For example, completing the planning phase might be a project milestone. If a project milestone is missed, then chances are the project is experiencing problems. A project manager is an individual who is an expert in project planning and management, defines and develops the project plan, and tracks the plan to ensure all key project milestones are completed on time. The art and science of project management must coordinate numerous activities as displayed in the figure below. Project managers perform numerous activities, and three of these primary activities are: 1. Choosing strategic projects. 2. Setting the project scope. 3. Managing resources and maintaining the project plan. MANCOSA BCom ITM Year 2 110

112 Further Reading Read the paragraph titled Steps in project management on page 350 of Bocij et al. and take special note of the work breakdown structure. 7.4 WORK BREAKDOWN STRUCTURE (WBS) This is a breakdown of the project or a piece of work into its component parts (tasks).it shows the hierarchical relationship between the project tasks. It is an important part of estimation. Figure 7.2 illustrates a WBS structure for an accounting firm. Figure 7.2: Work Breakdown structure (WBS) for an accounting firm (Source : Bocij et al 2008: 351) MANCOSA BCom ITM Year 2 111

113 Figure 7.3: Management roles in project management (Source: CM Guide, 2009) 7.5 PROJECT MANAGEMENT PROCESS The project management process includes the following main elements: Estimate: The project manager is allowed to plan for the resources required for project execution through establishing the number and size of tasks that need to be completed for the project. Schedule/plan: This involves when project activities should be executed. The finished schedule is termed the project plan. Monitoring and control: When a project is under way, its objectives of cost, time and quality in meeting targets must be up to the plan level. Control or corrective action will occur if the performance measures deviate from the plan. Documentation: Documentation is essential to disseminate information during project execution and for reference during software maintenance MANCOSA BCom ITM Year 2 112

114 Additional Reading For further reading on Steps in project management: Turn to page 350 of Bocij et al. and take special note of the work breakdown structure. 7.6 CHOOSING STRATEGIC PROJECTS- AN EXAMPLE Calpine Corp., a large energy producer, uses project management software to look at its IT investments from a business perspective. The company classifies projects in one of three ways: (1) run the business, (2) grow the business, and (3) transform the business. Calpine splits its $100 million in assets accordingly: 60 percent for running the business, 20 percent for growing the business, and 20 percent for transforming the business. Calpine evaluates each of its 30 to 35 active projects for perceived business value against project costs. For the company to pursue a project it must pass a return on investment (ROI) hurdle. A business project must minimally provide two times ROI, and a transformation project must provide five times ROl. One of the most difficult decisions organizations make is determining the projects in which to invest time, energy, and resources. An organization must identify what it wants to do and how it is going to do it. The what plan of this question focuses on issues such as justification for the project, definition of the project, and expected results of the project. The how part of the question deals with issues such as project approach, project schedule, and analysis of project risks. Determining which projects to focus corporate efforts on is as necessary to projects as each project is to an organization. The three common techniques an organization can use to select projects include: 1. Focus on organizational goals. 2. Categorize projects. 3. Perform a financial analysis MANCOSA BCom ITM Year 2 113

115 7.6.1 Techniques for Choosing Strategic Projects IMPORTANT NOTE! 1. Focus on organizational goals Managers are finding tremendous value in choosing projects that align with the organization s goals. Projects that address organizational goals tend to have a higher success rate since they are important to the entire organization. 2. Categorize projects There are various categories that an organization can group projects into to determine a project s priority. One type of categorization includes problem, opportunity, and directives. Problems are undesirable situations that prevent an organization from achieving its goals. Opportunities are chances to improve the organization. Directives are new requirements imposed by management government or some other external influence. It is often easier to obtain approval for projects that address problems or directives because the organization must respond to these categories to avoid financial losses. 3. Perform a financial analysis -A number of different financial analysis techniques can be performed to help determine a project s priority. A few of those include net present value, return on investment and payback analysis. These financial analysis techniques help determine the organization s financial expectations for the project. 7.7 SELLING THE PROJECT SCOPE Once an organization defines the projects it wants to pursue, it must set the project scope. Project scope defines the work that must be completed to deliver a product with the specified features and functions. The project scope statement is important because it specifies clear project boundaries. The project scope typically includes the following: Project product a description of the characteristics the product or service has undertaken. Project objectives quantifiable criteria that must be met for the project to be considered a success. MANCOSA BCom ITM Year 2 114

116 Project deliverables any measurable, tangible, verifiable outcome, result, or item that is produced to complete a project or part of a project. Project exclusions products, services, or processes that are not specifically a part of the project. The project objectives are one of the most important areas to define because they are essentially the major elements of the project. When an organization achieves the project objectives, it has accomplished the major goals of the project and the project scope is satisfied. Project objectives must include metrics so that the project s success can be measured. The metrics can include cost, schedule, and quality metrics along with a number of other metrics. SMART criteria useful reminders on how to ensure that the project has created understandable and measurable objectives. 7.8 MANAGING RESOURCES AND MAINTAINING THE PROJECT PLAN Managing people is one of the hardest and most critical efforts a project manager undertakes. How to resolve conflicts within the team and how to balance the needs of the project with the personal/professional needs of the team are a few of the challenges facing project managers. More and more project managers are the main (and sometimes sole) interface with the client during the project. As such, communication, negotiation, marketing, and salesmanship are just as important to the project manager as financial and analytical acumen. There are many times when the people management side of project management made the difference in pulling off a successful project. A project plan is a formal, approved document that manages and controls project execution. A welldefined project plan is characterized by the following: Easy to understand. Easy to read. Communicated to all key participants (key stakeholders). Appropriate to the project s size, complexity, and criticality. Prepared by the team, rather than by the individual project manager. MANCOSA BCom ITM Year 2 115

117 The most important part of the plan is communication. The project manager must communicate the plan to every member of the project team and to any key stake- holders and executives. The project plan must also include any project assumptions and be detailed enough to guide the execution of the project. A key to achieving project success is earning consensus and buy-in from all key stakeholders. By including key stakeholders in project plan development, the project manager allows them to have ownership of the plan. This often translates to greater commitment, which in turn results in enhanced motivation and productivity. The two primary diagrams most frequently used in project planning are PERT and Gantt charts. A PERT (Program Evaluation and Review Technique) chart is a graphical network model that depicts a project s tasks and the relationships between those tasks. A dependency is a logical relationship that exists between the project tasks, or between a project task and a milestone. PERT charts define dependency between project tasks before those tasks are scheduled (see Figure below). The boxes in figure below represent project tasks, and the project manager can adjust the contents of the boxes to display various project attributes such as schedule and actual start and finish times. The arrows indicate that one task is dependent on the start or completion of another task. The critical path is a path from the start to the finish that passes through all the tasks that are critical to completing the project in the shortest amount of time. PERT charts frequently display a project s critical path. MANCOSA BCom ITM Year 2 116

118 Figure 7.4: Pert chart (Source: CM guide, 2009) A Gantt chart is a simple bar chart that depicts project tasks against a calendar. In a Gantt chart, tasks are listed vertically and the project s time frame is listed horizontally. A Gantt chart works well for representing the project schedule. It also shows actual progress of tasks against the planned duration. Figure 7.5 illustrates a Gantt Chart. MANCOSA BCom ITM Year 2 117

119 Figure 7.5: Gantt Chart (Source: Bocij et al, 2008:365) Further reading For further reading on project evaluation: Turn to p 367 of Bocij et al. ACTIVITY Attempt essay question 3 on page 370 of Bocij et al. on Project evaluation and review technique MANCOSA BCom ITM Year 2 118

120 Suggested answers ANSWER TO CASE STUDY Case Study 9.1: Putting an all-inclusive price tag on successful IT 1. Discuss the difficulties in estimating the costs and benefits of an IT project. There is a need to consider the context of the IT project and thus the change required for a successful implementation and delivery. IT departments tend to focus on the technical costs of hardware, software and training but underestimate the costs of change. In the case study these costs are stated as ensuring compliance with the business strategy; aligning the people with the processes the business is changing to and ensuring that behaviours are commensurate with the required new ways of working. There is also the traditional problem in that hardware and software costs estimates are relatively easy to calculate but more benefits tend to be more qualitative and difficult to express as a number. ANSWER TO ESSAY QUESTION 3. What is the most effective method of estimating the duration of an information systems development project? The answer can be approached in two main different ways; a good answer will explore both. 1 Top-down vs. bottom-up. Is the estimate built by producing broad estimates for each module and then refining them, or by considering the detailed tasks and then building up an overall estimate from the sum of these? It should be apparent that the second option is more time consuming, but more accurate. Review of techniques such as constructive cost model (COCOMO) which give estimates based on the number of lines of source code or function point analysis that considers the functions and numbers of inputs and outputs provided by the software. Both of these techniques can produce good answers, but only when a good data set of similar past projects is available. They are probably both inferior to, but quicker than, a bottom-up estimate. Function point analysis tends to be more detailed and accurate than COCOMO. MANCOSA BCom ITM Year 2 119

121 PART 8 INFORMATION SYSTEMS STRATEGY MANCOSA BCom ITM Year 2 120

122 At the end of this study unit, the learner should be able to: demonstrate the fundamental concepts of strategic advantage through information technology; explain the strategic applications of information systems that can gain competitive advantages for an organisation; and identify several basic competitive strategies and explain how they can be used to confront the competitive forces faced by an organisation. MANCOSA BCom ITM Year 2 121

123 8.1 INTRODUCTION Organisations that make the most effective use of business information systems (BIS) are those that make BIS strategy an integral part of their overall business strategy. This study unit will give you an understanding of the roles of information systems and technologies in helping an organisation achieve a strategic advantage over its competitors. It emphasises competitive strategy concepts and the strategic roles information systems can play in gaining competitive advantages for an organisation. Furthermore, this study unit provides examples of the strategic business use of information technology and discusses the major managerial challenges posed by strategic information systems. 8.2 INTRODUCTION TO BIS STRATEGY Ward and Peppard (2002) identify three different elements of IS strategy: Business Information Strategy: this defines how information, knowledge and the applications portfolio will be used to support business objectives. IS functionality strategy: this defines the most appropriate processes and resources to ensure that information provision supports business strategy IT strategy: this defines the software and hardware standards and suppliers which make up the e-business infrastructure. Further reading For further reading on BIS Strategy: Turn to pp in Bocij et al. ACTIVITY Attempt Case study Agile development can make business quick and light on page 531 and answer the questions. Compare your answers with the suggested answers given at the end of the study unit. MANCOSA BCom ITM Year 2 122

124 8.3 COMPETITIVE STRATEGY CONCEPTS An organisation can survive and succeed in the long run if it successfully develops strategies to confront the five competitive forces that shape the structure of competition in its industry. From an information systems perspective, the tool provides further pointers towards how IS can be used to benefit the business. The following diagram illustrates Porter s five forces model Figure 8.1: Porter s five forces Model (Source: Laudon and Laudon 2010) Traditional competitors All firms share market space with competitors who are continuously devising new products, services, efficiencies, switching costs New market entrants Some industries have high barriers to entry, e.g. computer chip business New companies have new equipment, younger workers, but little brand recognition Substitute products and services Substitutes customers might use if your prices become too high, e.g. itunes substitutes for CDs Customers Can customers easily switch to competitor s products? Can they force businesses to compete on price alone in transparent marketplace? Suppliers Market power of suppliers when firm cannot raise prices as fast as suppliers MANCOSA BCom ITM Year 2 123

125 Further reading For further reading on Porter s five forces model: Turn to pp of Bocij et al Competitive Strategies These competitive strategies include a cost leadership, differentiation, focus on market niche, strengthen customer and supplier intimacy Low-cost leadership produce products and services at a lower price than competitors while enhancing quality and level of service Examples: Wal-Mart, Dell Product differentiation Enable new products or services, greatly change customer convenience and experience Examples: Google, Land s End, Apple iphone Focus on market niche Use information systems to enable a focused strategy on a single market niche; specialize Example: Hilton Hotels Strengthen customer and supplier intimacy Use information systems to develop strong ties and loyalty with customers and suppliers; increase switching costs Example: Chrysler, Amazon Further reading For further reading on competitive strategies: Turn pp of Bocij et al. MANCOSA BCom ITM Year 2 124

126 ACTIVITY Answer Discussion Questions 1 and 2 of Bocij et al., p THE VALUE CHAIN AND STRATEGIC INFORMATION SYSTEMS The Business Value Chain Model Be better than the competition. That s the mantra of most companies that are serious about winning the game. Areas of the organization most affected by leveraging technology are in producing the product, getting it to the stores, and making the customer happy. For instance, think of all the activities that go into getting the Cybernuts candy bar made, from procuring raw materials to actual production. Then consider how the candy bar gets from the factory to the store shelves. And what about all those commercials you see? These are primary activities. Just as important are support activities: human resources, accounting, and finance. These functions support the primary functions of production, shipping, and sales and marketing. The value chain model shown below will help an organization focus on these activities and determine where to focus their efforts the most. Figure 8.2: Michael Porter s internal value chain model, showing the relationship between primary and support activities to the value chain within a company (Source: Bocij et al. 2008:521) MANCOSA BCom ITM Year 2 125

127 Primary Activities Primary value chain activities include: Primary Activity Description Inbound All those activities concerned with receiving and storing externally sourced materials logistics Operations The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products) Outbound All those activities associated with getting finished goods and services to buyers logistics Marketing and Essentially an information activity - informing buyers and consumers about products sales and services (benefits, use, price etc.) Service All those activities associated with maintaining product performance after the product has been sold Support Activities Support activities include: Secondary Description Activity Procurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers) Human Resource Those activities concerned with recruiting, developing, motivating and rewarding the Management workforce of a business Technology Activities concerned with managing information processing and the development Development and protection of "knowledge" in a business Infrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management By effectively using an information system in a strategic role at any, or preferably all, levels of the organization, a digital firm can provide more value in their products than the competition. If they cannot provide more value, then the strategic information system should help them provide the same value but at a lower price. MANCOSA BCom ITM Year 2 126

128 Additional Reading Read the paragraph on the Value Chain of Bocij et al., p. 521 ACTIVITY Do Examination questions 1, 2 & 3 of Bocij et al. on p MANAGEMENT RESPONSIBILITY The IS function can help managers develop competitive weapons (that use information technology) to implement a variety of competitive strategies to meet the competitive challenges that confront any organisation. Successful strategic information systems are not easy to develop and implement. They may require major changes in the way a business operates and in their relationships with customers, suppliers, competitors, internal and external stakeholders, and others. Managers must determine how the organisation can build information systems of strategic importance. Information systems, therefore, are too important to be left entirely to a small technical group in the organisation. Managers, probably at senior management level, must initiate the search for opportunities to develop strategic information systems. 8.5 SUMMARY The strategic role that information systems play in organisation to attain a competitive advantage is crucial to survive in the challenging business environment. Information systems can be used to break business barriers, reengineer business processes, improve business quality, to become an agile competitor, and to create a virtual company. Organisations can also use the Internet to develop strategic collaboration, operations, marketing and alliances to succeed in the fast-changing global market. MANCOSA BCom ITM Year 2 127

129 Suggested answers ANSWERS TO CASE STUDY Case Study 13.1: Agile development can make business quick and light What do the differences between the traditional waterfall model and agile development methods suggest about their respective applicability to the strategic alignment of business and IS/IT strategies? Students are expected to focus on the following: Agile software development can prevent organisations becoming locked into yesterday s ideas and business strategies. It might be suggested that since projects based around the waterfall model can take longer (sometimes much longer) before any software is actually implemented, the business needs then may have moved on. However, agile methods that focus on the frequent delivery of software products allow the system to evolve and meet changing business needs. Since it is claimed that rigid specifications and inflexible development techniques can lock organisations into yesterday s ideas and also inhibit commercial evolution, then the link between software development methodologies and strategic alignment is clear: monolithic and rigid methods can lead to a mismatch between what the business needs and the information systems that are developed. The link is summarised on the article thus: with agile development, the final product can be quite different from that originally planned. But it tends to be more aligned with the business needs at the time of completion rather than its needs at the start, which may now be outdated. MANCOSA BCom ITM Year 2 128

130 ANSWERS TO DISCUSSION QUESTIONS 1. The millennium bug has demonstrated that organisations, more often than not, take a shortterm view in their approach to information systems rather than a strategic one. Discuss. Students should concentrate on applications software rather than other issues such as processor chips. They can centre their discussion around the following points: Some legacy systems in current use can date back to their original development at least two decades ago; the writers of these systems never envisaged that the software would still be running 20 or more years later. This suggests that the software falls at least into the support or even the key operational categories. The legacy systems referred to above were built at a time when memory and disk space constraints were severe and developers took every possible step to reduce storage space for data and programs. It has been argued that running applications with full eight-digit dates would have been prohibitively expensive, thus putting off systems development and fixing these systems is less than the benefits that have accrued over the life of the system. There is evidence that systems developed as recently as 6 or 7 years ago were not millennium compliant. It is much harder to argue the storage and memory costs issue here. Recently developed systems that use six-figure dates, therefore, do suggest that shorttermism exists. The failure of many companies to get up to speed with their millennium compliance activities also suggests that a degree of complacency exists (especially for those businesses with a turnover of between 1 and 50 million). Also, it is suggested that some public sector organisations are leaving things to the last minute. Both of these points suggests that, again, too many people are not taking the problem sufficiently seriously and are concentrating on short-term objectives. MANCOSA BCom ITM Year 2 129

131 2. The barriers relating to the relationship between business and IS/IT strategies mean that successful alignment is likely to be the exception rather than the rule. Discuss. In this discussion, I would expect students to focus on the alignment model produced by Weill and Broadbent along with their identification of expression barriers, specification barriers and implementation barriers. While the model and barriers are clear, what remains an issue is whether successful alignment is the norm, or something relatively rare. As is often the case in this situation, the answer probably lies somewhere in between. What could be useful as a discussion activity is to discuss each of the three barriers identified by Weill and Broadbent and for the students to identify how they think each of the barriers might be overcome. ANSWER TO EXAMINATION QUESTION 1. Explain the concept of Porter s value chain and how it can be used to identify a company s information needs. Value chain analysis allows the functional areas of an organisation to be analysed logically and systematically. Each primary and secondary function can be analysed in terms of its critical success factors, decisions that are needed and information required to support the decision-making processes. It is also possible to look at how business processes are linked across functional areas and the information systems that are needed to make this possible. 2. How can McFarlan s strategic grid be used to define an information systems strategy for a company? This model looks at the relationship between an organisation s current and possible future IS and their contribution or potential contribution to the business. Applications are classified as follows: Support these applications are valuable to the organisation but not critical to its success. MANCOSA BCom ITM Year 2 130

132 Key operational the organisation currently depends on these applications for success. High potential these applications may be important to the future success of the organisation. Strategic applications that are critical to sustaining future business strategy. The model is useful because it allows the current applications portfolio to be analysed according to where the applications fit. It may also suggest where future development work should be concentrated. Finally, candidates for outsourcing may be selected (e.g. applications in the support category). 3. Explain the difference between a business-impacting and business-aligning approach to a company s IS strategy. Give examples of strategy tools that can help support each method. Business-impacting techniques seek to analyse the business to see how IS/IT can be used to benefit the business. These include the following: Competitive forces analysis. Competitive strategies (in response to the business external environment). Value chain analysis. It is also suggested that any techniques used as part of a business process re-engineering (BPR) exercise apply as well. Business-aligning techniques seek to base the IS/IT strategy on the organisation s existing business strategy. These include the following: Critical success factors analysis. Business systems planning (including information engineering). MANCOSA BCom ITM Year 2 131

133 PART 9 INFORMATION SYSTEMS MANAGEMENT MANCOSA BCom ITM Year 2 132

134 At the end of this study unit, the learner should be able to: When you have worked through this study section you should be able to: evaluate the relationships between IS spending and business benefits; evaluate location alternatives for an organisation s IS function; assess the arguments for and against outsourcing; and explain the importance of offshore outsourcing MANCOSA BCom ITM Year 2 133

135 9.1 INTRODUCTION In part 8, a number of tools and issues relating to the development of IS/IT strategies and their integration with an overall business strategy were explored. This section explores a range of issues relating to the management of information systems within an organisation including investment appraisal, outsourcing and the organisation and implementation of the IS/IT management function within an organisation. By combining effective IS/IT strategies with effective implementation and management, it will then become more likely that an organisation will have IS/IT solutions that provide significant business benefits rather than ones which act as a drain on the organisation. 9.2 DOES IT MATTER? As the amount of money spent by organizations on information technology has increased, there has been a great deal of argument about the value delivered by this IT. Despite the large-scale investments in IT within organizations, it is still not clear the extent to which investment in information systems benefits organizations. In 1987, the MIT professor and Nobel economist Robert Solow (We d better watch out, New York Times, 12 July 1987), made the remark: We see the computer age everywhere except in the productivity statistics. This expressed in words what many in business and economists had suspected. Although there was a lot of expenditure on IT, there was relatively little to show for it. Subsequent studies in the late 1980s and 1990s summarized by Brynjolfsson (1993) and Strassman (1997) did indeed suggest that, across companies, there is little or no correlation between a company s investment in information technology and its business performance measured in terms of profitability or shareholder value. This concept is known as the IT productivity paradox. Strassman s early work, looking at the paradox at the firm level, was based on a study of 468 major North American and European firms which showed a random relationship between IS spending per employee and return on equity. More recently Brynjolfsson and Hitt (1998) and studies summarized in Financial Times (2003) have suggested that the productivity paradox is no longer valid. MANCOSA BCom ITM Year 2 134

136 At the economy level, the Financial Times (2003) reported that in the US, the annual rate of increase in output per hour in the late 1970s and early 1980s was 2.6 per cent. From 1987 to 1995, it dropped to only 1.5 per cent, despite the increase in use of personal computer technology in organizations. From 1995 to 2000, however, the annual rate increased to an average of 2.5 per cent. Output per hour then increased to 5.3 per cent in 2002 and in the third quarter of 2003 reached 9.4 per cent, the highest rate for 20 years. At the firm level, more recent work at the individual company level, completed by Brynjolfsson, has demonstrated that productivity increases can be achieved through IT investment. His studies have also shown that, as one would expect, IT is only a small part of the investment in business information management projects. Additional Reading: For further reading on IT Productivity Paradox, turn to pp of Bocij et al. ACTIVITY Do you agree that many organisations are reengineering their business processes at this stage? Make sure you are familiar with this important concept. 9.3 INFORMATION SYSTEMS INVESTMENT APPRAISAL. Lubbe and Remenyi (1999) in their analysis of the management of IS/IT evaluation identified seven benefit objectives that provide a stimulus to organisational IS/IT investment. In descending order of significance these are: Productivity New opportunities Change Competitive advantage Increased turnover Reduced risk MANCOSA BCom ITM Year 2 135

137 Coupled with these factors Lubbe and Remenyi (1999) also identified seven IS/IT investment drivers that will help determine the organisation s response to the IS/IT investment opportunity. In descending order of importance, these are: Organisational strategy Management decisions Interfacing of systems Quality of service Evaluation of IS/IT (tangible and intangible benefits) Business modelling (improving business processes) Budgets Additional Reading For further reading on IS Investment appraisal, turn to pp of Bocij et al. 9.4 DETERMINING INVESTMENT LEVELS How much an organisation will spend on IS will depend both on the size of the organisation and on the nature of its business operations. Spending as a proportion of turnover will also vary over time depending on the maturity of an organisation s systems and on the organisation itself. Further Reading For additional reading on Determining investment levels, turn to pp of Bocij et al. ACTIVITY Do self assessment questions 1 and 2 on page 566 of Bocij et al. MANCOSA BCom ITM Year 2 136

138 9.5 LOCATING THE INFORMATION SYSTEMS MANAGEMENT FUNCTION There are two basic approaches to locating the information system function in an organisation that operates at more than one location. These are the centralisation of all IS services at one office (usually the head office) and decentralisation. It is unusual for a company to choose one extreme or the other; typically, the approach will vary for the different types of services. The approach chosen is significant, since it will have a direct correspondence to the quality of service available to the end- user departments and the cost of providing this service What needs to be managed? It is useful to make a distinction between information systems and information technology. As has been stated before, we can view IT as the infrastructure and an enabler, while information systems give a business the applications that produce the information for decision-making purposes. IS cannot exist without the IT to support them, but IT on its own does not of itself confer any business benefits. For information technology the following must be managed: Hardware platforms. Network architectures. PCs Development tools. Legacy systems. Operations management. Business systems development. Migration and conversion strategy. Database administration. User support and training. End-user application development. Shared services. IS/IT staffing. MANCOSA BCom ITM Year 2 137

139 Further Reading For further reading on what needs to be managed, turn to pp.543 of Bocij et al 9.6 OUTSOURCING Outsourcing is the process of hiring another organization to perform a service. Just about any business activity in the value chain can be outsourced, from marketing and sales, to logistics, manicuring, or customer service. Support functions, such as accounting and HR, can be outsourced as well. In this section, we will focus on the outsourcing of IS and IT services but please realize that companies also outsource most other business activities. The outsourced vendor can be domestic or international. Some companies choose to outsource overseas because labour is cheaper and to take advantage of time differences Reasons for outsourcing According to the Outsourcing Institute, the top 10 reasons companies outsource are: 1. Accelerate re-engineering benefits 2. Access to world class capabilities 3. Cash infusion 4. Free resources for other purposes 5. Function difficult to manage out of control 6. Improve company focus 7. Make capital funds available 8. Reduce operating costs 9. Reduce risk 10. Resources not available internally (Source: Bocij et al. 2008:550) ACTIVITY Attempt essay question 3 on p. 567 of Bocij et al. MANCOSA BCom ITM Year 2 138

140 Organizations should consider outsourcing in order to achieve the following benefits: Financial savings Increased technical abilities Market agility Developing strategic outsourcing partnerships Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party service provider. Business process outsourcing is increasingly becoming the strategic choice of companies looking to achieve cost reductions while improving their service quality, increasing shareholder value, and focusing on their core business capabilities. Many organizations are looking beyond traditional IT outsourcing to business process outsourcing as the next logical step. Implementing BPO can save costs for tasks that an organization requires but does not depend upon to maintain its position in the marketplace. BPO is divided into two categories: (1) back-office outsourcing that includes internal business functions such as billing or purchasing, and (2) front-office outsourcing, which includes customer-related services such as marketing or technical support. Business process outsourcing is not a new field. Paychex, based in Rochester, New York, for example, has been outsourcing payroll processing for small businesses since However, the market is heating up these days, as companies need for strategic cost cutting, desire to improve business methods, and comfort with outsourcing arrangements grow. The Gartner Group estimated that the worldwide market for business process outsourcing would grow to $178 billion in Management consulting and technology services company Accenture is a BPO player. Accenture s first BPO deal came in the early 1990s, when it outsourced finance and accounting functions for British Petroleum. Accenture now handles a variety of outsourcing tasks, such as airline ticket processing and call centre staffing for AT&T. MANCOSA BCom ITM Year 2 139

141 9.6.3 Offshore outsourcing Offshore outsourcing is using organizations from developing countries to write code and develop systems. Numerous countries have substantially well-trained IT professionals and clerical staff who have lower salary expectations compared to their U.S. counterparts. Offshore outsourcing has become a small but rapidly growing sector in the overall outsourcing market. Nearly half of all businesses use offshore providers, and two-thirds plan to send work overseas in the near future, according to Forrester Research. India receives most of the outsourcing functions from all over the world. However, as more American companies seek to source globally, more countries are emerging to benefit from that demand from Canada to Malaysia each with its own particular strengths and weaknesses. Organizations have much to gain from offshore outsourcing. Additional Reading Study the paragraph making outsourcing work on p. 553 of Bocij et al. ACTIVITY Attempt Examination questions 1 & 2 on page 567 of Bocij et al MANCOSA BCom ITM Year 2 140