INFORMATION SYSTEMS FORMATION 2 EXAMINATION - APRIL 2014

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1 INFORMATION SYSTEMS FORMATION 2 EXAMINATION - APRIL 2014 NOTES: Section A - You are required to answer Questions 1 and 2. Section B - You are required to answer any three out of Questions 3 to 6. (If you provide answers to all of Questions 3 to 6, you must draw a clearly distinguishable line through the answer not to be marked. Otherwise, only the first three answers to hand for these four questions will be marked.) TIME ALLOWED: 3 hours, plus 10 minutes to read the paper. INSTRUCTIONS: During the reading time you may write notes on the examination paper but you may not commence writing in your answer book. Marks for each question are shown. The pass mark required is 50% in total over the whole paper. Start your answer to each question on a new page. You are reminded that you are expected to pay particular attention to your communication skills and care must be taken regarding the format and literacy of your solutions. The marking system will take into account the content of your answers and the extent to which answers are supported with relevant legislation, case law or examples, where appropriate. List on the cover of each answer booklet, in the space provided, the number of each question attempted. The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

2 THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND INFORMATION SYSTEMS FORMATION 2 EXAMINATION - APRIL 2014 Time Allowed: 3 hours, plus 10 minutes to read the paper. SECTION A Answer BOTH Question 1 and Question 2 in this Section. (Both Compulsory) 1. Poshmetics is an Irish company that specialises in the supply of personalised and promotional cosmetic bags. In the space of two years it s operation has been transformed from an exclusive high street store in Dublin to a highly successful online business. Poshmetics personalised products include a wide selection of monogrammed cosmetic bags in a variety of colours and designs. The bags are marketed as being both practical and affordable, and as ideal gifts for any occasion. Fast shipping is guaranteed to anywhere in the world. Poshmetics also specialises in the sale of branded cosmetic bags to companies who use them as promotional giveaways, retail products or business gifts. The bags and contents (which can include body lotion, shower gel, hand cream, hand soap, deodorant, massage oil, lip balm, face spray and refreshing towels) can be branded with the customer s logo. For company orders the process typically starts with an enquiry received either by , telephone or online form. Order designs then begin upon receipt of the customer s logo (for printing on bags, tubes, bottles, etc.). Poshmetics sends a design proposal to the customer without any obligations. After the design has been accepted and payment received, the company then start processing the order. It typically takes 3-4 weeks before the goods are delivered. All products are carefully packed and shipped using a professional distribution company. Poshmetics ships to all countries and accepts returns in case of any damages. As Poshmetics does not have cosmetic production facilities of its own, nor does it produce or print the bags or containers, it must source all the necessary contents and services at competitive rates. Quality is an important consideration; not only does the company s reputation depend on it, it is also essential to ensure the products are not dangerous to human health and are produced in accordance with EU Cosmetic Directive 76/768/EEG. Poshmetics relies heavily on information technologies and the Internet in particular to enable it to communicate effectively and efficiently with customers and suppliers, and also to facilitate the management of its business processes. In many respects we are now an Internet company said its founder and chief executive Margaret Malkey. Our ever-expanding customer base is global, as is our supply chain, and as a result we must continually look at exploiting new technologies and standards to enable us to remain competitive. While Poshmetics depends heavily on information technologies it does not have a large investment in IT infrastructure. The company s Chief Information Officer (CIO) has a strong business background as well as information systems expertise. He has successfully integrated a range of cloud based services into the company s business strategy. Cloud computing has proven to be an essential tool to deliver on our business outcomes said the CIO. There is no doubt that cloud is vitally important to our business, but it requires a sensible and pragmatic approach to achieve the benefits. Page 1

3 REQUIREMENT: Candidates are asked to address the following, based on a critical analysis of the case study on Page 1. (a) Outline why and how contemporary Internet technologies, applications and standards could enable Poshmetics to operate successfully online and in a global marketplace. (9 marks) Briefly discuss the benefits of cloud computing to a company like Poshmetics, and recommend the cloud based services and applications it might use. (8 marks) Customer relationship management (CRM) is an important aspect of Poshmetrics business. Explain the different types of CRM software available to the company, and it s business value. (8 marks) [Total: 25 Marks] 2. Write briefing notes on any THREE of the following topics. In each case your note should include a summary of the main points relating to the topic. (a) (d) (e) The impact of XBRL and ixbrl on business in Ireland today. The role of project management in a new supply chain management system implementation. Transaction processing systems in a company that produces and sells food products. Enterprise-wide knowledge management in large high-tech companies. Ethical information systems issues faced by accountants in professional practice. Each part carries 5 marks. [Total: 15 Marks] SECTION B Answer ANY THREE of the four questions in this Section. 3. (a) Outline four strategic objectives of information systems in today s business environment. (8 marks) Distinguish the difference between data, information and knowledge, giving an example of how each is produced in a large firm. (6 marks) Michael Porter identified five competitive forces that shape the fate of a firm these are traditional competitors, new market entrants, substitute products and services, customers and suppliers. Discuss three information system strategies that can be adopted to deal with these forces. (6 marks) [Total: 20 Marks] 4. (a) Explain what an enterprise system is, and outline the main benefits and challenges of using one in a business organisation. (7 Marks) Outline the benefits for a company in using a supply chain management system, and explain the two main types of software available for supply chain management. (7 Marks) Discuss briefly the main security challenges and vulnerabilities associated with business information systems. (6 marks) Page 2 [Total: 20 Marks]

4 5. (a) What is data mining? Your answer should explain its role and importance in improving business performance and decision-making in a retail business. (7 marks) Discuss briefly the type of functionalities that business intelligence systems deliver in a business organisation. In your answer explain who the users of the business intelligence systems outputs are. (7 marks) The value of business intelligence systems needs to be assessed, as is the case with all information systems investments. Outline the main types of costs and benefits that must be taken into account, and identify two strategies that companies can use to assess the financial value of information systems. (6 marks) [Total: 20 Marks] 6. (a) Outline the potential benefits of (i) collaboration and (ii) social networking platforms for businesses today. (8 marks) In addition to social networking platforms, there are many other software platform trends that companies should be aware of nowadays. Explain any TWO of the following trends: Open source software Web services and service oriented architecture Software apps (6 marks) Leveraging the potential of collaboration and social networking platforms can result in organisational changes. Outline the most common forms of organisational change associated with information systems. State which one you would expect to be associated with the adoption of collaboration and social networking platforms and why. (6 marks) [Total: 20 Marks] END OF PAPER Page 3

5 SUGGESTED SOLUTIONS THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND INFORMATION SYSTEMS FORMATION 2 EXAMINATION - APRIL 2014 ANSWER 1 Tutorial Notes: - Purpose: The case study question aims to be a written summary or synthesis of a real-life scenario. It requires the candidate to isolate and think through the key issues involved against both theory and the larger comparative environment. This case study tests the candidate s knowledge of issues relating to the role of information systems in today s competitive environment, enterprise applications and systems, the use of information systems in decision making and decision support, and contemporary information technology trends. Links: No major links or other topics or papers. Options: All 3 parts of the question must be answered. The candidates answers may vary slightly from the answer format used below. Essential components: The candidates must demonstrate understanding of contemporary Internet technologies, applications and standards, as well as customer relationship management and other cloud based enterprise applications and services. SOLUTION 1 (a) Candidates should identify why and how the Internet benefits the company. Why is linked to the characteristics of the Internet: - Ubiquity - Global reach - Universal standards - Richness - Interactivity - Information density - Personalization/customization - Social technology/social networking. How Internet technologies, applications and standards enable Poshmetrics: - At a minimum they must present evidence from the case study showing use of e-commerce B2C (e-tailer) primarily - Sourcing bags/cosmetic products B2B, possibly making use of a net marketplace - Marketing social networking - Could also refer to internet extending the value chain to include suppliers, distributors and customers For the latter part (how), candidates could take a number of approaches, including the use of Porter s competitive forces model and how the Internet helps them cope with those. They could also highlight the strategic value of the Internet for the company. Main benefits of cloud computing for a company like Poshmetrics: - Don t have to support the infrastructure or have the knowledge necessary to develop and maintain the infrastructure. Company is able to focus on its core business by outsourcing all the hassle of IT infrastructure. - Cost Efficiency: This is achieved by the elimination of the investment in stand-alone software or servers. By leveraging cloud s capabilities, companies can save on licensing fees and at the same time eliminate overhead charges such as the cost of data storage, software updates, management etc. Also the cloud is in general available at much cheaper rates than traditional approaches and can significantly lower the overall IT expenses. At the same time, convenient and scalable charging models have emerged (such as one-time-payment and pay-as-you-go), making the cloud even more attractive. Page 4

6 - Convenience and continuous availability: Public clouds offer services that are available wherever the end user might be located. This approach enables easy access to information and accommodates the needs of users in different time zones and geographic locations. Moreover, service uptime is in most cases guaranteed, providing in that way continuous availability of resources. The various cloud vendors typically use multiple servers for maximum redundancy. In case of system failure, alternative instances are automatically spawned on other machines. Private clouds providers, if used, can also guarantee continuous availability. - Backup and Recovery: The process of backing up and recovering data is simplified since those now reside on the cloud and not on a physical device. The various cloud providers offer reliable and flexible backup/recovery solutions. In some cases, the cloud itself is used solely as a backup repository of the data located in local computers. Also a cloud deployment is usually built on a robust architecture thus providing resiliency and redundancy to its users. The cloud offers automatic failover between hardware platforms out of the box, while disaster recovery services are also often included. - Scalability and Performance: Scalability is a built-in feature for cloud deployments. Cloud instances are deployed automatically only when needed and as a result, you pay only for the applications and data storage you need. Clouds can be scaled to meet the company s changing IT system demands. - Quick deployment and ease of integration: A cloud system can be up and running in a very short period, making quick deployment a key benefit. Also the introduction of a new user in the system happens instantaneously, eliminating waiting periods. On types of cloud-based services that Poshmetrics might use: - Candidates could discuss SaaS, PaaS and IaaS - Could also discuss private versus public clouds The cloud based applications that they could use would include their website, full order processing, social media platforms, etc. Candidates should explain the difference between operational and analytical CRM systems. Operational CRM includes everything the company needs to interface directly or indirectly with the customer: Managers and decision makers use analytical CRM to help them improve business performance. The analytical CRM uses data from the operational CRM and provides managers with the opportunity to target smaller, specific customer groups or market segmentation. Rather than trying to blanket a huge group of potential customers, many of whom are not interested, managers use the analytical CRM to focus their efforts on those customers who can offer the most profit at the least cost. Benefits of CRM systems include: better customer service, more efficient call centres, simplified marketing and sales processes, the ability to cross-sell products & services more effectively, faster closing of sales, access to customer feedback for new product development, reduced sales & marketing costs, the ability to identify profitable and high lifetime value customers, optimised service delivery, improved customer loyalty, improved response time to customer queries and market opportunities. Page 5

7 ANSWER 2 Tutorial Notes: - Purpose: Responses for each sub question are expected to include a summary of the main facts relating to the topic. Links: No major links or other topics or papers. Options: Candidates should answer three of the five parts/sub questions. Essential components: Each sub question has an aspect that allows students to show what they know about a broad topic. Each also provide an opportunity for candidates to show they understand the relevance of the broad topic in a specific context. In general 5 key points are expected on each sub-question for the 5 marks. 4 of these could be quite general but must be relevant. SOLUTION 2 (a) XBRL ( extensible Business Reporting Language) is an XML-based markup language used to communicate financial and business data electronically. ixbrl or 'inline' XBRL, is a more recent version of the language which allows human-friendly presentation of XBRL documents. The report can be viewed like a web page and the XBRL can be extracted if the recipient wants to use the tagged data. ixbrl is the format of XBRL being adopted in the UK and Ireland for tax reporting purposes. In Ireland, all companies that are required under the Companies Act 1963 to prepare accounts will be required to submit their Financial Statements in ixbrl format to Revenue. It will become mandatory for all corporation tax payers to use ixbrl on a phased basis, starting with taxpayers dealt with in the Large Cases Division from 1 October Revenue is already accepting financial statements in ixbrl via the Revenue on-line service (ROS). All corporation tax payers have the option of uploading their financial statements in ixbrl format. Supply chain management system projects, like any other IS projects require effective use of project management tools and technologies to keep the project on time, within budget, and meet objectives. Every project includes the same five variables: Scope: What work is or is not included in a project. Time: Establish timeframes for each component of a project. Cost: The amount of time multiplied by the cost of human resources required of a project. Quality: Does the project improve organizational performance and decision making? Risk: Potential problems that may threaten the project s success. Could also cover consequences of poor project management Answer should explain - that the operational level of an organization includes various TPS systems such as order processing, sales records, payroll, accounts payable, and employee record keeping. - Since TPS record the routine transactions that take place in everyday operations the data are very detailed at this level. - The type of questions that TPS help to answer (How many of item X did we produce yesterday? How much raw material do we have on hand for today s production run? etc) - That the operational level of the organization also includes functions not directly associated with production, but are vital in keeping the company running smoothly. This includes accounts, payroll, etc Page 6

8 (d) There are three primary types of knowledge in every organization: Structured documents: Stored in reports, letters, or presentations Semi-structured: Stored in s, videos, digital pictures, or brochures Tacit knowledge: Stored in the employees' heads There are 3 types of systems used to manage this knowledge: Enterprise Content Management Systems Enterprise content management systems are designed to piggyback on the more rigidly structured knowledge systems to incorporate a wider range of information. Centralized knowledge repositories include information from the structured and semistructured knowledge systems. The knowledge repository is then easily accessed by employees throughout the organization and can also be properly managed by the CKO. Knowledge Network Systems Because it s too expensive and too time-consuming to continually reinvent the wheel, corporations are turning to knowledge networks in an attempt to link those who hold the knowledge with those that need the knowledge. Employees who have the tacit knowledge about a product or project in their head are easily connected with employees who need to know the information through these kinds of networks. Corporations save time and money by placing data pertaining to the subject matter experts in a directory that all employees can access. Users are easily connected to the experts through these networks and can communicate and collaborate on a variety of subjects. Collaboration Tools and Learning Management Systems Knowledge systems are often used by and support professional employees such as researchers, analysts, and other highly skilled workers in high-tech companies. Portals provide easy-to-use access to these systems and help provide internal and external information others have discovered to be successful solutions or best practices. The organizational memory is shared among other workers more efficiently with knowledge systems. These also typically include blogs, wikis, and social networking as companies use the power of these tools for collaboration among and between employees - especially globally distributed teams as well as customers, suppliers, and business partners. They are easy to use and often don t require any help from the IT staff to set up or support. And they sure are easier to search and organize than thousands and thousands of s. (e) Answers could cover the following general areas: - Information rights, privacy & freedom - Property rights / intellectual property - Accountability, liability & control - Systems quality (including data quality) - Quality of life issues including equity, access and boundaries Good answers will highlight in particular - The importance of internal controls - The need for confidentiality of financial data, and the associated accountability, liability and control issues - The importance of validating that data entered into an accounting system is accurate. This relates to system quality - human errors that occur must, where possible, be highlighted or corrected within the system. Also there should be an audit trail of all transactions, including those made to adjust or correct errors. Page 7

9 ANSWER 3 Tutorial Notes: - Purpose: To examine the candidates understanding of the role of information systems in today s competitive business environment, and in particular the links between information systems and business performance. This includes the strategic business objectives of information systems, and the organisational, management and technological dimensions of systems deployed in today s business environment. Links: No major links or other topics or papers. Options: Candidates must answer all parts of the question. Answers should not vary significantly from those given below. Essential components: Candidates must be able to show a depth of understanding of the areas identified above (under Purpose). SOLUTION 3 (a) Accept any 4 of the following: Operational Excellence: Businesses continuously seek to improve the efficiency of their operations in order to achieve higher profitability. Information systems and technologies are some of the most important tools available to managers for achieving higher levels of efficiency and productivity in business operations, especially when coupled with changes in business practices and management behavior. New Products, Services, and Business Models: Information systems and technologies are a major enabling tool for firms to create new products and services, as well as entirely new business models. A business model describes how a company produces, delivers, and sells a product or service to create wealth. As successful as Apple Inc, BestBuy, and Wal-Mart were in their traditional brick-and-mortar existence, they have all introduced new products, services, and business models that have made them both competitive and profitable. Customer and Supplier Intimacy: When a business really knows its customers, and serves them well (the way they want to be served), the customers generally respond by returning and purchasing more. The result is increased revenues and profits. Likewise with suppliers: The more a business engages its suppliers, the better the suppliers can provide vital inputs. The result is a lower cost of doing business. JC Penney is an excellent example of how the use of information systems and technologies are extensively used to better serve suppliers and retail customers. Its information system digitally links the supplier to each of its stores worldwide. Suppliers are able to ensure the continuous flow of products to the stores in order to satisfy customer demands. Improved Decision Making: Information systems and technologies have made it possible for managers to use real-time data from the marketplace when making decisions. Previously, managers did not have access to accurate and current data and as such relied on forecasts, best guesses, and luck. The inability to make informed decision resulted in increased costs and lost customers. Competitive Advantage: Doing things better than your competitors, charging less for superior products, and responding to customers and suppliers in real time all add up to higher sales and higher profits that your competitors cannot match. Toyota and Wal-Mart are prime examples of how companies use information systems and technologies to separate themselves from their competition. Toyota worked its way to top of its industry with the help of its legendary information system. Wal-Mart is the most efficient retail store in the industry based in large part on how well it uses its information resources. Survival: Firms also invest in information systems and technologies because they are necessities of doing business. Information systems are not a luxury. In most businesses, information systems and technology are the core to survival. In the text, the Laudons discuss how Citibank was the first banking firm to introduce ATMs. In doing so, they had a major competitive advantage over their competitors. In order to remain and survive in the retail banking industry, other banks had no choice but to provide ATM services to banking customers. Page 8

10 Data is collection of symbols or facts. It can be a flow of events or transactions which, by itself is only useful for transacting. Example: list of sales orders in transaction processing system. Information is data that has been given meaning by way of relational connection. This is done by processing, organizing, structuring and presenting the data in a given context so as to make them useful. Example: monthly sales reports / regional sales reports Knowledge is the appropriate collection of information such that its intent can be useful. To create knowledge resources must be expended to discover patterns, rules and contexts where the knowledge works. When someone memorises information they have amassed knowledge. The 4 strategies outlined in Laudon & Laudon are: - Low-Cost Leadership: By using information systems to lower your operational costs you can lower your prices. That will make it difficult for traditional competitors and new market entrants to match your prices. This strategy works best with commodities such as computers or with retailers. - Product Differentiation: A very effective use of strategic information systems is to create products or services that are so different that they create barriers for the competition. Product differentiation is at the heart of Apple Computer s success. Sure it makes computers. But the company gets away with charging a premium price because it differentiates its products from all others. Competitors, like Hewlett-Packard and IBM, have tried to duplicate Apple s strategic business model but have not been quite as successful. - Focus on Market Niche: If an organization is in a fiercely competitive market, it can choose to focus on a very narrow segment of the market rather than a broad general audience. A firm can gather very specific information about its customers using data mining techniques. Then it creates a focused differentiation business strategy to market directly to those consumers. Being able to address the needs and wants of a very small market segment is why companies are so intent on gathering consumer information from a variety of sources. - Strengthen Customer and Supplier Intimacy: Supply chain management (SCM) systems increase supplier intimacy while customer relationship management systems increase customer intimacy. SCM systems create immense switching costs between a company and its suppliers because of the investment of hardware and software necessary to make the system successful. Customer relationship management systems allow companies to learn details about customers that give them the competitive advantage over traditional competitors and new market entrants. Page 9

11 ANSWER 4 Tutorial Notes: - Purpose: To examine the candidates understanding of Enterprise applications and systems, and in particular information systems used for enterprise resource planning (ERP) and supply chain management (SCM), plus the management challenges to building and using these. Links: No major links or other topics or papers. Options: Candidates must answer all parts of the question. Answers should not vary significantly from those given below. Essential components: Candidates must be able to show a depth of understanding of the areas identified above (under Purpose). SOLUTION 4 (a) Enterprise systems are information systems that integrate business processes across the organisation, enabling it to have integrated information. Also known as enterprise resource planning (ERP) systems, their main goal is to bridge the communication gap among all departments and all information users within a company. For example, if production enters information about its processes, the data are available to accounting, sales, and human resources. If sales and marketing is planning a new advertising campaign, anyone anywhere within the organization will have access to that information. Enterprise systems allow a company to use information as a vital resource and enhance the bottom line. Data integration throughout the organisation is the key benefit of enterprise systems. Consolidated data from divisions and departments throughout the business, including key business processes, are immediately available to any authorized user. The greatest enticement of enterprise systems is the chance to cut costs firm-wide and enhance the ability to pass information throughout the organization. Benefits include creating an enterprise-enabled organisation, providing firm-wide management processes, providing a unified information systems platform and environment, enabling more efficient operations and customer driven business processes, and providing valuable information for improving management decision making. Challenges include difficult implementation process, inflexibility and inability to realise strategic value. Enterprise systems require extensive organisational change, large & expensive software investments, and careful assessment of how they will enhance organisational performance. Management vision and foresight is required to ensure they realise strategic value from the investment in an enterprise system. A supply chain management system enables a company to integrate data and information with their suppliers and customers, and as a result to lower costs for everyone. It provides complete, 360-degree visibility across the company s entire supply chain network. It allows them to monitor the status of all activities across all suppliers, production plants, storage facilities, and distribution centres. This enables more effective tracking and management of all related processes, from the ordering and acquisition of raw materials, to manufacturing and shipping of finished goods to customers or retail outlets. The status of mission-critical activities can be tracked at all times, and potential inefficiencies or problems can be identified and corrected immediately, before they become unmanageable. There are many benefits to the sharing of information and integrated supply chain management. It makes for shorter lead times to a customer and improved planning and forecasting capabilities for all partners of the supply chain. It minimises delays - with SCM software, all activities can be seamlessly coordinated and executed from start to finish, ensuring much higher levels of on-time delivery across the board. It leads to cost savings and efficiency optimization - costs are saved when inventory across the supply chain can be cut. Improve inventory management, facilitating the successful implementation of just-in-time stock models and eliminating the strain on real estate and financial resources incurred by the storage of excess components and finished goods. It enables more effective demand planning, so production output levels can be set to most effectively address customer requirements without the shortages that result in lost sales or wastes that drain budgets. It also facilitates improved relationships with vendors and distributors, so that purchasing and logistics professionals can identify cost-cutting opportunities such as volume discounts. The two main types of supply chain management software are: Supply chain planning systems: Systems which enable the firm to generate demand forecasts for a product, develop sourcing and manufacturing plans for that product, make adjustments to production and distribution plans, and share that information with relevant supply chain members. One of the most important supply chain planning functions is demand planning, which determines how much product a business needs to make to satisfy all of its customers' demands. Page 10

12 Supply chain execution systems: Systems that manage the physical flow of products through distribution centres and warehouses to ensure that products are delivered to the right locations in the most efficient manner. Like all information systems, enterprise systems are vulnerable to technical, organizational, and environmental threats from internal and external sources. The figure below (from Laudon & Laudon) gives you an idea of some of the threats to each component of a typical network. Candidates are expected to be able to identify challenges and vulnerabilities in each of the 4 areas shown Page 11

13 ANSWER 5 Tutorial Notes: - Purpose: To examine the candidates understanding of The use of information systems in decision making and decision support, including business intelligence tools and analytics. In this context it is important to understand data and information storage, with emphasis on current trends, warehousing and mining, and the management of data and information resources. Links: No major links or other topics or papers. Options: Candidates must answer all parts of the question. Answers should not vary significantly from those given below. Essential components: Candidates must be able to show a depth of understanding of the areas identified above (under Purpose). SOLUTION 5 (a) Data mining (sometimes called data or knowledge discovery) is the process of analyzing data from different perspectives and summarizing it into useful information - information that can be used to increase revenue, cuts costs, or both. Data mining software is one of a number of analytical tools for analyzing data. It allows users to analyze data from many different dimensions or angles, categorize it, and summarize the relationships identified. Technically, data mining is the process of finding correlations or patterns among dozens of fields in large relational databases. Data mining is primarily used today by companies with a strong consumer focus - retail, financial, communication, and marketing organizations. It enables these companies to determine relationships among "internal" factors such as price, product positioning, or staff skills, and "external" factors such as economic indicators, competition, and customer demographics. And, it enables them to determine the impact on sales, customer satisfaction, and corporate profits. Finally, it enables them to "drill down" into summary information to view detail transactional data. With data mining, a retailer could use point-of-sale records of customer purchases to send targeted promotions based on an individual's purchase history. By mining demographic data from comment or warranty cards, the retailer could develop products and promotions to appeal to specific customer segments. Data mining allows a business to get more information than ever before from its data. For instance it can tell management in a retail business that at certain times of the year certain products sell better; that s information they can use to make sure more stock is ordered and put on the shelves. These are the five types of information managers can obtain from data mining: Associations: Determine occurrences linked to a single event Sequences: Determine events that are linked over time Classification: Discover characteristics of customers and make predictions about their behavior Clustering: Discover groups within data Forecasting: Use existing values to forecast what other values will be Businesses can use predictive analytics to create new opportunities for connecting with their customers by extracting information more easily and more precisely from their data warehouses. Firms are using better data mining techniques to target customers and suppliers with just the right information at the right time. Business intelligence systems helps decision makers by providing: Production reports: Predefined reports based on industry specific requirements. Parameterized reports: Pivot tables help users filter data and isolate impacts of parameters chosen by users. Dashboards/scorecards: Visual reports that present performance data chosen by users. Ad hoc query/search/report creation: Users create their own reports based on data they choose Drill down: Users initially receive high-level data summaries and then drill down to more specific data Forecasts, scenarios, models: User can perform linear forecasting, what-if scenario analysis, and analyze data using standard statistical tools The audience for business intelligence and business analytic tools and techniques has unique characteristics depending on their management level and how they use the systems: Casual users: Rely largely on production reports Senior executives: Monitor organization activities using dashboards and scorecards Middle managers and analysts: Enter queries; slice and dice data along different dimensions Operational employees, customers, suppliers: Mostly use prepackaged reports Page 12

14 The diagram below shows how each division of the business intelligence audience uses the capabilities of BI systems. Candidates can take a number of approaches to this question but must refer to tangible and intangible costs/benefits and some financial models, as follows: Major costs and benefits of information systems can be divided into tangible can be assigned a monetary value) and intangible. The tangible costs cover hardware, software, telecommunications, personnel, and services. In the case of BI systems some of the tangible benefits could include increased productivity, lower clerical and professional costs, reduced facility costs, and increased sales. Among the intangible benefits are improved organizational planning, more timely information and improved decision making. Strategies, such as real options pricing models (ROPM), can be applied to evaluate and value the BI information system when the benefits cannot be established in advance. Real options pricing models apply techniques for valuing financial options to systems investments and can be useful to help managers think about the potential value of highly uncertain IT investments. ROPM allows managers to systematically take into account the volatility in the value of IT projects over time, the optimal timing of the investment, and the changing cost of implementation as technology prices fall over time. The disadvantages of this model are primarily in estimating all the key variables (for example changes in the cost of implementation). Another approach is to view the value of the BI system from a financial perspective as essentially revolving around the issue of return on invested capital i.e. does the investment produce sufficient returns to justify its costs? Costs include the costs of hardware, telecommunications, software, services, and personnel. The tangible benefits of information systems can be quantified and assigned a monetary value. Intangible benefits, such as enhanced decision making, cannot be immediately quantified but may lead to quantifiable gains in the long run. Total cost of ownership (TCO) is designed to identify and measure the components of information technology expenditures, but does not take into account benefits, cost categories such as complexity costs, and "soft" and strategic factors. Capital budgeting is also used to measure the value of investing in long-term capital investment projects. Information systems are considered long-term capital investment projects. To determine the financial basis for an information systems project, a series of financial models helps determine the return on invested capital. The principal capital budgeting models for evaluating information technology projects are: The payback method: Measures the amount of time required to pay back the initial investment of a project. It is calculated by dividing the amount of the original investment by the annual net cash inflow generated by the investment. The accounting rate of return on investment (ROI): Calculates the rate of return from an investment by adjusting cash inflows produced by the investment for depreciation. It gives an approximation of the accounting income earned by the project. The net benefit is divided by the total initial investment to arrive at the rate of return (ROI). Page 13

15 The net present value: The amount of money an investment is worth, taking into account its cost, earnings, and the time value of money. (Present value is the value in current dollars of a payment or stream of payments to be received in the future.) The internal rate of return (IRR): The rate of return or profit that an investment is expected to return, taking into account the time value of money. IRR is the discount (interest) rate that will equate the present value of the project's future cash flows to the initial cost of the project. Page 14

16 ANSWER 6 Tutorial Notes: - Purpose: To examine the candidates understanding of contemporary information technology trends and their implications for (business) organisations, and in particular the use of social media. Links: No major links or other topics or papers. Options: Candidates must answer all parts of the question. Answers should not vary significantly from those given below. Essential components: Candidates must be able to show a depth of understanding of the areas identified above (under Purpose). SOLUTION 6 (a) Social networking platforms like Facebook, Twitter, etc. can be used to engage employees, customers and suppliers. They enable employees to form groups inside and outside the firm, and to deepen interactions within these groups. This can enhance information sharing, innovation and decision making. Laudon & Laudon talk of the importance of conversations in social media, often taking place without the knowledge of the firm. Could also refer to communities of practice. Business benefits of collaboration are: - Improved productivity: people interacting and working together can capture expert knowledge and solve problems more rapidly than the same number of people working in isolation. - Quality: fewer errors in solutions developed collaboratively - Innovation: people working collaboratively can come up with more innovative ideas for products, services, etc. - Customer service: people working together collaboratively can solve customer problems faster and more effectively Social networking platforms are also important for: - Advertising and marketing - Receiving customer feedback These can all lead to improved financial performance and/or competitive advantage. Open-source software is computer software that is available in source code form: the source code and certain other rights normally reserved for copyright holders are provided under a software license that permits users to study, change, improve and at times also to distribute the software. Open source software is very often developed in a public, collaborative manner. It is usually free and can be modified by users. The open source movement has been around for over 30 years and as a result there is now plenty of commercially acceptable, high quality open source software. Popular open source software tools include the Linux operating system, the Mozilla Firefox web browser and the OpenOffice alternative to Microsoft Office. Web services and services oriented architecture: Web services are software systems designed to support interoperable machine-to-machine interaction over a network. This interoperability is gained through a set of XMLbased open standards that provide a common approach for defining, publishing, and using web services. Services oriented architecture (SOA) is an architectural style for building software applications that use services available in a network such as the web. Applications in SOA are built based on services. A service is an implementation of a well-defined business functionality, and such services can be used in different applications or business processes. SOA enables businesses to leverage existing investments by allowing them to reuse existing applications, and promises interoperability between heterogeneous applications and technologies. SOA provides a level of flexibility that wasn't possible before. Java Web Services Developer Pack can be used to develop web services to implement SOA. Page 15

17 Software apps: Apps, short for applications, are very small programs that perform one particular task. They can be loaded to your hand-held computing device, including smartphones, e-book readers or tablet computers like the ipad. Some are free and others must be paid for (usually a small amount). They generally are written by third party developers following a strict set of guidelines established by the device maker. There are four main types of organizational change enabled by information technology. These are: Automation: Here employees are assisted with performing tasks automatically, in order to have them completed more efficiently and effectively. Rationalisation of procedures: In this case, standard operating procedures are streamlined. This is a deeper type of organizational change, and it often follows quickly after automation. The reason is that automation often reveals new bottlenecks, or makes the existing procedures and structures cumbersome. Rationalisation of procedures is often found in programs for making a series of continuous quality improvements in products, services and operations for example, six sigma. Business process reengineering or redesign (BPR): This is a more significant form of organizational change in which business processes are analyzed, simplified and redesigned. BPR reorganizes workflows, combining steps to cut out waste and to eliminate repetitive tasks. It requires a new vision of how the process is to be organized, and often results in the elimination of jobs. Paradigm shift: In paradigm shift, the very nature of the business is rethought, new business models are defined, and the structure of the organization may be completely reorganised. Whole new products or services that didn't exist before are created. This can cause major disruption and extreme change. It could be argued that the adoption of collaboration and social networking platforms is either rationalisation or BPR. Page 16