Business information systems buis 6112 • Introduction to Business Information Systems © The Independent Institute of Education (Pty) Ltd 2020 1 Learning Objectives: • Discuss common applications of computers and information systems; • Explain the differences between computer literacy and information literacy; • Discuss the differences between data and information; • Define transaction processing systems; • Define management information systems; • Describe the four major components of an information system; • Explain the importance and applications of information systems in functional areas of an organisation; • Discuss how information technologies are used to gain a competitive advantage. © The Independent Institute of Education (Pty) Ltd 2020 2 Overview • Information systems • System components • Types of system models • Information systems components • Major types of IS • SDLC • Reasons for studying IS © The Independent Institute of Education (Pty) Ltd 2020 3 Introduction • In this learning unit the concept of information systems will be discussed. A distinction will also be made between different types of information systems and how information systems can help an organization to gain a competitive advantage. © The Independent Institute of Education (Pty) Ltd 2020 4 Introduction (CON’T) • What is the reason for having information systems? To create competitive businesses managing global markets, adding business value and providing useful products and services. © The Independent Institute of Education (Pty) Ltd 2020 5 Information Systems • Definition • Information systems can be considered a set of components (systems) that work together to collect, process, store and distribute data, information and knowledge to support the management of an organization (The IIE, 2019). • Examples: South African banks (FNB, ABSA, etc.), and savings and loans companies, use information systems to help them to grant sound loans and to make good investments. © The Independent Institute of Education (Pty) Ltd 2020 6 Information Systems (CON’T) All systems perform input, processing, output, feedback and control functions, but information systems are explicitly there to support the management of an organization. • Information systems can support management in the following ways (Bidgoli, 2017): • 1) Increasing the speed of service delivery; 2) Record stock levels and if necessary, automatically order more stock to replenish stock levels; 3) Generate reports that can assist management in making decisions; © The Independent Institute of Education (Pty) Ltd 2020 7 System functions • Input: refers to the activity of gathering and capturing raw data. • Processing: refers to converting the data into useful outputs. • Output: refers to production of useful information in the form of report. • Feedback and control: refers to the use of output to made changes to input or processing. © The Independent Institute of Education (Pty) Ltd 2020 8 Example of a system – Pick ‘n Pay. • Inputs would comprise the number of hours worked by part-time employees and their hourly rates. • processing would comprises calculating their wages (multiplying hours worked by hourly rate). • output would comprise calculating their gross wages. • feedback would comprise making changes to the rate or hours worked. © The Independent Institute of Education (Pty) Ltd 2020 9 The Components Of An Information System • Information systems have four (4) major components (Bidgoli, 2017): 1. Data 2. Databases 3. Processes 4. Information © The Independent Institute of Education (Pty) Ltd 2020 10 The Components Of An Information System (con’t) • Data • This component of an information system refers to the input to the system and by implication, therefore, what the user types into the system (Bidgoli, 2017). • Information systems should collect data from internal and external sources. • Data has a time orientation (Bidgoli, 2017). Historical data is used to assess performance, Current data will reveal insights into the current operations of an organization, Future data consists of predictions about the future performance or position of an organization. • Data can be collected in different forms( aggregated and disaggregated ). • Data is never collected at random. To determine what data should be collected, an organization should determine what output the system should produce. © The Independent Institute of Education (Pty) Ltd 2020 11 The Components Of An Information System (con’t) • Databases • Data that is collected should be stored in an organized and integrated series of files. Collectively, this set of organized and integrated files is known as a database (Bidgoli, 2017). • In order to create this set of organized and integrated files, the developers of the database will make use of a Database Management System (DBMS). • Not only is a DBMS used for creating the database but also allows the user of the database to efficiently capture and process information. • Popular DBMSs include Microsoft Office Access and Oracle (Bidgoli, 2017). © The Independent Institute of Education (Pty) Ltd 2020 12 The Components Of An Information System (con’t) • Processes • The process component is the component of an information system that truly demonstrates the purpose of the information system as this is the component that will generate the information that will enable management to make sound business decisions (Bidgoli, 2017). • This component is responsible for generating the required reports. © The Independent Institute of Education (Pty) Ltd 2020 13 The Components Of An Information System (con’t) • Information • Information represents the output produced by the information system after processing has been concluded (Bidgoli, 2017). • The terms information and data should not be used interchangeable as they are not the same. • Data in its own does not support decision making, whereas information supports decision making (Bidgoli, 2017). © The Independent Institute of Education (Pty) Ltd 2020 14 Characteristics of valuable information • Accessible: Information should be easily accessible by authorised users so that it can meet their needs. • Accurate: Accurate information is error-free. In some cases, inaccurate information is generated because inaccurate data is fed into the transformation process. • Complete: Complete information contains all the important facts. • Economical: Information should be relatively economical to produce. Decision-makers must always balance the value of information with the cost of producing it. © The Independent Institute of Education (Pty) Ltd 2020 15 Characteristics of valuable information (con’t) • Secure: Information should be secure from access by unauthorised users. • Simple: Information should be simple and not overly complex. • Timely: Timely information is delivered when it is needed. Knowing last week’s weather conditions will not help when trying to decide what to wear today. • Verifiable: Information should be verifiable. This means you can check it to make sure it is correct, perhaps by checking the source of the information. © The Independent Institute of Education (Pty) Ltd 2020 16 Computer Literacy vs. Information Literacy • For an organization to achieve a competitive advantage, employees should be both computer literate and information literate. In this section the difference between computer literacy and information literacy will be considered. • Computer literacy refers to an individual’s ability to use a computer and productivity software applications that is installed on the computer effectively (Bidgoli, 2017). • Information literacy refers to whether an individual understands the value of the information in terms of generating and using business intelligence (Bidgoli, 2017). • The concept of information literacy can be extended beyond the business world. © The Independent Institute of Education (Pty) Ltd 2020 17 Models • Models are used to simplify and understand the real world, which might be complex. © The Independent Institute of Education (Pty) Ltd 2020 18 Types of models • Narrative: can be written form, verbal form or both to represent reality. Example: Verbal description of Nivea products given to the store manager. Other examples would be written reports submitted to management. • Physical: is tangible representation of the context or reality. Eg house models. Example: In plastic surgery, the creation of artificial fingers. Another example would be of a builder who scales models of buildings to show to clients. • Schematic: is a graphic representation of reality. This model uses a sketch or graphic design to describe reality. Example: Flow charts used for software (program) development. Other examples include charts, graphs, illustrations, diagrams and pictures. • Mathematical: arithmetic equations are used to represent the context or reality. Computers excel at solving mathematical models. Other examples include retail chains that have developed mathematical models to identify activities, effort and time associated with planning, building and opening a new store, so that they can forecast how long it will take to complete the store. © The Independent Institute of Education (Pty) Ltd 2020 19 Homework • Find descriptions of the following models • Stochastic • Deterministic • Regression © The Independent Institute of Education (Pty) Ltd 2020 20 CBIS • Computer Based Information Systems is a “single set of hardware, software, databases, telecommunications, people, and procedures configured to collect, manipulate, store, and process data into information” (Stair and Reynolds, 2006) © The Independent Institute of Education (Pty) Ltd 2020 21 Major Types of “ IS ” 1. 2. 3. 4. Transaction Processing Systems (TPS) Management Information Systems (MIS) Decision Support Systems (DSS) Executive Information Systems (ESS) © The Independent Institute of Education (Pty) Ltd 2020 22 Transaction Processing Systems (TPS) • A TPS is a type of information system employed to primarily perform routine and structured tasks such as record keeping, clerical operations, and inventory control. • The most prominent reason for employing transaction processing is that it can result in a significant cost saving for the company (Bidgoli, 2017). • TPS serves the operational level of the organization and performs mainly two (2) types of processing • Batch processing – transactions are accumulated and processes later as a group in a batch. Eg payroll • On-line/ real-time transaction processing (OLTP) where data is processed immediately after being © The Independent Institute of Education captured. (Pty) Ltd 2020 23 Transaction Processing Systems (TPS) (con’t) • A TPS can help an organization achieve a competitive advantage in the following ways Stair and Reynolds (2010, cited in The IIE, 2019): • Increased customer loyalty; • Aiding and providing a superior service to customers; • Supporting the development of better relationships with suppliers; • More effective and efficient information gathering; • Cost reductions and • Reducing the levels of stock to only what is needed. © The Independent Institute of Education (Pty) Ltd 2020 24 Management Information Systems (MIS) • An MIS is an organized integration of hardware and software technologies, data, processes, and human elements designed to produce timely, integrated, relevant, accurate, and useful information for decision-making purposes’. • MIS serve middle management. • provide routine information to managers and decision makers. • An MIS generates its reports from the TPS and is mainly used to improve operational efficiency. © The Independent Institute of Education (Pty) Ltd 2020 25 Decision Support Systems (DSS) • DSSs are used to support problem-specific decision making • DSSs use analytical models, specialised databases and user-friendly software that support the making of semi-structured decisions by individual managers. © The Independent Institute of Education (Pty) Ltd 2020 26 DSS (CON’T) • 4 types of analytical modelling (O’ Brien, 2002): • What-if-analysis: The process of making hypothetical changes to problem data and observing the impact of the results. • Sensitivity analysis: The process of making changes to assumptions that projects are based on, and identifying how these changes will affect the performance of a project. • Goal seeking: The process of determining the problem data required for a given result. • Optimisation: Optimisation comprises a set of techniques that help management arrive at optimal solutions for the business objectives set by them within certain limitations. © The Independent Institute of Education (Pty) Ltd 2020 27 Executive Information Systems (ESS) • Used by senior managers to make decisions at the strategic level of the organisation. • May summarise information from MIS and DSS. © The Independent Institute of Education (Pty) Ltd 2020 28 Information Systems In Organizations • Information systems can be designed in such a way that they support the various functional areas of an organization. According to The Law Dictionary (n.d.), a functional area within an organization can be seen as a group of people who perform the same work. Examples of the functional areas within an organization can therefore include manufacturing, IT, human resources, logistics etc. © The Independent Institute of Education (Pty) Ltd 2020 29 Human Resource Information System (HRIS) • An HRIS provides support to the human resources functional area of an organization. It helps the members of this functional area to perform the tasks in their areas of responsibility more efficiently (Bidgoli, 2017). • An HRIS can support the members of the human resources functional area in making the following decisions (Bidgoli, 2017): • Choosing the best job candidate; • Scheduling and assigning employees; • Predicting future staffing needs and • Generating reports and statistics on employee demographics. © The Independent Institute of Education (Pty) Ltd 2020 30 Logistics Information System (LIS) • The Logistics Information System was developed with the aim to reduce the cost of processes involved in the logistics functional area of an organization (Bidgoli, 2017). • Decisions supported by the LIS include (Bidgoli, 2017): • Improving routing and delivery schedules; • Selecting the best modes of transportation; • Improving budgeting for transportation and • Improving shipment planning. © The Independent Institute of Education (Pty) Ltd 2020 31 Manufacturing Information System (MFIS) • The MFIS was developed with the aim of reducing the cost of the manufacturing process and increase the quality of the products being produced (Bidgoli, 2017). • Decisions supported by the MFIS include (Bidgoli, 2017): • Ordering decisions; • Product cost calculations; • Space utilization; • Decisions related to tenders and • Decisions in relation to price changes and discounts. © The Independent Institute of Education (Pty) Ltd 2020 32 Financial Information System (FIS) • An FIS provides timely information to those members in an organization who has to make financial decisions (Bidgoli, 2017). • An FIS can support decisions with regards to (Bidgoli, 2017): • Budget allocations; • Capital investment risk management; • The monitoring of cost trends; • The managing of cash flows and • Determining portfolio structures. © The Independent Institute of Education (Pty) Ltd 2020 33 Information Technologies for a Competitive Advantage • A competitive advantage is a long-term, strategic advantage that an organization has over its competitors (The IIE, 2019). • The three strategies identified by Michael Porter (1979): 1. Cost Leadership Strategy 2. Differentiation Strategy 3. Focus © The Independent Institute of Education (Pty) Ltd 2020 34 Cost Leadership Strategy • The focus of a cost leadership strategy is on reducing the overall cost of products and services (Bidgoli, 2017). • IT can support an organization’s efforts in reducing the cost of their products and services in, amongst other things, in the following ways (Spacy, 2018): 1. Using less physical resources: For example, if an organization used to send all statements to a customer via traditional post, they would have printed all of the customer’s statements on paper, placed it in an envelope and posted it. © The Independent Institute of Education (Pty) Ltd 2020 35 Cost Leadership Strategy (con’t) 2. Modernizing the workplace: Newer technologies are often more energy efficient which provides organizations with the ability to save on their electricity bill and by saving money on the organization’s electricity bill an organization’s production process will become less expensive. 3. Support advertising to increase the volume of sales: As was pointed out at the beginning of the learning unit, the use of social media by individuals is on the increase. © The Independent Institute of Education (Pty) Ltd 2020 36 Differentiation Strategy • When organizations make use of a differentiation strategy in order to obtain a competitive advantage, they are attempting to create a clear difference between their products and services and those of their competitors (Bidgoli, 2017). © The Independent Institute of Education (Pty) Ltd 2020 37 Focus • A focus strategy is one in which an organization focuses on a specific segment of a market in order to achieve a cost or differentiation strategy (Bidgoli, 2017). • The strategy to be employed by an organization is determined by analysing an organization, its position in the marketplace, and how information systems can best support an organization in achieving a competitive advantage (Bidgoli, 2017). • For accomplishing this, Michael Porter’s Five Forces Model framework can be used © The Independent Institute of Education (Pty) Ltd 2020 38 Focus (con’t) • five forces include: 1. Buyer Power: is high when customers have many products and services they can choose from and conversely, buyer power becomes lower as the number of products and services they can choose from becomes less. 2. Supplier Power: When buyer power is low, supplier power is high. This means that supplier power is high when customers have less options in terms of products and services to choose from. © The Independent Institute of Education (Pty) Ltd 2020 39 Focus (con’t) 3. Threat of substitute products or services: When an organization’s competitors offer similar products and services, there is a significant threat that consumers might purchase the services and products from the competitors. 4. Threat of new entrants: Organizations will attempt to make it as hard as possible for others to duplicate their products and services. If an organization can manage the threat of new entrants successfully, they will keep buyer power low and supplier power high. 5. Rivalry among existing competitors: Rivalry among existing competitors increase as the number of competitors occupying a particular market increase. Organizations manage this rivalry by offering more value-added services than their competitors. © The Independent Institute of Education (Pty) Ltd 2020 40 System Development Life Cycle • System development is the activity of creating or modifying existing business systems. • SDLC consists of 5 phases 1. System investigation 2. System analysis 3. System design 4. System implementation 5. System maintenance and review © The Independent Institute of Education (Pty) Ltd 2020 41 Reasons for studying IS • Ilunga (2006) note that: • Investors in SA are using IS for making decisions • IS used to speed up manufacturing and distributing goods. • Computers to follow stock indexes. • Major companies (BMW, Toyota) are using IT excessively • Electronic Data Interchange has enhanced most SA companies to reduce costs © The Independent Institute of Education (Pty) Ltd 2020 42 Summary • Information systems • System components • Types of system models • Information systems components • Major types of IS • SDLC • Reasons for studying IS © The Independent Institute of Education (Pty) Ltd 2020 43 Questions © The Independent Institute of Education (Pty) Ltd 2020 44