Business Information Systems

An information system (IS) is a set of interrelated components (people, hardware, software, data and procedures) that collect, process, store and distribute information to support decision making, coordination and control in an organization.

Competitive advantage is a condition or feature that lets a firm perform better than its rivals, for example through lower cost, differentiated products, better service or innovation, so it can earn higher profit and keep customers.

A data mart is a small, subject-oriented subset of a data warehouse that holds data for a specific department or business function (such as sales or finance), so users can access the data they need faster and more easily.

A short-range wireless network is a wireless network that connects devices within a small area, usually from a few centimetres to about 100 metres. Examples are Bluetooth, NFC, Wi-Fi (WLAN) and RFID. They are used for personal devices, payments and local connectivity.

Web 2.0 is the second generation of the World Wide Web, in which users do not just read content but also create, share and collaborate on it. It is built on interaction and user-generated content. Examples include social networks, blogs, wikis, YouTube and Wikipedia.

Social shopping is a form of e-commerce that combines shopping with social networking, in which customers shop together or share recommendations, reviews, ratings and purchases with friends and other users on social platforms. Examples are Facebook Marketplace, Pinterest and group buying.

A transaction processing system (TPS) is an information system that records, processes and stores the day-to-day routine business transactions of an organization, such as sales, payroll, orders and bank deposits. It is the lowest-level system and supplies data to other systems.

A customer touch point is any point of contact or interaction between a customer and a company, before, during or after a purchase. Examples include the website, mobile app, store, call centre, email, social media and advertising.

Descriptive analytics is the analysis of historical data to explain what has happened in the business. It uses summaries, reports, dashboards, charts and basic statistics such as totals and averages.

Software as a Service (SaaS) is a cloud computing model in which software is hosted by a provider and delivered to users over the internet, usually on a subscription basis, without installing it locally. Examples are Gmail, Google Workspace, Salesforce and Microsoft 365.

A business process is a set of related activities that produces a product or service (for example order fulfilment, hiring or payroll). An information system supports and automates these processes.

• Information systems implement processes: They capture data, apply rules and route work between steps, which makes the process faster and more accurate.
• Processes define system requirements: A system is designed around how the business works, so a poorly designed process gives a poor system.
• Improvement and redesign: IS enables business process re-engineering, where processes are redesigned (for example online ordering) to cut cost and time.
• Integration: ERP systems link processes across functions (sales, production, finance) into one flow.

So the two depend on each other: processes need IS to be efficient, and IS needs well-defined processes to be useful.

Big Data means very large and complex data sets that traditional tools cannot handle. Its main characteristics (the Vs) are:

• Volume: Huge amounts of data, in terabytes to petabytes, from transactions, sensors and social media.
• Velocity: The speed at which data is generated and must be processed, often in real time.
• Variety: Different forms of data: structured (databases), semi-structured (XML, JSON) and unstructured (text, images, video).
• Veracity: The quality, accuracy and trustworthiness of data, which may be noisy or uncertain.
• Value: The business benefit that can be extracted from the data.

Variability (changing meaning) is sometimes added as a sixth V.

The major drivers of mobile computing are:

• Widespread use of mobile devices: Smartphones and tablets are cheap, powerful and common.
• Improved networks: 4G/5G, Wi-Fi and faster, cheaper internet access.
• Mobile apps and cloud services: Large app stores and access to data anywhere.
• Need for productivity and convenience: Workers and customers want information and services anytime and anywhere.
• Falling prices and better technology: Longer battery life, GPS, sensors and improved screens.
• Growth of m-commerce and social media, and BYOD (bring your own device) policies at work.

Information technology links all partners in the supply chain and improves the flow of materials, information and money.

• Information sharing: EDI, extranets and ERP/SCM systems share demand, inventory and shipment data among suppliers, manufacturers and retailers, which reduces the bullwhip effect.
• Planning and forecasting: Analytics predicts demand and optimises production and inventory.
• Procurement: E-procurement and e-marketplaces cut cost and time.
• Tracking and visibility: RFID, barcodes and GPS give real-time tracking of goods.
• Warehouse and transport management: Automated systems reduce errors and cost.
• Customer service: Online order tracking and faster delivery.

Overall, IT lowers inventory and cost, shortens lead time and raises customer satisfaction.

Managers need IT support because:

• Complex decisions: Business is complex and uncertain, and decisions must be made quickly using large amounts of data.
• Information overload: IT helps collect, filter and analyse data into useful information (DSS, BI, dashboards).
• Global competition and rapid change require fast response and accurate forecasts.
• Cost and time: Data processing, reporting and what-if analysis are faster and cheaper than manual methods.
• Better communication and collaboration among distant teams.
• Accuracy and quality: Reduces human error and gives better control and decisions.

Service-oriented architecture (SOA) is a software design approach in which an application is built from independent, reusable services that communicate over a network using standard protocols.

• Each service performs one business function (for example check credit or process payment) and has a well-defined interface.
• Services are loosely coupled, so they can be reused, replaced or combined without changing the whole system.
• They communicate using standards such as XML, SOAP, REST and WSDL, and are listed in a service registry.
• Benefits: Reuse, flexibility, easier integration of old and new systems, and faster development.

Information technology (IT) affects organizations in many ways.

• Structure: IT flattens the hierarchy by reducing the layers of middle management, supports virtual teams and gives wider spans of control.
• Employees and jobs: It automates routine work and reduces some jobs, but creates new ones (analysts, developers). Employees need new skills; work can be done remotely.
• Decision making: Data and analytics give faster and better managerial decisions.
• Productivity and cost: Automation reduces cost and errors and increases output.
• Competition and business models: E-commerce, mobile and cloud services create new products and markets, give competitive advantage, and also intensify competition.
• Communication and customer relationships: Email, social media and CRM improve communication and service.
• Challenges: High investment, security and privacy risks, resistance to change, and dependence on technology.

Overall, IT is now a necessary tool, but gains depend on proper planning, training and management.

Companies can use Big Data to gain competitive advantage in the following ways:

• Understanding customers: Analysing purchases, clicks and social media reveals preferences, so firms can personalise offers and recommendations (for example Amazon, Daraz).
• Better products and innovation: Customer feedback and usage data guide improved or new products.
• Operational efficiency: Sensor and process data lead to predictive maintenance, lower waste, better inventory and optimised logistics.
• Risk management and fraud detection: Banks and insurers detect unusual patterns in real time and assess credit risk.
• Targeted marketing and pricing: Segmenting customers and dynamic pricing raise sales and return on advertising.
• Faster, evidence-based decisions: Real-time analytics and dashboards reduce guesswork.
• New revenue sources: Selling data-based services and insights.

To succeed, firms need good-quality data, skilled analysts, suitable tools (Hadoop, cloud analytics) and attention to privacy and security.

The Internet of Things (IoT) is a network of physical objects (devices, sensors, machines, vehicles) embedded with sensors, software and connectivity so that they can collect data and exchange it over the Internet with little or no human intervention.

Examples of benefits to organizations:

• Smart supply chain and asset tracking: RFID/GPS sensors on goods, trucks and containers give real-time location and condition (for example temperature of medicines), which reduces losses, delays and inventory costs.
• Predictive maintenance in manufacturing: Sensors on machines monitor vibration, heat and usage, so repairs are done before breakdown. This cuts downtime and maintenance costs.

Social commerce is the use of social media platforms (Facebook, Instagram, TikTok) to promote, sell and support products, using user interaction, reviews and sharing.

Benefits

• Low-cost marketing and wide reach to a large audience.
• Word-of-mouth, reviews and influencer recommendations build trust and sales.
• Direct two-way communication with customers; quick feedback and better customer service.
• Customer data and behaviour insights help in targeting and product improvement.

Risks

• Privacy and security risks: misuse of personal data, phishing and fraud.
• Fake reviews, fake sellers and counterfeit products damage trust.
• Negative publicity can spread rapidly and harm brand reputation.
• Dependence on a platform's rules, algorithms and policy changes.
• Legal and payment issues, such as weak consumer protection and disputes over delivery or refunds.

Strategic information systems (SIS) are information systems that change an organization's goals, operations, products, services or relationships with customers and suppliers so as to give it a competitive advantage. They support or shape the business strategy itself, not only daily operations. Examples are airline reservation and frequent-flyer systems, Amazon's recommendation engine, and FedEx package tracking.

Strategies to achieve competitive advantage (Porter's model and its extensions)

1. Cost leadership: use IT to automate and cut costs so the firm can sell at the lowest price (for example Walmart's supply-chain system).
2. Differentiation: offer unique products or services using IT, such as personalization and mass customization.
3. Focus (niche): use IT to serve a narrow market segment better than rivals, with targeted data analysis.
4. Innovation: create new products, services or business models, such as online banking and mobile wallets.
5. Operational effectiveness: improve efficiency, quality and speed of internal processes.
6. Customer and supplier orientation (lock-in): raise switching costs, build loyalty programs and link closely with suppliers through EDI or extranets.
7. Alliances: form partnerships and joint ventures supported by shared information systems.

Business-IT alignment is the degree to which the IT strategy, infrastructure and investments support and match the business strategy and goals, and in turn the business uses IT's capabilities. When aligned, IT projects are chosen by business priorities, IT and business managers communicate and plan together, and IT investment delivers value (better performance, agility and return on investment). Misalignment leads to wasted spending and systems that do not serve business needs.

Enterprise Resource Planning (ERP) is an integrated software system that manages and connects the main business functions of an organization (finance, accounting, human resources, production, inventory, purchasing, sales and customer relations) through a single common database. Data entered once is available to all departments in real time. Examples are SAP, Oracle and Microsoft Dynamics.

Advantages

• Integration of all departments; a single source of truth removes duplicate and inconsistent data.
• Real-time information improves decision making and reporting.
• Better efficiency and lower operating costs through automation and standard processes.
• Improved inventory, supply-chain and customer service management.
• Better planning, control and regulatory compliance.
• Scalability as the business grows.

Drawbacks

• Very high cost of licence, hardware, customization, consultants and training.
• Implementation is long and complex; failures and overruns are common.
• Resistance to change from employees and the need for business process re-engineering.
• Customization is difficult; the firm may have to adapt its processes to the software.
• Dependence on the vendor (lock-in) and ongoing maintenance costs.
• A single point of failure and a larger security risk, since all data is in one system.