Summary MNB2601 - Business Management Information System.

MNB2601 - Business Management Information System. CHAPTER 1 FOUNDATIONS OF INFORMATION SYSTEMS IN BUSINESS 4 ● Module I / Foundation Concepts SECTION I Foundation Concepts: Information Systems in Business The question of why we need to study information systems and information technology has evolved into a moot issue. Information systems have become as integrated into our daily business activities as accounting, finance, operations management, marketing, human resource management, or any other major business function. Information systems and technologies are vital components of successful businesses and organizations—some would say they are business imperatives. They thus constitute an essential field of study in business administration and management, which is why most business majors include a course in information systems. Since you probably intend to be a manager, entrepreneur, or business professional, it is just as important to have a basic understanding of information systems as it is to understand any other functional area in business. Information technologies, including Internet-based information systems, are playing vital and expanding roles in business. Information technology can help all kinds of businesses improve the efficiency and effectiveness of their business processes, managerial decision making, and workgroup collaboration, which strengthens their competitive positions in rapidly changing marketplaces. This benefit occurs irrespective of whether the information technology is used to support product development teams, customer support processes, e-commerce transactions, or any other business activity. Information technologies and systems are, quite simply, an essential ingredient for business success in today’s dynamic global environment. Let’s take a moment to bring the real world into our discussion of the importance of information systems (IS) and information technology (IT). See Figure 1.1 , and read the Real World Case about using information technology to better understand and satisfy customer needs. If we are to understand information systems and their functions, we first need to be clear on the concept of a system. In its simplest form, a system is a set of interrelated components, with a clearly defined boundary, working together to achieve a common set of objectives. Using this definition, it becomes easy to see that virtually everything you can think of is a system, and one system can be made up of other systems or be part of a bigger system. We will expand on this concept later in the next section, but for now, this definition gives us a good foundation for understanding the focus of this textbook: information systems. We begin with a simple definition that we can expand upon later in the chapter. An information system (IS) can be any organized combination of people, hardware, software, communications networks, data resources, and policies and procedures that stores, retrieves, transforms, and disseminates information in an organization. People rely on modern information systems to communicate with one another using a variety of physical devices (hardware), information processing instructions and procedures (software), communications channels (networks), and stored data (data resources). Although today’s information systems are typically thought of as having something to do with computers, we have been using information systems since the dawn of civilization. Even today we make regular use of information systems that have nothing to do with a computer. Consider some of the following examples of information systems: • Smoke signals for communication were used as early as recorded history and can account for the human discovery of fire. The pattern of smoke transmitted valuable information to others who were too far to see or hear the sender. • Card catalogs in a library are designed to store data about the books in an organized manner that allows readers to locate a particular book by its title, author name, subject, or a variety of other approaches. The Real World of Information Systems What Is an Information System? Chapter 1 / Foundations of Information Systems in Business ● 5 eCourier, Cablecom, and Bryan Cave: Delivering Value through Business Intelligence a market where many courier companies use telephone dispatchers and guesswork about package whereabouts. Booking and tracking automation—although innovative—did not complete the customer happiness puzzle. Without leadingedge business intelligence, account managers could miss the same issues that plagued other courier services—late deliveries, surly couriers, or even an unnoticed ramp-up in deliveries. “We’re only one delivery away from someone deciding to use a different delivery firm,” says Bregman. So eCourier started to use software from a company called SeeWhy to try to generate customer data more quickly. “What’s unique about SeeWhy,” says Bregman, “is its ability to report what’s happening with customers instantly.” When a new booking enters eCourier’s database, the information is duplicated and saved into a repository within SeeWhy. The software then interprets the data by comparing it with previous information and trends, and if it notices an anomaly, it takes action. If a customer typically places an eCourier order every Thursday morning between 9:30 and 10:00 and there’s been no contact during that time, eCourier’s CRM team will receive an alert shortly after 10:00 that includes the client’s history and the number of bookings it typically places in a day. Bregman says there’s a fair amount of fine-tuning to get the metrics right. For example, the company had to tweak the system to recognize expected shifts in activity so that it doesn’t send a slew of alerts once the after-Christmas drop in business occurs. Getting that perfect balance of when to send alerts and how best to optimize the system is an ongoing process, he says. The SeeWhy software is designed to establish a “normal” client booking pattern from the first use, which is deepened with each subsequent booking. A sharp drop-off in bookings, an increase in bookings, or a change in dormant account activity generates an alert that is sent to that client’s account manager; the manager uses the opportunity to problem-solve or, in the case of increased activity, upsell to overnight or international services. “These capabilities have provided a big payoff,” says Bregman. He also believes the system saves his company the expense of having to hire people to monitor “who’s happy and who’s not—we’re able to do a lot more on our customer team with a lot less.” Other approaches to judging customer dissatisfaction exist. Cablecom, a Swiss telecom company, used SPSS’s statistical software to mine customer data, primarily from trouble tickets—such as the average duration of a ticket, or how many tickets had been opened for a customer over a specific time period—to build a model that could flag when a customer was at a high risk of leaving. “But the model proved to be only about 70 percent accurate,” says Federico Cesconi, director of customer insight and retention. So Cesconi used SPSS’s Dimensions survey research software to create an online customer survey, and from that he was able to determine that customer dissatisfaction usually begins around the ninth month of service, with the bulk of the customer losses occurring between months 12 and 14. Cesconi then created another survey that he now offers to Visitors to the eCourier Web site are greeted with the words “How happy are you? Take the eCourier happy test today!” Those words and the playful purple Web site represent the company’s customer satisfaction focus. And the company achieves that happiness through its focus on operational business intelligence. Business intelligence is moving out of the ivory tower of specialized analysts and is being brought to the front lines. In the case of eCourier, whose couriers carry 2,000 packages around London each day, operational business intelligence allows the company to keep real-time tabs on customer satisfaction. “This is a crucial differentiator in London’s competitive same-day courier market, where clients are far more likely to take their business elsewhere than they are to report a problem to their current courier,” says the company’s chief technology officer and cofounder Jay Bregman. Just one online directory, London Online, shows about 350 listings for courier services. Before implementing operational business intelligence, eCourier sought to define IT as a crucial differentiator. Cofounders Tom Allason, eCourier’s CEO, and Bregman ditched the idea of phone dispatchers and instead gave their couriers GPS-enabled handhelds so that couriers can be tracked and orders can be communicated electronically. They also focused on making online booking easy and rewarding, and much was invested in user-friendly applications: Customers can track online exactly where their courier is, eliminating the package delivery guesswork. Today, 95 percent of deliveries are booked online; this means that eCourier needs a much smaller staff for monitoring, tracking, and placing orders, which in turn makes the company more scalable. Bregman says this is notable in REAL WORLD CASE 1 FIGURE 1.1 Source: © Digital Vision/Alamy. Access to quality information about customers helps companies succeed at delivering value to shareholders. Chapter 1 / Foundations of Information Systems in Business ● 5 6 ● Module I / Foundation Concepts 1. How do information technologies contribute to the business success of the companies depicted in the case? Provide an example from each company explaining how the technology implemented led to improved performance. 2. In the case of law firm Bryan Cave discussed above, the use of BI technology to improve the availability, access, and presentation of existing information allowed them to provide tailored and innovative services to their customers. What other professions could benefit from a similar use of these technologies, and how? Develop two different possibilities. 3. Cablecom developed a prediction model to better identify those customers at risk of switching to other company in the near future. In addition to those noted in the case, what other actions could be taken if that information were available? Give some examples of these. Would you consider letting some customers leave anyway? Why? 1. Use the Internet to research the latest offerings in business intelligence technologies and their uses by companies. What differences can you find with those reviewed in the case? Prepare a report to summarize your findings and highlight new and innovative uses of these technologies. 2. Why do some companies in a given industry, like eCourier above, adopt and deploy innovative technologies while others in the same line of business do not? Break into small groups with your classmates to discuss what characteristics of companies could influence their decision to innovate with the use of information technologies. CASE STUDY QUESTIONS REAL WORLD ACTIVITIES customers in the seventh month of service, which includes an area where they can type in specific complaints and problems. “Cablecom calls customers within 24 hours of completing the survey,” says Cesconi. “The two approaches together provide the best view of customers ready to bolt, and the best chance at retaining them.” In 2002, global law firm Bryan Cave faced the milliondollar question: How do you make the most money with your resources while simultaneously delivering the highest customer value? The problem was pressing. Clients of the firm, which now has 800 lawyers in 15 offices worldwide, were demanding alternatives to the traditional hourly fee structure. They wanted new models, such as fixed pricing and pricing that was adjusted during a project. But making money from these new billing strategies required the complicated balance of staffing and pricing. Projects weighted too heavily with a law partner’s time would be expensive (for the law firm) and not optimized for profit. Devoting too little of a partner’s time would leave clients feeling undervalued. Optimizing profit and perceived value had to be achieved by spreading partners’ time throughout a number of cases and balancing the remaining resources needed for a case with the less-expensive fees of associates and paralegals. “Clients are most likely to stay with you if you deliver just the right mix,” says Bryan Cave’s CIO John Alber. The law firm’s traditional method of analyzing collected fees and profit used a spreadsheet that was complicated and took too long. “Spreadsheets provide a level of detail that can be valuable for analysts,” says Alber, “but the information in a spreadsheet can be confusing and difficult to work with.” Alber says he decided it was better to build an easy-to-understand interface using business intelligence tools. Although the company will not release specific figures, both profitability and hours leveraged—the hours worked by equity partners and all other fee earners at the firm—have increased substantially since the company implemented its first BI tool in 2004, according to Alber. The tools also allow lawyers to track budgets in real time so that they can make adjustments quickly. The BI tools even provide a diversity dashboard, which tracks the hourly mix of women and minorities working on the firm’s cases, a feature the company will license to Redwood Analytics for sale to other law firms. The firm developed this diversity tool to bring transparency to the diversity reporting process required by many clients. In other words, the tools provide Bryan Cave with a method of customizing its fees and helping clients better understand what they get for their money. As an illustration, Alber points to the customized pricing one lawyer gave to his real estate client. “Developers think in terms of square feet,” says Alber, “and this client couldn’t understand why legal fees for a 400,000-square-foot building might be the same as for a 4,000-square-foot building, though it required the same amount of the lawyer’s time.” So the lawyer used the pricing and staffing modeling tools and historical analysis tools to determine whether it made sense for the law firm to charge clients based on the size of their projects. He found that while there was risk of underpricing large buildings, the deal volume in small buildings offset that risk for the law firm. The result made per-square-foot pricing possible. “It may be possible that someone with enough willpower or manpower could do that using traditional analysis,” says Alber, “but this lawyer had the information right at his fingertips.” Business intelligence enables “us to be in touch with clients and shift things around in response to what customers are asking,” says Alber. Adopting new and improved project management, pricing, and customer service capabilities required planning, appropriate pacing, and user buy-in. “In today’s environment, you can’t do value innovation without being in touch with the economics of your business, without really understanding where you make money and where you don’t, and that’s what business intelligence tools do,” says Alber. “Our goal,” he says, “is to build the best longterm relationships in the world.” Source: Adapted from Diann Daniel, “Delivering Customer Happiness Through Operational Business Intelligence,” CIO Magazine, December 6, 2007; Diann Daniel, “How a Global Law Firm Used Business Intelligence to Fix Customer Billing Woes,” CIO Magazine, January 8, 2008; and Mary Weier, “Dear Customer: Please Don’t Leave,” InformationWeek, June 18, 2007. 6 ● Module I / Foundation Concepts Chapter 1 / Foundations of Information Systems in Business ● 7 • Your book bag, day planner, notebooks, and file folders are all part of an information system designed to help you organize the inputs provided to you via handouts, lectures, presentations, and discussions. They also help you process these inputs into useful outputs: homework and good exam grades. • The cash register at your favorite fast-food restaurant is part of a large information system that tracks the products sold, the time of a sale, inventory levels, and the amount of money in the cash drawer; it also contributes to the analysis of product sales in any combination of locations anywhere in the world. • A paper-based accounting ledger as used before the advent of computer-based accounting systems is an iconic example of an information system. Businesses used this type of system for centuries to record the daily transactions and to keep a record of the balances in their various business and customer accounts. Figure 1.2illustrates a useful conceptual framework that organizes the knowledge presented in this text and outlines areas of knowledge you need about information systems. It emphasizes that you should concentrate your efforts in the following five areas of IS knowledge: • Foundation Concepts. Fundamental behavioral, technical, business, and managerial concepts about the components and roles of information systems. Examples include basic information system concepts derived from general systems theory or competitive strategy concepts used to develop business applications of information technology for competitive advantage. Chapters 1 and 2 and other chapters of the text support this area of IS knowledge. • Information Technologies. Major concepts, developments, and management issues in information technology—that is, hardware, software, networks, data management, and many Internet-based technologies. Chapters 3 and 4 provide an overview of computer hardware and software technologies, and Chapters 5 and 6 cover key data resource management and telecommunications network technologies for business. • Business Applications. The major uses of information systems for the operations, management, and competitive advantage of a business. Chapters 7 and 8 cover applications of information technology in functional areas of business such as marketing, manufacturing, and accounting. Chapter 9 focuses on e-business applications that most companies use to buy and sell products on the Internet, and Chapter 10 covers the use of information systems and technologies to support decision making in business. • Development Processes. How business professionals and information specialists plan, develop, and implement information systems to meet business opportunities. Several developmental methodologies are explored in Chapters 11 and 12, including FIGURE 1.2 A framework that outlines the major areas of information systems knowledge needed by business professionals. Management Challenges Business Applications Information Technologies Foundation Concepts Development Processes Information Systems 8 ● Module I / Foundation Concepts the systems development life cycle and prototyping approaches to business application development. • Management Challenges. The challenges of effectively and ethically managing information technology at the end-user, enterprise, and global levels of a business. Thus, Chapter 13 focuses on security challenges and security management issues in the use of information technology, while Chapter 14 covers some of the key methods business managers can use to manage the information systems function in a company with global business operations.