CHAPTER 2: INFORMATION TECHNOLOGY IN A BUSINESS ENVIRONMENT:
1. The organisation as a system:
1.1. Business processes:
Any organisation = system
= consists of parts that work together to achieve a certain goal
= produce added value for their customers
- Business function = collection of related business processes
= coarse-grained, reflects itself in organisation structure
= the different departments within an organisation
Examples: HR, marketing and sales, R&D, production, financial management and administration
- Business process = the things an enterprise does in order to create, directly or indirectly, added value
= a structured set of activities executed in an organisation: common workflows
= needs time, space and resources to be executed
= require follow-up: long-lived
Examples: create customer offer, accept customer order, enter order, make invoice, …
- Activity = simple, specific action: one step
= needs time, space and resources to be executed
= can be composed of sub-activities
-> activity that cannot be reasonably split into sub-activities = elementary activity
Examples: determine configuration, fix prices, determine discount, make financial report on offer, …
1.2. The value chain:
Organisation executes sequences of business processes that belong to different business functions
-> subsequent business processes may therefore be totally different
-> each process creates added value and increases the value of the product
Value chain = sequence of business functions via which business processes are sequenced to produce
products or services with added value
,Porter:
-> organisation organizes themself
-> fixed model: structure the activities of the organisation to create value
- Primary activities:
• Inbound logistics: handling incoming goods
storage and distribution of raw materials
• Operations: actual production
conversion of raw materials into finished products
• Outbound logistics: bringing the finished products to the customers
storage, transportation and order processing
• Marketing & sales: be known in the market, make your value public
promotion, pricing, making offers and sales transactions
• Service: post-sales activities towards your customer
support, installation, repairs and training customer to use your product
- Support activities:
• Firm infrastructure: acquisition and management of the infrastructure needed to keep
the organisation operational
general, financial, plant and information management
• Human resources management: processes of selection, hiring and management of
employees
• Technology development: acquisition of the necessary knowledge and competences
research and development, process automation
• Procurement: acquisition of resources (raw materials, services) to execute
business processes
- Margin:
= difference between the total value of the products of the organisation and the total
cost of the primary and support activities
= optimize every aspect to maximize the margin
Organisation can use the value chain model to develop a competitive advantage
-> systematically examining all activities along the value chain to improve efficiency
-> competitive strategy is about being different: choosing a different set of activities to deliver a
unique mix of value
-> model is useful to determine where information technology should be used to gain a
competitive advantage
,1.3. Value systems and the supply chain:
Value system = extended value chain over several organisations
= interconnect the value chains of a series of organisations
Supply chain = interconnecting the value chains of a series of organisations
= complete system of organisations and resources to convert raw materials into finished
products
= contains several linked value systems and value chains
- Supply chain management:
= management of the supply chain and the communications and logistics involved
= modelling all processes along the supply chain enables the optimization and alignment of
these processes, leading to more efficient production processes
= information technology may contribute this by providing better communications and
managing the information needed to keep the supply chain running
Supply Chain Operations Reference model:
-> Plan: processes that balance resources and requirements
-> Source: procurement of materials and services
-> Make: conversion of raw materials into products
-> Deliver: order management, distribution and logistics
-> Return: products are included again
- Complex phenomena:
-> Bullwhip effect = variability in demand to end products increases the variability of the
orders dramatically upstream in the supply chain
= small fluctuations in consumer demand at the retail level cause
progressively larger fluctuations in demand at the wholesale,
distributor and manufacturing levels
-> Phantom stockout = a computer system shows that an item is out of stock when it is
actually physically present in the store or warehouse or, conversely,
when the system thinks there is stock available but the shelf is empty
= data integrity problem
2. Information systems:
Computer system = single unit for the creation, storage, management and processing of data
= may consist of several pieces of hardware and software
Information system = collection of equipment, services and human effort supporting the creation,
storage, management and processing of information
= composite system: equipment & infrastructure, development & configuration
effort and services & operations
Simple information systems consist of one single computer system.
Many information systems consist of more than one computer system.
-> the constituent computer systems are then interconnected by a network
-> locally within a single building or worldwide via wide area networks (WAN)
-> computer systems cooperate to automate business processes
, Information systems are older than computers.
-> before there were clay tablets, file cabinets, card-index boxes, hand-written cashbooks, ...
-> 1950-1960: first useful electronic computers
-> 1970-1980: mainframes and mid-sized computers
-> 1980: IBM personal computer and Macintosh
-> nowadays: electronic computers, devices, clouds, ...
Today, you can’t escape the information systems: role and impact on individuals, society and business.
3. Information technology in businesses:
Information systems support and automate business processes.
-> business information systems
-> support business functions and processes like order fulfilment, accounting, production planning and
logistics
There are 3 ways to use information systems in businesses: data processing, task automation and integrated
information systems.
3.1. Data processing:
= individual business processes are supported by the storage and processing of the data used by these
processes
= only isolated business processes or small groups of business processes are involved
= may or may not make use of computers
Examples: cash books for accounting, PC use with a text processor to create a report, elaboration of a business plan using a
spreadsheet program
3.2. Task automation:
= information systems are used to make the execution of business processes and groups of related
business processes more efficient
= monolithic systems automating many business processes and sometimes complete business functions
= strong integration between the supported business processes
= structure of the applications follows the hierarchy of the business processes in the organisation
Different from data processing:
1. We now aim for the automation of complete business processes.
2. We automate groups of related business processes or even complete business functions using a
single information system.
Examples: accounting software, supporting accounting and general ledger, application for the management of student data at a
university, production planning software used for planning and follow-up of production
3.3. Integrated information systems:
= automate complete business processes along the value chain / value system / supply chain
= interested in the overall efficiency of the complete chain, rather than in the optimization of individual
business processes
- Integration:
-> different parts of the system are designed to work together
- Adjustment of the business processes to information systems:
-> we do not always automate business processes as they are
-> sometimes business processes are modified to align them to the way in which the information
system handles them
- Complex systems:
-> implement and use complex information systems, containing several computer systems, running
specific and complex software and interconnected by networks
1. The organisation as a system:
1.1. Business processes:
Any organisation = system
= consists of parts that work together to achieve a certain goal
= produce added value for their customers
- Business function = collection of related business processes
= coarse-grained, reflects itself in organisation structure
= the different departments within an organisation
Examples: HR, marketing and sales, R&D, production, financial management and administration
- Business process = the things an enterprise does in order to create, directly or indirectly, added value
= a structured set of activities executed in an organisation: common workflows
= needs time, space and resources to be executed
= require follow-up: long-lived
Examples: create customer offer, accept customer order, enter order, make invoice, …
- Activity = simple, specific action: one step
= needs time, space and resources to be executed
= can be composed of sub-activities
-> activity that cannot be reasonably split into sub-activities = elementary activity
Examples: determine configuration, fix prices, determine discount, make financial report on offer, …
1.2. The value chain:
Organisation executes sequences of business processes that belong to different business functions
-> subsequent business processes may therefore be totally different
-> each process creates added value and increases the value of the product
Value chain = sequence of business functions via which business processes are sequenced to produce
products or services with added value
,Porter:
-> organisation organizes themself
-> fixed model: structure the activities of the organisation to create value
- Primary activities:
• Inbound logistics: handling incoming goods
storage and distribution of raw materials
• Operations: actual production
conversion of raw materials into finished products
• Outbound logistics: bringing the finished products to the customers
storage, transportation and order processing
• Marketing & sales: be known in the market, make your value public
promotion, pricing, making offers and sales transactions
• Service: post-sales activities towards your customer
support, installation, repairs and training customer to use your product
- Support activities:
• Firm infrastructure: acquisition and management of the infrastructure needed to keep
the organisation operational
general, financial, plant and information management
• Human resources management: processes of selection, hiring and management of
employees
• Technology development: acquisition of the necessary knowledge and competences
research and development, process automation
• Procurement: acquisition of resources (raw materials, services) to execute
business processes
- Margin:
= difference between the total value of the products of the organisation and the total
cost of the primary and support activities
= optimize every aspect to maximize the margin
Organisation can use the value chain model to develop a competitive advantage
-> systematically examining all activities along the value chain to improve efficiency
-> competitive strategy is about being different: choosing a different set of activities to deliver a
unique mix of value
-> model is useful to determine where information technology should be used to gain a
competitive advantage
,1.3. Value systems and the supply chain:
Value system = extended value chain over several organisations
= interconnect the value chains of a series of organisations
Supply chain = interconnecting the value chains of a series of organisations
= complete system of organisations and resources to convert raw materials into finished
products
= contains several linked value systems and value chains
- Supply chain management:
= management of the supply chain and the communications and logistics involved
= modelling all processes along the supply chain enables the optimization and alignment of
these processes, leading to more efficient production processes
= information technology may contribute this by providing better communications and
managing the information needed to keep the supply chain running
Supply Chain Operations Reference model:
-> Plan: processes that balance resources and requirements
-> Source: procurement of materials and services
-> Make: conversion of raw materials into products
-> Deliver: order management, distribution and logistics
-> Return: products are included again
- Complex phenomena:
-> Bullwhip effect = variability in demand to end products increases the variability of the
orders dramatically upstream in the supply chain
= small fluctuations in consumer demand at the retail level cause
progressively larger fluctuations in demand at the wholesale,
distributor and manufacturing levels
-> Phantom stockout = a computer system shows that an item is out of stock when it is
actually physically present in the store or warehouse or, conversely,
when the system thinks there is stock available but the shelf is empty
= data integrity problem
2. Information systems:
Computer system = single unit for the creation, storage, management and processing of data
= may consist of several pieces of hardware and software
Information system = collection of equipment, services and human effort supporting the creation,
storage, management and processing of information
= composite system: equipment & infrastructure, development & configuration
effort and services & operations
Simple information systems consist of one single computer system.
Many information systems consist of more than one computer system.
-> the constituent computer systems are then interconnected by a network
-> locally within a single building or worldwide via wide area networks (WAN)
-> computer systems cooperate to automate business processes
, Information systems are older than computers.
-> before there were clay tablets, file cabinets, card-index boxes, hand-written cashbooks, ...
-> 1950-1960: first useful electronic computers
-> 1970-1980: mainframes and mid-sized computers
-> 1980: IBM personal computer and Macintosh
-> nowadays: electronic computers, devices, clouds, ...
Today, you can’t escape the information systems: role and impact on individuals, society and business.
3. Information technology in businesses:
Information systems support and automate business processes.
-> business information systems
-> support business functions and processes like order fulfilment, accounting, production planning and
logistics
There are 3 ways to use information systems in businesses: data processing, task automation and integrated
information systems.
3.1. Data processing:
= individual business processes are supported by the storage and processing of the data used by these
processes
= only isolated business processes or small groups of business processes are involved
= may or may not make use of computers
Examples: cash books for accounting, PC use with a text processor to create a report, elaboration of a business plan using a
spreadsheet program
3.2. Task automation:
= information systems are used to make the execution of business processes and groups of related
business processes more efficient
= monolithic systems automating many business processes and sometimes complete business functions
= strong integration between the supported business processes
= structure of the applications follows the hierarchy of the business processes in the organisation
Different from data processing:
1. We now aim for the automation of complete business processes.
2. We automate groups of related business processes or even complete business functions using a
single information system.
Examples: accounting software, supporting accounting and general ledger, application for the management of student data at a
university, production planning software used for planning and follow-up of production
3.3. Integrated information systems:
= automate complete business processes along the value chain / value system / supply chain
= interested in the overall efficiency of the complete chain, rather than in the optimization of individual
business processes
- Integration:
-> different parts of the system are designed to work together
- Adjustment of the business processes to information systems:
-> we do not always automate business processes as they are
-> sometimes business processes are modified to align them to the way in which the information
system handles them
- Complex systems:
-> implement and use complex information systems, containing several computer systems, running
specific and complex software and interconnected by networks
