MANAGEMENT INFORMATION SYSTEMS Part 1 SOME DEFINITIONS AND WAYS OF INFORMATION SYSTEM DEVELOPMENT Prof. Witold Chmielarz, PhD , Velimir Tasic MSc, Oskar Szumski, PhD Faculty of Management University of Warsaw

POLAND Poland in the world Warsaw

COURSE OBJECTIVES Introduction of the main directions of the systems development, a new trends, and a new logical architectures of the systems Characteristics of the main management information systems, their components and features Presentation of the concepts and practical applications of various types of information systems in the business organizations Illustration how management information systems have been helpful in enhancing effectiveness of organizations Demonstration the use of IT in designing and implementing MIS Analyzing of e-business as one of the modern ideas of MIS Presentation of modern MIS applications in specific areas in Poland

COURSE BRIEF CONTENTS (only part with WCH) Sessions Coverage References 1 DEFINITIONS AND WAYS OF INFORMATION SYSTEM DEVELOPMENT Turban E., at al…, Laudon K. C., Laudon J. P, Chmielarz W. 2 CHARACTERISTICS AND FEATURES OF MIS Turban E., at al…, Laudon K. C., Laudon J. P 3 INTEGRATED ENTERPRISE SYSTEMS 4 e-COMMERCE AND e-BANKING Laudon K. C., Laudon J. P, Chmielarz W.

REFERENCES (textbooks): Main: Turban E., at al…: Information Technology for Management. Transforming Organizations in the Digital Economy, John Wiley and Sons Inc. 6-th ed., 2011, Laudon K. C., Laudon J. P.: Management Information Systems, Pearson Education Inc., Prentice Hall, NY, 9-th ed. 2010. Internet: http://www.wz.uw.edu.pl/wykladowcy,profil,9,pliki,13.html Additionally: Chmielarz W.: Selected Problems of IT Development, Wydawnictwo Naukowe WZ UW, Warsaw, 2005, Bocij P., Chaffey D., Greasley A., Hickie S.: Business Information Systems, 2-nd ed., Prentice Hall, Harlow, 2003, Turban E., Lee J., King D., McKay J., Viehland D., Cheung C., Lay L.: Electronic Commerce. A Managerial Perspective, Pearson Education, 4-th ed., 2008 Wallace T., M.; Kremzar M., H.: ERP: Making It Happen, The Implementers’ Guide to Success with Enterprise Resource Planning; John Wiley & Sons, Inc., New York, 2001

...From Aphorismus Book... ...Wisdom is nontransferable. The sage’ knowledge which he try to transfere, sounds always like nonsense... (... Mądrości nie można przekazać. Wiedza, którą próbuje przekazywać mędrzec, brzmi zawsze jak głupota...), ...Study period is the time when you are instructing by somebody you don’t want to know, about something you don’t want to know... (... Okres nauki to czas gdy jesteś pouczany przez kogoś kogo nie chcesz znać, o czymś czego nie chcesz wiedzieć ... ) …Knowledge is powerless unless it prepares you to do the right thing at the right time… (…Wiedza nic nie daje, jeżeli nie przygotowuje cię do podjęcia właściwej decyzji we właściwym czasie…)

Subject: …Management Information System – refers to (means) a collection of computerized and net technologies whose objective is to support managerial work and especially decision making… …System designed to provide past, present, and future information appropriate for planning, organizing, and controlling the operations of functional areas in an organization… (Turban E., at all: IT for Management ... 2008)

Some definitions (glossary)… Data items – refer to an elementary description of facts and figures relatively important for users, data item – an elementary description of things, events, activities, and transactions, that are recorded, classified, and stored but not organized to convey any specific meaning: can be numeric, alphanumeric, figures, sounds or images A database – consists of stored data items organized for retrieval Information – is processed, meaningful data… data that have been organized, so they have meaning and value to the recipient Data items typically are processed into information by means of an application, represents a more specific use and a higher added value than simple retreieval and summarizing from a database Knowledge – data and/or information that have been organized and processed to convey (distribute) understanding, experience, accumulated learning, and expertise (what to do with information) Wisdom – the ability to make sensible (rational) decisions and give good advice because of the experience, intuition and knowledge that you have (how to use knowledge, how to do it in rational way)

Some definitions (glossary)… Data items – a student first name, name, grade in a class, the number of hours an employe worked in a certain week, etc. Information – a student’s grade point average (GPA), the application transforminf data in information might be a Web-based inventory management system, a univerity online registration, or e-commerce (internet-based buying and selling) system Knowledge – GPA of a student applying to Erasmus Students Exchange can be compared with GPA of the other students applying to this sholarship and be over average of all students from faculty (average is only criteria of selection) Wisdom – see above case – inspite of level of GPA you know from your experience or partner’s knowledge that in Italy or Spain in most cases courses are in Italian or Spanish, so you first of all send there students speak these languages…

Some definitions (glossary)… System – group of elements integrated with common purpose of achieving an objective (...) by transforming input resources to output resources… Information system – group of programs integrated in three areas: programme, logical and technical…, a physical process, that supports an organization in collecting, processing, storing nad analyzing data, and disseminating information to achieve organizational goals. Information Technology – the technology component of an information system (a narrow definition), or the collection of the computing systems in an organization (the broad definition) Information infrastructure – the physical arrangement of: harware, software, databases, networks, and information management personnel …Decision making – a process of choosing among alternative courses of action for the purpose of attainings a goal or goals… What should be done? When? How? Where? By whom? Model (in decision making) – a simplified representation or abstraction of reality; can be used to performs virtual experiments and analysis

Some definitions (glossary)… A computer-based information system is an information system that uses computer and net technology to perform some or all of its intnded tasks. The basic components of the system are hardware, software, database(s), telecommunication networks, procedures and people. Hardware is a set of devices that accept data and information, process them, and display or raport them. Software is a set of programs that enable the hardware to process data. A database is a collection of related files, tables, relations, and so on that stores data and the associations among them. A network is a connecting system (wireline or wireless) that permits different computers to share resources. Procedures are the set of instructions about how to combine the above components in order to process information and generate the desire output. People (users or final users, maybe curtomers) are those individuals who work with the information system, interface with it, or use its outputs

Some definitions (glossary)… Information system: Set of interrelated components Collect, process, store, and distribute information Support decision making, coordination, and control Information vs. data Data are streams of raw facts Information is data shaped into meaningful form

Some definitions (glossary)… Information system: three activities produce information organizations need Input: Captures raw data from organization or external environment Processing: Converts raw data into meaningful form Output: Transfers processed information to people or activities that use it Feedback: Output returned to appropriate members of organization to help evaluate or correct input stage Computer/Computer program vs. information system Computers and software are technical foundation and tools

Functions of an Information System An information system contains information about an organization and its surrounding environment. Three basic activities—input, processing, and output—produce the information organizations need. Feedback is output returned to appropriate people or activities in the organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems.

Information Systems Are More Than Computers Using information systems effectively requires an understanding of the organization, management, and information technology shaping the systems. An information system creates value for the firm as an organizational and management solution to challenges posed by the environment.

Organizational dimension of information systems Hierarchy of authority, responsibility: Senior management Middle management Operational management Knowledge workers Data workers Production or service workers Separation of business functions: Sales and marketing Human resources Finance and accounting Manufacturing and production Unique business processes Unique business culture Organizational politics

Management dimension of information systems Managers set organizational strategy for responding to business challenges, In addition, managers must act creatively: Creation of new products and services Occasionally recreating the organization

Technology dimension of information systems Computer hardware and software Data management technology Networking and telecommunications technology (Networks, the Internet, intranets and extranets, World Wide Web) IT infrastructure: provides platform that system is built on

The Integration and Convergence Theory of Information Systems Development The main objective of this part of course is to present the idea of the development of MIS consisting in the integration and convergence approach by the analysis of three main paths of development: increasing complexity of logical systems architecture, functional integration of Information Systems, tailored to the current needs of the organization and the user within the organization, expansion of spatial network infrastructure.

Integration – in the ideological sense – consists in combining functional elements using by means of relations, so as to constitute specific structural components of the whole. Integration is here understood as a process of consolidation and merging of particular different-class characters and forms of interrelated elements in order to create a functional entity, resulting in the usefulness and efficiency which are greater than each of the parts acting separately Convergence in the development process – consists in the formation of similar features with regard to construction, function and appearance of various groups of systems functioning under the same environmental conditions, regardless of adopted specific innovative solutions.

Convergence Integration 1 Convergence TSP/APD 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence MIS TSP/APD 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence DSS MIS TSP/APD 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence EIS/ESS DSS MIS TSP/APD 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence ES EIS/ESS DSS MIS TSP/APD 1950 1960 1970 1980 1990 2000 2010 Integration Year

1 Convergence BIS ES EIS/ESS DSS MIS TSP/APD Internal integration - just combine different types of systems Convergence - increasingly sophisticated systems to ever higher level of development 1950 1960 1970 1980 1990 2000 2010 Integration Year

Database Management System Economic environment MIS Internet Interior of organization User User interface Database Management System Ba Database Applications: accounting and finance, inventory control, production management, Human relations. Available for decision maker: knowledge, intuition, education, data.

Database System Management Model Base System Management Economic environment DSS Internet Interior of organization User User interface Database System Management Model Base System Management Ba Database Model Base Applications: accounting and finance, inventory control, production management, Human relations. Available for decision maker: knowledge, Intuition, education, data, models, methods. Base of Procedures

Database System Management Model Base System Management Economic environment EIS/ESS Internet Interior of organization User User interface Database System Management Model Base System Management Ba Database Available for decision maker: knowledge, Intuition, education, data, models, methods. prezentation, vizualization, extension. Model Base Applications: accounting and finance, inventory control, production management, Human relations. Base of procedures

Ba Ba ES Economic environment Interior of organization User Internet Interior of organization User User interface Database System Management Model BaseSystem Management Ba Knowlede Base System Management Database Model Base Applications: accounting and finance, inventory control, production management, Human relations. Available for decision maker: intuition, education, data, models, methods, prezentation, vizualization, extension, knowledge. Ba Knowledge Base Base of Procedures

Ba BIS Economic environment Interior of organization User Internet Interior of organization User Mechanizms of data wholesale management Mechanizms Business Analytics User interface Database System Management Model Base System Management Applications: accounting and finance, inventory control, production management, Human relations. Knowledge Base System Management Model Base Database Ba Marts – branch wholesale Knowledge Base Base of Procedures Decison maker has at his disposal more then he needs!!!

BIS Ba Economic environment Interior of organization User Internet Mechanizms of data wholesale management Mechanizms Business Analytics User interface Database System Management Model Base System Management Applications: accounting and finance, inventory control, production management, Human relations. Knowledge Base System Management Model Base Database Ba Marts – branch wholesale Knowledge Base Base of Procedures

Types of decision Structured decisions are repetitive and routine (strictly determined), and they involve a definite procedure for handling them so that they do not have to be treated each time as if they were new. Unstructured decisions are those in which the decision maker must provide judgment, evaluation, and insight to solve the problem (probablistic, undetermined). Each of these decisions is novel, important, and non routine, and there is no well-understood or agreed-on procedure for making them. Many decisions have elements of both types of decisions and are semistructured, where only part of the problem has a clear-cut answer provided by an accepted procedure. In general, structured decisions are more prevalent at lower organizational levels, whereas unstructured problems are more common at higher levels of the firm.

INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS IN A FIRM

STAGES IN DECISION MAKING Intelligence consists of discovering, identifying, and understanding the problems occurring in the organization - why a problem exists, where, and what effects it is having on the firm Design involves identifying and exploring various solutions to the problem Choice consists of choosing among solution alternatives Implementation involves making the chosen alternative work and continuing to monitor how well the solution is working

Six elements in business intelligence environment Data from the business environment: Businesses must deal with both structured and unstructured data from many different sources, including mobile devices and the Internet. The data need to be integrated and organized so that they can be analyzed and used by human decision makers Business intelligence infrastructure: The underlying foundation of business intelligence is a powerful database system that captures all the relevant data to operate the business. The data may be stored in transactional databases or combined and integrated into an enterprise-data warehouse or series of interrelated data marts Business analytics toolset: A set of software tools are used to analyze data and produce reports, respond to questions posed by managers, and track the progress of the business using key indicators of performance

Six elements in business intelligence environment Managerial users and methods: Business intelligence hardware and software are only as intelligent as the human beings who use them. Managers impose order on the analysis of data using a variety of managerial methods that define strategic business goals and specify how progress will be measured. These include business performance management and balanced scorecard approaches focusing on key performance indicators and industry strategic analyses focusing on changes in the general business environment, with special attention to competitors. Without strong senior management over-sight, business analytics can produce a great deal of information, reports, and online screens that focus on the wrong matters and divert attention from the real issues. You need to remember that, so far, only humans can ask intelligent questions.

Six elements in business intelligence environment Delivery platform - MIS, DSS, ESS. The results from business intelligence and analytics are delivered to managers and employees in a variety of ways, depending on what they need to know to perform their jobs. MIS, DSS, and ESS, deliver information and knowledge to different people and levels in the firm—operational employees, middle managers, and senior executives. In the past, these systems could not share data and operated as independent systems. Today, one suite of hardware and software tools in the form of a business intelligence and analytics package is able to integrate all this information and bring it to managers’ desktop or mobile platforms. User interface: Business people are no longer tied to their desks and desktops. They often learn quicker from a visual representation of data than from a dry report with columns and rows of information. Today’s business analytics software suites emphasize visual techniques such as dashboards and scorecards. They also are able to deliver reports on Blackberrys, iPhones, and other mobile handhelds as well as on the firm’s Web portal. BA software is adding capabilities to post information on Twitter, Facebook, or internal social media to support decision making in an online group setting rather than in a face-to-face meeting.

Business Intelligence and Analytics for Decision Support

Business Intelligence Users

Convergence Integration 1 Convergence BIS ES EIS/ESS 2 DSS MIS TSP/APD IC 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence BIS ES EIS/ESS 2 DSS MIS TSP/APD MRP IC 1950 1960 1970 1980 1990 2000 2010 Integration Year

KConvergence Integration 1 KConvergence BIS ES EIS/ESS 2 DSS MIS TSP/APD MRP II MRP IC 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence BIS ES EIS/ESS 2 DSS MIS TSP/APD ERP MRP II MRP IC 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration Functional integration - more and more utility functions Convergence - in each, next step newer technology and better adjust to needs of user Diffusion patterns between tracks 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM MRP IC 1950 1960 1970 1980 1990 2000 2010 Integration Year

Convergence Integration 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM MRP IC 1950 1960 1970 1980 1990 2000 2010 Integration Year

Inventory balance IC

Production balance Inventory balance IC MRP

Production Balance Financial Balance Inventory Balance IC MRP MRP II

Production Balans Service Balans Financial Balans IC MRP MRP II ERP Inventory Balance IC MRP MRP II ERP

Logistic Balans, specializations and mutations Production Balance Service Balans Financial Balance Inventory Balance IC MRP MRP II ERP Logistic Balans, specializations and mutations ERP II

Logistic Balans, specializations and mutations CommunicationBalans Production Balance Service Balans Financial Balance Inventory Balance IC MRP MRP II ERP Logistic Balans, specializations and mutations ERP II eERP

Private, corporate nets 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM 3 MRP IC Private, corporate nets 1950 1960 1970 1980 1990 2000 2010 Integration Year

Private, corporate nets 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM 3 MRP IC Commercial nets Private, corporate nets 1950 1960 1970 1980 1990 2000 2010 Integration Year

Private, corporate nets Integration - the traditional systems and other networks Convergence - the expansion of the subsequent users, connected with increasing availability and ease of use 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM 3 MRP IC Internet Commercial nets Private, corporate nets 1950 1960 1970 1980 1990 2000 2010 Integration Year

Private, corporate nets 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM 3 MRP IC Internet Commercial nets Private, corporate nets 1950 1960 1970 1980 1990 2000 2010 Integration Year

Corporate solutions based on EDI standards, huge organizations Corporate networking Private, corporate nets

Commercial solutions for large and medium-sized companies Organizational nets Commerce nets Corporate solutions based on EDI standards, huge organizations Corporate networking Private, corporate nets

Commercial solutions for large and medium-sized companies Organizational nets Comprehensive and global solution for all (organizations, customers, society) Social nets Commerce nets Corporate solutions based on EDI standards, huge organizations Corporate networking Internet Private, corporate nets

Private, corporate nets Platform 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM 3 MRP IC Internet Commercial nets Private, corporate nets 1950 1960 1970 1980 1990 2000 2010 Integration Year

Conclusions The solution which under the conditions of the development of internet systems started to be applied in lieu of internal integration was external integration through external corporate portals. A corporate portal is …a platform which integrates systems and information technology, data, information and knowledge in an organization and its environment in order to provide users with a personalised and convenient access to data, information and knowledge, in accordance with the needs, at any time and in any place, in a secure manner and through a unified web interface …. The main objective of a corporate portal are improvements with regard to access to data, information and knowledge and their sources according to user requirements; regardless of time and location of the web interface, and in a secure manner. The main feature of corporate platforms is the integration of data from internal resources with external data, their conversion into common and jointly processed formats; integration of heterogeneous applications; integration of communication between particular users and providing them with personalized information and knowledge.

The emergence of corporate portals is connected with the development of internet network technologies, and the portals operate mainly in an intranet corporate environment. Through this environment – web interface - they are distributed to users, as required information and knowledge. The impression is that a corporate platform is both an integration instrument and at the same time a convergence tool - on the level, cooperation of both complementary and parallel systems is possible. The author believed that this tendency was a process of intensifying of a previously examined complexity of the logical architecture structure in particular types of the systems, and therefore it does not require further analysis. Also, the author did not illustrate the development of particular internet tools in such a great detail as in the article, assuming that they are still developing very intensively. Nevertheless, there is a clearly visible - possible thanks to a corporate platform - tendency to connect everything with everything (multi-dimensional integration) in terms of transmissivity of the idea of interaction between various information systems on all presented development paths.

Thank you very much for your attention! Witold Chmielarz Questions - vitec@post.pl

MANAGEMENT INFORMATION SYSTEMS Part 2 CHARACTERISTICS AND FEATURES OF MIS Prof. Witold Chmielarz, PhD , Oskar Szumski, PhD Faculty of Management University of Warsaw

Characteristics and Features of MIS Towards Knowledge Based Systems

Knowledge in MIS

LEARNING OBJECTIVES Assess the role of knowledge management and knowledge management programs in business Describe the types of systems used for enterprise-wide knowledge management and demonstrate how they provide value for organizations Describe the major types of knowledge work systems and assess how they provide value for firms Evaluate the business benefits of using intelligent techniques for knowledge management Analyzing of the concept of knowledge management application

A brief content: Basic definitions Intro to Knowledge Management (KM) Approaches to KM Problems with KM implementation

…Management Information System – refers to a collection of computerized and net technologies whose objective is to support managerial work and especially decision making… (Turban E., at al: IT for Management ... 2008)

Some basis definitions… System – group of elements integrated with common purpose of achieving an objective (...) by transforming input resources to output resources… Information system – group of programs integrated in three areas: programme, logical and technical… An application program – a set of computer instructions written in a programming language, the purpose of which is to provide functionality to a user…

Some basic definitions… Decision making – a process of choosing among alternative courses of action for the purpose of attainings a goal or goals: What should be done? When? How? Where? By whom?

Intro to Knowledge Management (KM) …A process that helps organizations identify, select, organize, disseminate, and transfer important information and expertise that are part of the organization’s memory and that typically reside within the organization in an unstructured manner… Creating of knowledge enables effective and efficient problem solving, dynamic learning, strategic planning and decision making Focus on identyfing knowledge, explicating it in formal manner and exploiting by reuse, For success of organization must be exchangable among persons, and able to grow… E.Turban et al.: Information Technology for Management;

Knowledge Management (KM) Knowledge management: Set of business processes developed in an organization to create, store, transfer, and apply knowledge Knowledge management value chain: each stage adds value to raw data and information as they are transformed into usable knowledge: Knowledge acquisition Knowledge storage Knowledge dissemination Knowledge application (Laudon, Laudon, Chapt 11)

Knowledge acquisition Documenting tacit and explicit knowledge: Storing documents, reports, presentations, best practices Unstructured documents (e.g., e-mails) Developing online expert networks Creating knowledge Tracking data from TPS and external sources (Laudon, Laudon, Chapt 11)

Knowledge storage (Laudon, Laudon, Chapt 11) Databases Document management systems Role of management: Support development of planned knowledge storage systems Encourage development of corporate-wide schemas for indexing documents Reward employees for taking time to update and store documents properly (Laudon, Laudon, Chapt 11)

Knowledge dissemination Portals Push e-mail reports Search engines Collaboration tools A deluge (dissemination, too) of information? Training programs, informal networks, and shared management experience help managers focus attention on important information (Laudon, Laudon, Chapt 11)

Knowledge application To provide return on investment, organizational knowledge must become systematic part of management decision making and become situated in decision-support systems New business practices New products and services New markets (Laudon, Laudon, Chapt 11)

The Knowledge Management Value Chain Knowledge management today involves both information systems activities and a host of enabling management and organizational activities.

New organizational roles and responsibilities Chief knowledge officer executives Dedicated staff / knowledge managers Communities of practice (COPs) Informal social networks of professionals and employees within and outside firm who have similar work-related activities and interests Activities include education, online newsletters, sharing experiences and techniques Facilitate reuse of knowledge, discussion Reduce learning curves of new employees Establish paths of carrier

Relations – data – information – knowledge - wisdom Data – are a collection of facts, measurements, and statistics Information – is organized or processed data that are timely and accurate (ready for use), Knowledge – is information that is contextual (connected with particular conditions), relevant (closely connected with situation) and actionable (supported by cases), shows how to use information and data under current, given, defined situation in effective, acceptable formal (visible knowledge) way, Wisdom – abbility to make sensible decisions and good advice because of the experience and knowledge, how to use knowledge and information in reasonable (optimal) way (hidden knowledge, too)

Wisdom – Knowledge triangle

Charactristics of knowledge Extraordinary and increasing results – knowledge is not subject to diminishing results. When it is used, it is not consumed. Its consumers can add to it, thus increasing its value. Fragmentation, leakage and need to refresh – knowledge is dynamic, it is information in action. Thus an organization must continually refresh its knowledgebase to maintain it as a source of competitive advantage, Uncertain value – it’s difficult to estimate the impact of an investment in knowledge. There too many intengible aspects Uncertain value of sharing – it’s difficult to estimate the value of sharing knowledge, or even who will benefit most, Rooted in time – the utility and validity of knowledge may change with time.

Transforming information into knowledge To transform information into knowledge, firm must expend additional resources to discover patterns, rules, and contexts where knowledge works Wisdom: Collective and individual experience of applying knowledge to solve problems - involves where, when, and how to apply knowledge Knowing how to do things effectively and efficiently in ways other organizations cannot duplicate is primary source of profit and competitive advantage that cannot be purchased easily by competitors (Laudon, Laudon, Chapt. 11)

Organizational learning Process in which organizations learn Introduce the concept of organizational learning (selflearning), which describes the process of gathering, creating, and applying knowledge Organizational learning Process in which organizations learn Gain experience through collection of data, measurement, trial and error, and feedback Adjust behavior to reflect experience: Create new business processes Change patterns of management decision making

Some additional definitions Intellectual capital (or intellectusl assets) – the valuable knowledge of employees, evolves with time and experience, which puts connections among new situations and events in context. Tacit knowledge – usually in the domain of subjective, cognitive and experimental learning (personal and difficult to formalize). The cumulative store of an experiences, expertise, know-how, trade secrets, skill sets, usually localized in the brain of individual Explicit knowledge – deals with more objective, rational, and technical knowledge (date, procedures, software, documents). Codyfied knowledge (documented) in the form can be distributed to others or transformed into process without interpersonal interaction (can leave person – leaky knowledge) Organizations now recognize the need too integrate explicit and tacit knowledge in formal information systems (taken from: Laudon, Laudon, Chapt. 11)

Important dimensions of knowledge Knowledge is a firm asset Intangible Creation of knowledge from data, information, requires organizational resources As it is shared, experiences network effects Knowledge has different forms May be explicit (documented) or tacit (residing in minds) Know-how, craft, skill How to follow procedure Knowing why things happen (causality) (taken from: Laudon, Laudon, Chapt. 11)

Important dimensions of knowledge Knowledge has a location Cognitive event Both social and individual “Sticky” (hard to move), situated (enmeshed in firm’s culture), contextual (works only in certain situations) Knowledge is situational Conditional: Knowing when to apply procedure Contextual: Knowing circumstances to use certain tool (see: Laudon, Laudon & Dass, Chapt. 11)

Approaches to KM Process approach – attempts to codify organizational knowledge through formalized controls, processes and technologies, frequently involves the use of information technologies to enhance the quality and speed of knowledge creation and distribution in the organizations Practice approach – assumes that a great deal of organizational knowledge is tacit in nature and that formal controls, processes and technologies are not suitable for transmitting this type of understanding. The focus of this approach is to build the social environments or communities necessary to the sharing of tacit knowledge. (see: Laudon, Laudon, Chapt. 11)

Approaches to KM Best practices – the activities and methods that the most effective organizations use to operate and manage various functions. They include: A good idea that is not yet proven, but makes intuitive sense, A good practice, an implemented technique, metodology, procedure, or process that has improved business results, A local best practice, a best approach for all or a large part of the organization based on analysing hard data. The scope within organization of the best practice is identified; can be used only in a single department or geographical region, or across the organization. Hybrid approaches – in reality involve both process and practice approaches. (see: Laudon, Laudon, Chapt. 11)

Three major types of knowledge management systems: Enterprise-wide knowledge management systems General-purpose firm-wide efforts to collect, store, distribute, and apply digital content and knowledge Knowledge work systems (KWS) Specialized systems built for engineers, scientists, other knowledge workers charged with discovering and creating new knowledge Intelligent techniques Diverse group of techniques such as data mining used for various goals: discovering knowledge, distilling knowledge, discovering optimal solutions This slide introduces the three main categories of information system used to manage knowledge. These categories are different in terms of the constituencies they server, the purpose for which they are used and what they emphasize.

Major Types of Knowledge Management Systems This graphic illustrates the three major types of knowledge management systems, giving the purpose of the system and examples of the type of system. Ask the students how they would categorize a system that catalogs and stores past advertising campaigns? What about software that helps a research biologist input and analyze lab findings? There are three major categories of knowledge management systems, and each can be broken down further into more specialized types of knowledge management systems.

Three major types of knowledge in enterprise Structured documents Reports, presentations Formal rules Semistructured documents E-mails, videos Unstructured, tacit knowledge 80% of an organization’s business content is semistructured or unstructured This slide describes the three major kinds of knowledge that can be found in an enterprise, and indicates that less formal knowledge may be just as critical as formal knowledge for organizations to store and share. Ask the students for other examples of semistructured and unstructured knowledge. Ask students for an example of tacit knowledge that is more important than structured knowledge such as a report.

Enterprise-wide content management systems Help capture, store, retrieve, distribute, preserve Documents, reports, best practices Semistructured knowledge (e-mails) Bring in external sources News feeds, research Tools for communication and collaboration This slide discusses the purpose and features of enterprise-wide content management systems. The text discusses the example of Central Vermont Public Service, which uses OpenText LiveLink Enterprise Content Management to organize both structured and unstructured content such as e-mails, spreadsheets, word processing documents, and PDFs. In addition to helping make better business use of the information, the system also helps the organization comply with federal and state regulations for records management.

An Enterprise Content Management System This graphic illustrates the functions of an enterprise content management system. Users interact with the system to both input knowledge, manage it, and distribute it. These management systems can house a wide variety of information types, from formal reports to graphics, as well as bring in external content resources such as news feeds. Ask students what types of documents would need to be stored by a hospital, bank, law firm, etc. An enterprise content management system has capabilities for classifying, organizing, and managing structured and semistructured knowledge and making it available throughout the enterprise

Knowledge network systems Provide online directory of corporate experts in well-defined knowledge domains Use communication technologies to make it easy for employees to find appropriate expert in a company May systematize solutions developed by experts and store them in knowledge database Best-practices Frequently asked questions (FAQ) repository Enterprise content management systems can include or consist of capabilities for the creation and management of unstructured knowledge – knowledge network systems. Ask the students to give examples of unstructured knowledge, given a type of industry or company: a law firm, an advertising firm, a school. What might be the difficulties in establishing a knowledge network system in a company? Contrast this network (crowd centered) approach to a top down structured knowledge management system.

An Enterprise Knowledge Network System A knowledge network maintains a database of firm experts, as well as accepted solutions to known problems, and then facilitates the communication between employees looking for knowledge and experts who have that knowledge. Solutions created in this communication are then added to a database of solutions in the form of FAQs, best practices, or other documents. This graphic illustrates the various elements that form a knowledge network system. The user can search for accepted solutions in FAQ or best practices document or contact an expert in the relevant subject matter. Ask the students to provide examples of undocumented, unstructured knowledge they acquired, either in a classroom setting or at work, that would be valuable to peers. What kind of tools would enable sharing this information?

Major knowledge management system vendors include powerful portal and collaboration technologies: Portal technologies: Access to external information News feeds, research Access to internal knowledge resources Collaboration tools E-mail Discussion groups Blogs Wikis Social bookmarking Enterprise-wide content systems include capabilities for collaboration and learning management. Ask students to provide examples of other types of collaboration tools (chat/IM, video conferencing). Ask students how a blog and wiki would help a company in terms of collaboration. Have any of the students used or created a wiki? Ask students if they have used social bookmarking personally and to describe how it works. Ask them how social bookmarking would be valuable as a collaboration tool for a business. Are there any potential problems in using social bookmarking (tagging).

Learning management systems Provide tools for management, delivery, tracking, and assessment of various types of employee learning and training Support multiple modes of learning - CD-ROM, Web-based classes, online forums, live instruction, etc. Automates selection and administration of courses Assembles and delivers learning content Measures learning effectiveness This slide discusses learning management systems, which enable companies to track and manage employee learning. Ask students what are the benefits and drawbacks of using an LMS with centralized reporting.

Knowledge work systems Systems for knowledge workers to help create new knowledge and ensure that knowledge is properly integrated into business Knowledge workers Researchers, designers, architects, scientists, and engineers who create knowledge and information for the organization Three key roles: Keeping organization current in knowledge Serving as internal consultants regarding their areas of expertise Acting as change agents, evaluating, initiating, and promoting change projects This slide discusses the second main type of knowledge management system, the knowledge work system, and identifies the importance of knowledge workers to an organization and its knowledge creation. Ask the students why each of the three roles listed is important to an organization. Can all companies benefit from knowledge workers, or only design, science, and engineering firms?

Requirements of knowledge work systems Substantial computing power for graphics, complex calculations Powerful graphics, and analytical tools Communications and document management capabilities Access to external databases User-friendly interfaces Optimized for tasks to be performed (design engineering, financial analysis) This slide continues the discussion of knowledge work systems, emphasizing the need of knowledge workers to have highly specialized knowledge work systems. Ask students to describe the reasons that these characteristics are important for a knowledge work system. What other types of information systems would a knowledge worker rely on, if any? (office systems, productivity systems, scheduling systems).

Requirements of Knowledge Work Systems This graphic illustrates the main components of a knowledge work station: having the need for both specialized software and hardware, access to external information, and an easy-to-use interface. What types of external knowledge might be valuable to an engineer, a financial analyst, a medical researcher? Knowledge work systems require strong links to external knowledge bases in addition to specialized hardware and software.

Examples of knowledge work systems CAD (computer-aided design): Automates creation and revision of engineering or architectural designs, using computers and sophisticated graphics software Virtual reality systems: Software and special hardware to simulate real-life environments E.g. 3-D medical modeling for surgeons VRML: Specifications for interactive, 3D modeling over Internet Investment workstations: Streamline investment process and consolidate internal, external data for brokers, traders, portfolio managers This slide describes three types of knowledge work systems: CAD systems, virtual reality systems, and investment work stations. Ask students what the business value of providing a financial analyst, engineer, or researcher with an improved, specialized work station would be. Can the value of implementing or upgrading work systems be quantified into a monetary value? The text discusses virtual reality systems as an aid in medicine and engineering. What other industries might benefit from the use of virtual reality systems by their knowledge workers?

Intelligent techniques: Used to capture individual and collective knowledge and to extend knowledge base To capture tacit knowledge: Expert systems, case-based reasoning, fuzzy logic Knowledge discovery: Neural networks and data mining Generating solutions to complex problems: Genetic algorithms Automating tasks: Intelligent agents Artificial intelligence (AI) technology: computer-based systems that emulate human behavior This slide introduces the third of the three main types of knowledge management systems: Intelligent techniques, and categorizes them according to the type of knowledge involved. AI technology is used in some techniques as part of the logical computerized routine. The text discusses AI systems being able to learn languages, and emulate human expertise and decision making. What might be some of the benefits and drawbacks to AI technology? Are there any ethical considerations?

Management Information Systems characteristics and features

Transactional Systems Processing (TSP) Definition: …Transaction Processing Systems (TSP) - perform the frequent routine external and internal transactions that serve the operational level of organisation… …An information system that processes an organization’s basic business transactions such as purchasing, billing and payroll… Previously based on batch processing – where processes inputs at fixed intervals as a file and operates on it all at once; interactive processing operates on a transaction as soon as it occurs

Transactional Systems Processing (TSP) Data processing – manipulation or transformation numbers and letters for the purpose of increasing their usefulness : data gathering, data manipulation: classifying, sorting, selecting etc). TSP, D(data) PS or A(analytic)IS – the first single simple systems made mainly for gathering and processing data not for decision making, operating separately in the frames of the firm; in the beginning often without common database

Transactional Systems Processing (TSP) System tended to grow independently, and not according to some grand plan. Each functional area tended to develop systems in an isolation from other functional areas. Accounting, finance, manufacturing, human resources, and marketing all developed their own systems and data files. Each application, of course, required its own files and its own computer program to operate. For example, the human resources functional area might have a personnel master file, a payroll file, a medical insurance file, a pension file and so forth until tens, perhaps hundreds, of files and programs existed. In the company as a whole, this process led to multiple master file created, maintained, and operated by separate divisions or departments.

Transactional Systems Processing (TSP) These were undoubtedly the first attempts of creating a tool which indirectly could be used to support business management. The basic advantage of such a tool was the speed of performing simple, standard large-scale operations. The basic problem which occurred then was the low level of technological development, which caused the fact that processing, before it could take place, entailed a number of complicated steps and procedures connected with the imperfection of the existing hardware and software. Additionally, this process was accompanied by considerable costs. The lack of reliability and failure rate reached in total 80% of the total working time of such a machine. Designing and processing of the program which operated on the data which were entered in the computer’s memory data was very complex.

Transactional Systems Processing (TSP) The limitations were numerous: the problem connected with entering the programme and the data to be processed by the computer, processing of the data and saving the results, distribution of the results among the engaged individuals etc. (processing speed, memory capacity, problems with design and construction of software, etc.). Each of the constructed systems was separate, which sometimes resulted in entering the same data within an organization in a multiple way and frequently in different formats. Other difficulties were: using unreliable input media with the long-term processing and separating the user from processing the data on a computer which he could only prepare. The systems were effective in the case of mass numerical calculations whose findings were interpreted „manually”. Their usefulness in supporting management was reduced to speeding up numerical calculations.

Transaction processing systems Transactional Systems Processing (TSP) - summarizing Transaction processing systems Perform and record daily routine transactions necessary to conduct business (examples: sales order entry, payroll, shipping) Allow managers to monitor status of operations and relations with external environment Serve operational levels Serve predefined, structured goals and decision making

Transactional Systems Processing (TSP) - contemporary definition and interpretation as a part of ERP Definition: a Transactional Processing system (TPS) supports the monitoring, collection, storage, processing, and dissemination of the organization’s basic business transactions. It also provides the input data for other information systems. Sometimes several TPSs exist in one company. TPSs are considered critical to the success of the organization since they support core operations, such as purchasing of materials, billing customers, preparing a payroll and shipping goods to customers. Examples: in retail stores, data flows from POS (point-of-sale) terminals to a database where they are aggregated. When a sale is completed, an information transaction reduces the level of inventory on hand, and the collected revenue from the sale increases the company’s cash position. Now this is very similar now to a part of MIS category

A Payroll TPS A TPS for payroll processing captures employee payment transaction data (such as a time card). System outputs include online and hard-copy reports for management and employee paychecks.

How Management Information Systems Obtain Their Data from the Organization’s TPS In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports.

Management Information Systems Management Information Systems from the very beginning of their existence were designed for record keeping of past and current routine information for planning, organizing and controlling operations in functional areas of a business’s activities. Management Information Systems are defined by R. M. Stair as “... an organized collection of people, processing procedures, databases, and applications used to provide standardized information for managers and decision makers ...” According to E.Turban "... Management Information System is a formal, computer system, created in order to ensure a selection and integration of distributed information from various sources to provide timely data needed for decision making in management. They are the most effective in routine, structured systems, where there are predictable types of decisions ...” These systems have had – so far – the greatest influence on the formation of management information systems.

Management Information Systems The basic logical architecture structure of MIS consisted of: end-user with interface - the collection of programmes, usually of an operation system, responsible for communication with a user, which imposes certain standards of perception and use of other software, databases with the database management system – collection of data stored according to certain organizational principles, interrelated, linked by certain defined dependencies, stored in a strictly defined way in the structures corresponding to a certain assumed data model. the software which helps to define, construct, manipulate and share database for applications and users is called a database management system. an additional element of the software may be a query language facilitating the communication with a database in terms of accepting queries, its formalization and making its result available to the decision-maker, applications – subsystems, application software consisting of a collection of instructions, whose task is to provide a user with a defined functionality (financial and accounting subsystem, warehouse subsystem, production control subsystem, etc.).

The main elements of MIS – some definitions A database (DB) – is a collectionof files serving as a data resource for computer based information systems (MIS), A batabase management system (DBMS) is a software program (or group of programs) that managesand provides access to a database Data warehouse – is a repository of historical data (millions of records), subject oriented and organized, integrated from various sources, that can easily be accessed and manipulated for decision support for example by: data mining – process of searching for unknown information or relationships in large databases using tools as neural computing or case-based reasoning (so, sometimes only mechanizms of data mining are treated as kind of intelligence – see products of SAS Institute, nothing more) An application program – a set of computer instructions written in a programming language, the purpose of which is to provide functionality to a user… 117

Management Information Systems This simple construction of logical architecture has found its application in tens of thousands of systems operating on the market, and it became the basis for building more complex systems, both in terms of adding new elements and handling a number of new features The user who is making a decision – a manager – aided by means of systems of such kind has: professional knowledge, qualifications and skills, intuition of an economist access to gathered, structured, specific data obtained from the documents which were used in the course of conducting business activity.

Management Information Systems The way to access, handle and distribute the resulting information is still relatively simple, but in order to use it we need IT knowledge: information used in the decision-making process is obtained in the form of reports (processed documents), the way of presentation and deep analyses leading to their selection and initial processing depends on the programming language and the database management system, in order to obtain the information with a specific cross-section and with a specified range you need at least basic knowledge about the structure of a database, there is a relative redundancy of the basic information obtained from a database in relation to the data required in order to make a managerial decision based on the information, there are no direct mechanisms of processing the information obtained from the database into the patterns which could be used as the basis for taking a decision.

Next step of MIS development - Integrated Systems – where may be knowledge inside them… Basic characteristics : functional complexity – i.e. the inclusion of its whole range of functions and processes going on in the organization (that does not disturb the selling of one part of the system in practice) structural compound – from one side a complex functional stimulation (the size of the system would be enough!), from the other a joining of various types of system as a whole one. considerable ease of use – all new technical gadgets are quickly added to existing systems or new versions are created which differ by, for example a more attractive user interface (“Windows-style” interfaces) common usage – all companies want to survive - minimize costs. If management information system is used in the correct way, the substantial effects cause an increase of technological interest, and with this comes an increase in common usage of such systems (it is the kind of the highest intelligence) 120

Integrated Information Management Systems Following conditions must be satisfied: common information handling for the whole organization - the information is collected only once, and sent to every processes to use it, unique collection system, transforming and information sending, unique media collection and information handling, common tools and system development procedures, unique user dialogue procedures. 121

Beginning… In 1964 – Inventory Control System – the first information system with integrated functions of: purchase, storage, distribution of commodities; in next years firstly created mainly for inwentory management in warehouses and for serial industrial production, particulary in electro-machinery branch 122

And integrated system now – ERP - functional diagram (SAP Sources) Only by „intelligence” usage of this system you can obtain proper results for your company? 123

Management Information Systems - summarizing Serve middle management Provide reports on firm’s current performance, based on data from TPS Provide answers to routine questions with predefined procedure for answering them Typically have little analytic capability

Decision Support Systems …Decision Support Systems couple the intellectual resources of individuals with the capabilities of the computer to improve the quality of decisions… …It is a computer based support system for management decision makers who deal with semistructural problems… …It is a comptuer based information system that combines models and data in an attempt to solve semistructured problems with extensive user involvment… Turban E. and R. Spraque 125

Decision Support Systems The basic definition of the decision support systems describes it as …information systems based upon computer and communication infrastructure supporting the activities of people involved in the decision-making process… The support is understood as the help provided to the decision-maker in arriving at a decision, not taking a decision instead of him or replacing him in the decision-making process. The main difference in relation to the management information systems is in the fact that thanks to DSS-class systems the decision-maker has at its disposal tools for developing a decision, apart from intuition, knowledge, skills and information. The tools usually take the form of programmes (software packages) consisting of mathematical, statistical and econometric models (or their combinations), focusing on the issues related to corporate management. It means that apart from the deterministic conditions in which the decisions were taken on the basis of verified data (or their combination) from the database. The managers can use the systems to make decisions in probabilistic situations with incomplete, random, sometimes partly erroneous or conflicting data.

Decision Support Systems - new components Model base – containing routine, standard and specialised models used for decision-making in an enterprise. From a mathematical point of view, there may appear models based on linear or non-linear dependencies, simulation, optimization models and the ones based on game theory or resulting from good management practices. From an organizational point of view models are often divided into in-built (imposed on a user) and constructed by the user from the complete components (subsystems and procedures (rules)), limited only by nomenclature of the tool supporting this process, Management system of model database – the software containing all tools which are necessary to handle and manipulate ready models, maintain the model base and their modified versions, create new models from elements and construct them according to system principles, integrate the models into one entity or combine new models with already existing ones, mechanisms coordinating the demand for processed models with the database systems, parameters and external data, to coordinate and integrate with the devices further expanding the possibilities of using the model base. Communication with the model base is performed by means of an interactive language of the model base ((specifying enquiries and requests of the end user), and the models are maintained in appropriate directories.

Decision Support Systems - new components Procedure base (solver) – programme or software package used to solve particularly complex mathematical problems arising from the constructed models (linear, non-linear, multi-criteria programming, fuzzy systems, etc.). Addressing a problem is either permanently assigned to a tested, standard model being used or – after possible consultations (usually an option) with a user, adapted to a brand new model which is created by means of mechanisms of model base management, Database and model parameters – the database, which can contain data which is necessary to run and use a model, derived from historical and current data recorded in the database (model data: parameters and coefficients), external data downloaded and entered “manually” from economic environment (sometimes together with a converter into the format of data used in the model), normalization standards, etc.).

Decision Support Systems - all components Data Management – includes the database, which contains relevant data for the situation and is managed by software called database management system (DBMS) Management system of model database – includes financial, statistical, management science or other models that provide the system’s analytical capabilities and an appropriate software management Communication Subsystem - the user can communicate with and command the DSS through this subsystem. It provides the user interface Procedure management of procedure base. This optional subsystem can support any of the other subsystem, mainly Model Management (See: Laudon, Laudon, Chapt. 12) 129

Data Management Subsystem (Database+ Management System) DSS database (the same as in MIS structure) Database management system (see MIS) Query facility The Database – collection of interrelated data organized in such a way that it corresponds to the needs and structure of an organization and can be used by more than one person for more than one application. Database Management System – is a software program to establish, update and use a model base; to screen each request for information and determine that the person making the request is indeed an autorised user. Administrator can obtain reports about that activity of users. An effective DBMS can provide support for many managerial activities, general navigation among records, support for a diverse set of data relationships, and report generation are typical examples. Query facility – provides the basis for access to data. It accepts request for data, determines how these request can be filled, formulates the detailed request, returns the results to user 130

Management system of model database All of them are elements of: BI or KM systems Model base ModelBase management system Model language Model directory Model execution, integration and command Model base – contains routine, standard and special statistical, financial, managerial and other models that provide the analysis capabilities in the DSS. The ability to invoke, run, change, combine and inspect models. The models in the Model base can be divided into four main blocks: strategic, tactical, operational and basic (model buiding blocks and subroutines) Model base management – contains all tools for model management: modeling commands – creation, maintenance-update, database interface, modeling language Model language - special set of commands which can make possible to conctruct the model ( next step natural language?) Model directory – catalog of all models in the system, whenever used Model execution, integration and command – rules of data management, dialog management and knowledge management (Compare with: Laudon, Laudon & Dass, Chapt. 12) 131

Decision Support Systems such architecture allowed for the first time to develop, not the data to make a decision, but, (in a model-based decision-making process) the suggestions of a decision which would be best from the point of view of an assumed criterion or a collection of possible decisions user options. under the circumstances, we should focus not on the technological solutions which were developed at the beginning of the period, but rather on the creation of an alternative for a decision-maker – a decision developed on the basis of the available (or selected) data versus a decision, which was suggested by the computer on the basis of the applied model problem solution. emerging opportunities of examining the effects of making various decisions, as well as the projection (forecasting) the future, or in a spatial layout are also important in this case.

Features of DSS Support for decisions makers mainly in semistructured and unstructured situations Support is provided for various managerial levels Support is provided to individuals and groups, for several independent or sequential decisions, to all phases of the decision making process Supports a variety of decision-makers processes and styles DSS is adaptive over time DSS should be easy to use (userfrendliness, flexibility, strong graphic capabilities)

Features of DSS DSS attempts to improve the effectiveness of decision making - accuracy, timeliness, quality), then its efficiency - cost, including the charges for computer time The decision maker has control over all steps the decisin-making process in solving the problem DSS leads to learning, which leads to new demands and the refinement of the system, which leads to additional learning (continuos process) DSS is relatively easy to construct (with user assistance) DSS usually utilizes models (standards, custom-made) Advanced DSS are equiped with the knowledge component – enables the efficient and effective solution of very difficult problems

The Major Benefits of DSS Abbility to support the solution of complex problem Fast response to unexpected situations that result in changed conditions. A DSS enables a thorough, quantitative analysis in a very short time. Even frequent changes in a scenario can be evaluated objectively in a timely manner Ability to try several different strategies under different configurations New insights and learning. The user can be exposed to new insights through the composition of the model and an extensive sensitivity „what-if” analysis. Training inexperiencedmanagers and other employees as well Facilitated communication. Data collection and model construction experiments are being executed with active users’ participation Improved management control and performance. DSS can increase management control over expenditures and improve performance of the organization Cost savings. Routine applications of a DSS may result in cost reduction or reducing the cost of wrong decisions Objective decisions – more consistent and objective than decisions made intuitively Improving managerial effectiveness, allowing managers to perform a task in less time and less effort

MIS and DSS MIS The main impact on structured tasks, where standard operating procedures, decision rules and information flows can be predefined Tha main payoff – improving efficiency by reducing costs, turaround time, and so on. The relevance for managers’ decisions making – indirect – for example by providing reports and access to data DSS The main impact on decisions in which there is sufficient structure for computer and analytic aids to be of value but where managers’ judgement is essential The payoff – extending the rangeand capability of computerized managers’decision processes to help them improve their effectiveness, The relevance for managers is the creation of a SUPPORTIVE TOOL, under their own control, that does not attempt to automatic the decision process, predefine objectives, or impose solutions

Information Systems for Senior Management EIS and ESS Definition: Information Systems for Managers - provide senior managers with a system to assist them in taking strategic and tactical decisions. Their purposeis to analyse, compare and highlight trends to help govern the strategic direction of a company There are commonly integrated with operational systems, giving managers the facility to „drill down” to find out further information on a problem

Information Systems for Senior Managers Two categories: Executive Information Systems (EIS) – is a computer-based system that serves the information needs of top executives. Rapid access to timely information and direct access to management reports. Very user-friendly, supported by graphics, and provides exceptions reporting and drill-down capabilities (break down data for details: daily report corporate rates can be drilled down to find the daily sales in a region, or by product, or by salesperson. Executive Support System (ESS) – is a comprehensive support system that goes beyond EIS to include communications, office automation, analysis support and intelligence issues resolving. There were somewere between a Final User and the other part of a DSS –additional tools for better decision making process – intelligent access to model base! (Compare with: Laudon, Laudon, Chapt. 12) 138

Executive Support Systems Support senior management Address nonroutine decisions requiring judgment, evaluation, and insight Incorporate data about external events (e.g. new tax laws or competitors) as well as summarized information from internal MIS and DSS Example: ESS that provides minute-to-minute view of firm’s financial performance as measured by working capital, accounts receivable, accounts payable, cash flow, and inventory

Executive Information Systems In fact, the new elements introduced by EIS systems were only the expansion of the user interface or database management system in order to offer more possibilities to organize and select data (preferably without the knowledge of the database structure) and graphic visualization of the obtained results. Graphic visualization e.g. in the form of a structural or dynamic chart meant that a decision-maker at a first glance was able to evaluate the structure of the analysed phenomenon at a particular stage of its development. Additionally, efforts were made – perhaps for the first time in the history of the IT system development – to ensure the inflow of external data in order to allow comparisons with the situation of other companies in a given sector in the country or abroad.

Executive Support Systems ESS systems, which are a kind of a mirror reflection of EIS systems (some researchers considered them to be the next stage of the development of MIS) allowed for an easier manipulation of the results obtained by means of model processing, which was sometimes reduced to a possible transfer of the results of the processing into a spreadsheet. Sometimes, however, the designers created their own software based mainly in the user’s interface.

Characteristics Quality of information: Flexible Produces correct information, timely informaton, relevant information, complete information, validated information. User interface: Includes sophisticated graphic user interface Allows secure and confidental access to information Includes a user friendly interface It’s a short response time It’s accessible from many places Minimizes keyboard use Provides quick retrieval of desired information It’s tailored to management styles of individual executives Contains self-help menu

Technical Capability Access to aggregate information Extensive use of external data Written interpretation Highlights problem indicators Ad hoc analysis Information presented in hierarchical form Incorporates graphics and text in the same display Shows trends, ratios and deviations Provides access to historical and the most current data Organized around critical success factors Provides often forecasting capability Produces information at variuos levels of details

Benefits Facilitates accesss to information Allows the user be more productive Increases the quality of decision making Provides a competetive adventage Saves time for the user Increases communication quality and capacity Provides better control in the organization Allows the anticipation of problems/opportunities Allows planning Allows finding the cause of a problem Meets the needs od executives

Model of an Executive Support System This system pools data from diverse internal and external sources and makes them available to executives in easy-to-use form.

Expert Systems Definition: Expert systems – is a computer system that applies reasoning methodologies or knowledge in a specific domain to render advice or recommendations – much like a human expert Two generations: Supported by mechanisms of DSS (from early 80.) Supported by knowledge base and knowledge management (from the end of 80. – beginning of Business Information Systems) 146

Definition: W. A. Freyenfeld described the expert system as Definition: W.A. Freyenfeld described the expert system as ...a system which contains specialised knowledge of a particular area of human activity organized in a way which made it possible to enter into a dialogue (with a user) concerning this field, on the basis of which the system can offer advice or suggestions, and explain the reasoning, which is at the core of the problem... The first ES systems (designed already in the seventies) did not contain anything new with regard to their architecture – they were based on the construction of the conditional jump (if you… –…then) or unconditional jump (go to …) which exists in many programming languages. Nevertheless, the first, not very sophisticated, systems which helped to find solutions of health problems (e.g. MYCIN) were formed almost entirely based on this principle. They were related to a specific industry or a problem, and, due to the so-formed functionality, its application was very limited.

We may observe that the second generation of expert systems, which had its foundation in the ideas of the so–called systems of artificial intelligence, has creatively developed a logical architecture construction of the previous systems. Additionally, the designers distinguished (artificially, externally in relation to the corporate structures) econometric, statistical, forecasting models etc. and they distincted models based on the latest, at the time, management achievements (Business Process Reengineering - BPR) – models of best practices of corporate management, analyses and optimization in a colloquial sense, functions and processes taking place in an enterprise, in the existing or modified organization structure of an enterprise. There appeared new structural elements

Some usable definitions… Knowledge base – a collection of facts, rules, and procedures, related to a specific problem, organized in one (the same) place Knowledge discovery in databases – the process of extracting knowledge from volumes of data in databases (e.g. in data warehouse; includes data-mining Knowledge Management System – a system that organizes, enhances and expedites intra- and inter-firm knowledge management; centered around a corporate base or depository 149

Modern Expert Systems – structure and components Knowledge acquisition subsystem Knowledge Base Inference Engine User Interface Explanation justifier Knowledge Refining (Improving) Subsystem Compare with: Laudon, Laudon & Dass, Chapt. 11, 12) 150

Modern Expert systems – structure and components Knowledge acquisition subsystem – accumulation, transfer and transformation (conversion) of problem solving expertise from some knowledge source to a computer program for constructing or expanding the knowledge base. Sources: human experts, textbooks, databases, special research reports and pictures. Knowledge Base – contains knowledge necessary for understanding, formulate and solving problem. Consists of: facts - such as the problem situation and theory of the problem area and special rules that direct the use of knowledge to solve specific problems in a particular domain, procedures – for using combined facts (or related) in frameworks of rules 151

Moodern Expert Systems – structure and components Inference Engine – brain of the ES, control structure or maybe the ruler interpreter; a computer program that provides a methodology for reasoning about information in the knowledge base and for formulating conclusions. It has three major elements: an interpreter – (rule interpreter) – which executes chosen items, by applying the corresponding knowledge rules base, a scheduler – which maintains control over the agenda. It estimates the effects of applying inference rules in light of item priorities or other criteria, a consistency enforcer – which attempts to maintain a consistent representation of the emerging solution. 152

Modern Expert Systems – structure and components User Interface – expert system contain a language processor for friendly, problem-oriented communication between the user and the computer. Could be carried out in natural language or supplemented by menus or graphics Explanation Subsystem (Justifier) – can trace responsibility for conclusions: Why was a certain question asked by the expert system? How was a certain conclusion reached? Why was a certain alternative rejected? What is a plan to reach the solution? Knowledge Refining (Improving) System - can analyse their performance, learn from it and improve it for future consultations 153

Architecture of integrated „Ideal” Expert (almost BIS) System 154

Diagnosing malfunctioning machine Expert systems Capture tacit knowledge in very specific and limited domain of human expertise Capture knowledge of skilled employees as set of rules in software system that can be used by others in organization Typically perform limited tasks that may take a few minutes or hours, e.g.: Diagnosing malfunctioning machine Determining whether to grant credit for loan This slide describes expert systems, one type of intelligent technique. Ask students why expert systems are best used in highly structured decision-making situations. Ask students to provide an example of a decision that could not be solved by an expert system. Choice of music, potential spouses or mates, new product decisions, or designing a new marketing campaign might be good examples of poorly structured decision situations.

Rules in an Expert System (or BI) This graphic illustrates the use of If/Then rules in an expert system. Ask students to demonstrate an understanding of if/then rules, by analyzing a common decision as a series of if/then statements; for example, the decision to accept an invitation to socialize on a weeknight, or the decision of what to make for dinner. An expert system contains a number of rules to be followed. The rules are interconnected; the number of outcomes is known in advance and is limited; there are multiple paths to the same outcome; and the system can consider multiple rules at a single time. The rules illustrated are for simple credit-granting expert systems.

How expert systems work Knowledge base: Set of hundreds or thousands of rules Inference engine: Strategy used to search knowledge base Forward chaining: Inference engine begins with information entered by user and searches knowledge base to arrive at conclusion Backward chaining: Begins with hypothesis and asks user questions until hypothesis is confirmed or disproved This slide continues the discussion of expert systems and describes how they work. Their key elements are their knowledge base and their inference engine. Ask students to demonstrate an understanding of the difference between forward chaining and backward chaining. For example, given a hypothesized expert system to determine what to make for dinner, what would an inference engine with forward chaining begin with? (Example, is there chicken? Is there beef? Is there broccoli, etc.? What are all the ingredients available and what could be made from them?) What would an inference with backward chaining begin with? (We are making chicken with broccoli. Do we have the ingredients?)

Inference Engines in Expert Systems This graphic illustrates the types of rules that might be used by salespeople to determine whether or not to add a client to a prospect database. Ask students to demonstrate, using this chart, what would happen to a client that was determined to have an income of $80,000 and was given Financial Advice. An inference engine works by searching through the rules and “firing” those rules that are triggered by facts gathered and entered by the user. A collection of rules is similar to a series of nested IF statements in a traditional software system; however the magnitude of the statements and degree of nesting are much greater in an expert system

Successful expert systems Countrywide Funding Corporation in Pasadena, California, uses expert system to improve decisions about granting loans Con-Way Transportation built expert system to automate and optimize planning of overnight shipment routes for nationwide freight-trucking business Most expert systems deal with problems of classification Have relatively few alternative outcomes Possible outcomes are known in advance Many expert systems require large, lengthy, and expensive development and maintenance efforts Hiring or training more experts may be less expensive This slide continues the discussion of expert systems, citing two examples of successful systems, and discussing the types of problems that benefit from expert systems as well as the potential drawbacks to implementing expert systems. Could an expert system be used to diagnose a medical condition? What might be the drawbacks to using an expert system for medical diagnosis? What happened to Country Wide Funding in the financial meltdown of 2008? It is possible that a functioning expert system can be programmed to make some bad decisions very rapidly. Could an expert system be used to diagnose a medical condition? What might be the drawbacks to using an expert system for medical diagnosis? Is it possible that a functioning expert system can be programmed to make some bad decisions very rapidly?

Expert Systems Areas (1) Interpretetion systems – infer about situation from observation: speech understanding, image analysis, signal interpretation and many types of intelligence analysis Prediction systems – include weather forecasting, demographic predictions, economic forecasting, traffic predictions, crop estimates, military, marketing or financial forecasting Diagnosytic systems – include medical, electronic, mechanical and software diagnosis Design systems – develop configurations of objects that satisfy the constraints of the design problem: circuit layout, building design, plant layout Planning systems – deal with short- and long-term planning in areas: project management, routing, communication, product development, military applications and financial planning. Monitoring systems – compare the observations of system behaviour with standards

Expert Systems Areas (2) Debugging systems - for create specifications or recommendations for correcting a diagnosed problem Control systems – adaptively govern the overall behaviour of a system: repeatedly interpret the current situation, predict the future, diagnose the causes of anticipated problems, formulate a remedial plan and monitor its execution to ensure success.

Benefits of Expert Systems Increasd output and productivity, Increased quality Strong flexibility Easier equipment operations ability to solve complex problem Elimination of the need for expensive equipment Operations in hazardous environments Increased capabilities of the other computerized systems Integration of several experts’ opinions Ability to work with incomplete or uncertain information Provision of training Enhancement (improvement) of problem solving

Managerial Advanteges of ES From the point of view of a decision-maker, expert systems provide him or her with a new tool for decision-making: apart from the structured data from a database, model solutions based on the model base there appears a third possibility: suggested solutions built on best practices of management. In each of these three cases the managers also use their expertise, skills and intuition in making business decisions. This way, he or she has better chances to make a decision-making process easier, and the final decision will provide the organization with the greatest possible benefits and it will protect the enterprise from losses.

Artificial Intelligence Systems „. AIS are like YETI, nobody, never has seen them, but everybody has heard about them ...” …Artificial Intelligence Systems – would be called intelligent; is the study of how to make computers do things at which, at the momment, people are better; subfield of computer science concerned with symbolic reasoning and problem solving… Three objectives of AIS: Make machines smarter (primary goal), Understand what intelligence is (that’s Nobel laureate purpose), Make machines more useful (the company purpose). 164

Artificial Intelligence Systems …Artificial Intelligence - capability of a device, such as a computer, to perform functions or tasks that would be regarded as intelligent, if they were observed in humans… Meanings of intelligent behaviour for IS: learn or understand from experience make sense out of ambigous or contradictory messages respond quickly and successfully to a new situation use reason in solving problems deal with perplexing (uneasy) situations understand and infer in ordinary, rational ways acquire and apply knowledge, recognize the relative importance of diffrerent elements in a situation (Turban at al. Compare with: Laudon, Laudon, Chapt. 12) 165

AIS – some benefits Pattern recognition for character, speech and visual recognition Systems that learn are more natural interfaces to the real world than systems that must be programmed Hihg fault tolerance Generalization – in work with noisy, incomplet or previously unsen input – generates reasonable response Adaptivity – learns in new environment. In our XXI century AIS were divided into: BIS – Business Information Systems, APS – Automation of Production Systems (robots included) 166

Information Technology in KM Expert Systems based on Knowledge Management Systems (early stage of BIS) are developed using three sets of technologies: communication, total integration and database managemnt systems (not only storage and retrieval but data-mining et. ceatera) Artificial Intelligence Systems – methods and tools are embeded in a number of KM systems. AI can assist identifiying expertise, eliciting knowledge, interfacing through natural languages intelligent search through intelligent systems (see: Laudon, Laudon, Chapt. 11)

Information Technology in KM AI methods used in KM systems may to do the following: Assist in and enhance searching knowledge Help establish knowledge profiles Help determine the relative importance of knowledge Identify patterns of data Forecast future results using existing knowledge Provide advice directly from knowledge by using ES (see: Laudon, Laudon, Chapt. 11)

Knowledge Discovery in Databases (KDD) KDD is a process used to search for an extract useful information from volumes of documents and data. It includes tasks known as knowledge extraction, data archeology, data exploration, data pattern processing, and so on. All of these activities are conducted automatically and allow quick discovery, even by nonprogrammers. Data often are deeply buried within very large databases, data warehouses, text documents, or knowledge repositories, all of which may contain data, information, and knowledge gathered by many years Data mining – the process of searching for previously unknown information or relationships in large databases.

Business Intelligence Systems (BIS) BI is …an analytical information system built on the basis of data warehouse together with data collection mechanisms, using different analytical tools, in particular tools for multidimensional analysis and data mining… The definition indicates the directions of changes, which occurred since the emergence of DSS or ES systems. BIS is an umbrella term that combines architectures, tools, databases, applications, and methodologies for example: data warehouse (with its „source” data), business analytics (a collection of tools for manipulationg, mining, and analyzing the external data in data warehouse), business performance management (for monitoring and analysis of performance), user (intelligent) interface

Components of Business Intelligence Systems Performance and strategy Data warehouse environment Business Analytics Environment Technical staff Build the data warehouse Organizing Summarizing Standarizing Business Users Accesss Manipulation Results Managers Executives Business Performance Management (BPM) Strategies Data Sources Data warehouse Future component Intelligent Systems User interface Browser, portal 

Case-based reasoning (CBR) in BI Descriptions of past experiences of human specialists, represented as cases, stored in knowledge base System searches for stored cases with problem characteristics similar to new one, finds closest fit, and applies solutions of old case to new case Successful and unsuccessful applications are grouped with case Stores organizational intelligence: Knowledge base is continuously expanded and refined by users CBR found in Medical diagnostic systems Customer support This slide discusses a second type of intelligent technique, case-based reasoning. What would be the difference in how a CBR system would be used in medical diagnosis versus an expert system? Ask students which of the two techniques would be better at medical diagnosis and why?

How Case-Based Reasoning Works Case-based reasoning represents knowledge as a database of past cases and their solutions. The system uses a six-step process to generate solutions to new problems encountered by the user. This graphic demonstrates the six main steps in case based reasoning. Ask the students to compare expert systems with CBR. What are the benefits and drawbacks in CBR as a technique? What types of problems lend themselves to CBR?

Data Warehousing (see: Data Base in MIS) Data flow from operational systems (CRM, ERP etc.) to a data warehouse (DW) – which is a special database, or repository of data, that has been prepared to support decision-making applications, ranging from simple reporting and quering to complex optimization The DW is constructed with methodologies, mainly metadata or data marts (branch databases) which are databases for departments (e.g marketing) or specific functions Originally included only a historical data that were organized and summarized for end-users (for easily view or manipulate data) Today some data warehouses include current date (by net) for real time decision support (collected in so called Data Marts (branch DB or Micro DB)

Development of Database Mechanisms A clear extension of a database, connected with the multitude and variety of the data processed in the systems, towards creating a data warehouse. Basically, data warehouse is an expanded corporate database with the mechanisms of data extraction from heterogeneous (including external) data sources and the solutions for their processing into a common database, which would be suitable for analysts and users making business decisions, supported by the domain or industry database (mart) and mechanisms of cooperation with analytical tools. The main tasks of the database, apart from the standard reporting and defining reports and ad-hoc queries from the user, are: statistical analyses, interactive analytical processing, data mining as well as – to a limited extent - business modelling. So – as the above shows – there occurred a qualitative change at the level of the main source of information in the system.

Business Analytics (se:e Models Base in DSS) There are many software tools for users to create on-demand reports and queries and analyze data. (common name OLAP online analytical processing) Users could analyse different dimensions of data and trends. Business users easily identify performance trends by using trend analysis and graphic tools There are three groups categories of tools: Reporting and queries – we have to do with all types of queries, discovery of information,multidimensional vew,drilldown to details and so on Advanced Analytics – include many statistical, finacial, mathematical and other models used in analyzing data and information Data, Text and Web Mining – data mining is a process of searching for unknown or nonobvious relationship or information in large databases using intelligent tools (neural computing or advanced statistical methods) on quantitative data, text, or web data.

Development of Model Base Mechanism When we compare the present system with the previous ones we observe another qualitative change with regard to the support model compared to the previous classes of systems. The so-called Business Analytics are all kinds of tools and analytical applications used for the broadly defined corporate performance management. Among the tools and applications used for performance management, we may distinguish: universal analytical tools, the tools used for the analysis of spatial data stored in the spatial information systems database analytic applications designed for specific areas of business management: financial management and strategy management, customer relationship management, human resources management, supply chain management

Business Performance Management (interpretation and advices) The final component of the BI process is based on the balanced scorecard methodology, which is a framework for defining, implementing and managing and enterprise’s business strategy by linking objectives with factual measures User interface: Dashboard and Other Information Broadcasting Tools Dashboards (like in car) organize and present information in the way that is easy to read. They present graphs, charts, and tables that show actual performance vs. desired level of metrices at the first glance (digital cockpits, corporate portals, visualizations tools).

The role of knowledge today in the U.S. economy Sales of enterprise content management software for knowledge management expected to grow 15 percent annually through 2012 Information Economy 55% U.S. labor force: knowledge and information workers 60% U.S. GDP from knowledge and information sectors Substantial part of a firm’s stock market value is related to intangible assets: knowledge, brands, reputations, and unique business processes Knowledge-based projects can produce extraordinary rate of interest

The Benefits of BIS Time savings (60%) Single version of the truth (59%) Improve strategies and plans (57%) Improved tactical decisions (56%) More efficient process (55%) Cost savings ((37%) Improved customers and partners relationships (36%) (Eckerson) Faster, more accurate reporting (81%) Improved decision making (78%) Improved customer service (36%) Increased revenue (49%) (Thompson)

U.S. Enterprise Knowledge Management software revenues, 2005-2012 The growth of sales of knowledge management software in the U.S. along with sales predictions through 2012 Enterprise knowledge management software includes sales of content management and portal licenses, which have been growing at a rate of 15% annually, making it among the fastest-growing software applications (taken from Laudon&Laudon, Chapter 11)

Case study: Application of i-CASE Tools in Ursus Factory INTELLIGENT-CASE (Computer Aided Systems Engineering) TOOLS FOR ELIMINATION OF BARRIERS TO THE SYSTEM IMPLEMENTATION

Purpose of presentation: The main purpose of presentation is analysis and identification of the possibilities of overcoming barriers to the implementation of integrated systems with the use of specialised software supporting the implementation process (I-CASE class) Brief contents: identification of the basic implementation problems discussion the possible steps to overcoming these barriers with the use of I-CASE tools and knowledge contained in reference models introduction the first concept of a knowledge management system supporting implementation process

Delays in the process of implementation Empirical research shows that there is a simple relationship between the complexity and innovativeness of a project and the feasibility of its implementation. The more innovative and complex a project is, the more likely it is that its implementation will be delayed or even discontinued. In the case of integrated systems, this rule applies now to as many as 70% - 80% of the projects.

Average scale of effectiveness of management information system implementation 1996-2008 Year Success coefficient Partial failure* Total failure Failures together 1996 16% 53% 31% 84% 1998 27% 33% 40% 73% 2000 26% 46% 28% 74% 2002 49% 23% 72% 2004 34% 51% 15% 66% 2006 29% 18% 71% 2008 35% 19% 65% 2010 32% 50% 68% Source: J. Johnson, CHAOS Rising, Standish Group, Materiały konferencyjne II-giej Krajowej Konferencji Jakości Systemów Informatycznych, Computerworld, czerwiec 2005, s. 11; Standish Group, The Standish Group Report 2007, West Yarmouth, Massachusetts, 2008 (intro version). *higher budget, or longer time, or more narrow scope of implementation

The procedure in order to overcome barriers and threats to the system implementation: : Identify the areas where such barriers appear, and the reasons why they appear Define the methods of removing these barriers Identify the barriers which can be eliminated or at least significantly reduced using the methods of knowledge management contained in the intelligent tools Identify the tools and methods used to assist the designer and implementator in this respect Create a concept of automation of the process of preventing barriers to integrated systems implementation

Organisational barriers Role of I-CASE tools in solving them 1. Problems with the correct assessment of a company’s condition Preliminary training of end-users in CASE methodology helps them understand the consultants’ expectations as to the scope and quality of the required data 2. Problems with the correct analysis of the needs In-depth training of end-users in CASE methodology is recommended. Subsequently, the main procedures describing the elementary business processes at the client’s company should be prepared by the client in cooperation with the consultants. Ideally, the client should develop such procedures using its own resources (as much as possible) with as little assistance from the consultants as possible. In this way, end-users are forced to get to know the tool well and, first and foremost, study the existing and planned procedures in depth. This approach has the following advantages: involvement of the client in the implementation from the very beginning, understanding of the main ideas and assumptions of the implementation – a common platform of understanding, making the client partly responsible for the implementation and reduction of involvement of the consultants (on the base of my own research of implementation of IFS in 12 locations and branches in Poland)

Organisational barriers Role of I-CASE tools in solving them 3. Problems with preparation of a reliable implementation schedule (plan) CASE is used indirectly – the use of this tool for problems 1 and 2 has resulted in obtaining good quality „as is” and „to be” analyses and ensured compliance with the methodology 4. Problems with defining the necessary conditions of efficient implementation 5. Problems with application of implementation methodology 6. Problems with correct preparation of documentation Problems with preparation of documentation – the application of CASE has measurable advantages – the whole processes are automatically documented as they are developed. All changes to the processes introduced during the implementation are also documented. Moreover, the tools of certain vendors allow automatic configuration of the system for end-users. As a result, a considerable part of the documentation is automated. 7. Problems with users and their selection

Organisational barriers Role of I-CASE tools in solving them 8. Problems with consultants and their selection The use of CASE allows significant reduction of the time needed for implementation and the time of work of the consultants. As a result, the existing resources (the consultants) are utilised better 9. Problems with training Problems with training. In this case, the use of CASE tools may be the best solution. On the basis of the previously developed business processes (item 2), the training needs of the client are defined, and the end-user training is focused on the aforementioned processes only. In this case, it is sufficient to study the implementation plan and determine when end-users should be trained in the particular processes. Training is based on previously prepared (item 2) models of business processes. This approach allows elimination of unnecessary elements from training, thus increasing the absorption of the remaining material. As a result, training becomes more effective and can be shorter. 10. Problems with project execution

Psychological barriers Role of I-CASE tools in solving them 11. Problems with reaching understanding between the consultants and end-users Problems with understanding – end-users and other employees of the client involved in the implementation, including the management (items 1 and 2), obtain knowledge about the CASE tool used. Subsequently, a ready-made (predefined) solution is presented and discussed. In this way, the existing and modified business models containing all basic processes functioning at a given company become a platform of understanding 12. A lack of understanding of the implementation needs Presentation of processes subject to changes with the use of CASE helps the employees understand the objectives and needs of the implementation 13. Hostile attitude of employees If the implementation process becomes faster and more efficient, the results are achieved earlier, which has an encouraging effect and increases faith in success.

Financial and technological barriers Role of I-CASE tools in solving them 14. A lack of financial means 15 . Pseudo-savings 16. Excessive customisation – tailoring of the system to the client’s needs Excessive customisation – presentation of the existing and planned business processes allows end-users to understand their nature and find the optimum solution, which increases the chances for avoiding unnecessary and costly customisations 17. A lack of security

Some conclussions The analysis presented above shows that there are several important factors which allow elimination of problems occurring during system implementation: the main one is the use of CASE tools, which is useful in 10 out of 17 cases. the second important element is the application of the remaining part of implementation methodology (which is often integrated with a CASE tool). the third factor concerns the HR issues to be considered during the implementation. the fourth one is finance factor

Transformation data into knowledge process Data accumulation in database Next by preliminary processing, it is stored in data warehouses The data undergoes transformation to prepare it for a detailed analysis Analysis is performed with the use of automatic search tools A comparison of data found with models (of behaviour, reactions) stored in intelligent systems The ultimate outcome of such comparisons is an assessment of usefulness of generalised information for management purposes and accumulation of such information, along with data, in the knowledge base Table of identified barriers Table of reasons of barriers occurence Transformation matrix I-CASE Blackboard of methods of prevention or reduction of the barriers Decision making

Architecture of system- concept User Interactive questioning mechanizm. User language Data collection. Problems described by attributes and functions Data categorisation (which are new one) Comparing with Database collection (adding new) Problem and proper solving method connection Automatic solving problem or switch to proper I-CASE tool (when we have no ready solution) Modyfying system or making new part of it Solutions Base – methods collection Questioner DataBase Identyfier Selector Evaluator I-CASE Solutions Base Stop Solver

Summary of the case It’s still work in progress The first part: identification of basic limitations of integrated system implementation, identification reasons of the problems, identification methods of their solving is over The second part: The conception is in the state of construction. Development of this concept: will lead to construction of a tool supporting the decision-making process for the end-user allowing automatic selection of a method minimising the limitations of the integrated systems implementation process.

Thank you very much for your attention! Witold Chmielarz Questions - vitec@post.pl

MANAGEMENT INFORMATION SYSTEMS Part 3 INTEGRATED ENTERPRISE SYSTEMS Prof. Witold Chmielarz, PhD , Oskar Szumski, PhD Faculty of Management University of Warsaw

Identify the challenges posed by enterprise applications. LEARNING OBJECTIVES Evaluate how enterprise systems help businesses achieve operational excellence. Describe how supply chain management systems coordinate planning, production, and logistics with suppliers. Explain how customers relationship management systems help firms achieve customer intimacy. Identify the challenges posed by enterprise applications. Describe how enterprise applications are used in platforms for new cross-functional services. This chapter looks at enterprise systems, which collect and integrate data from many different departments and systems throughout the business. Ask students to review what operational excellence is. What is customer intimacy and why does this help the business?

Private, corporate nets Platform 1 Convergence BIS ES EIS/ESS 2 DSS CRM MIS ERP II TSP/APD ERP MRP II SCM 3 MRP IC Internet Commercial nets Private, corporate nets 1950 1960 1970 1980 1990 2000 2010 Integration Year

TRENDS IN MANAGEMENT INFORMATION SYSTEMS DEVELOPMENT AND NEW CLASSIFICATION

Computerized Tools of MIS Transaction Processing Systems (TPS) 1965 Management Information Systems (MIS) 1970 Decision Support Systems (DSS) 1975 Expert Systems (ES) 1980 Executive Information Systems &Executive Support Systems – 1980+ Artificial Neural Networks 1985 (?) (ES II generation, Knowledge Based IS, Business Intelligence Systems) Integrated Enterprise Information Systems 1990 Transformed into Digital Economy Systems 2000+

The Integration in the Development of MIS The relationship between the basic IS can be presented as: · perceiving them through a perspective of separate IS, · alternating meaningful and alter, · tendency to evolution and adaptation as regards reality, · interaction and coordination between systems as regards specific applications.   We can observe the important role of the integrated systems which support office work and production, and also – now only sometimes - a complete lack of network systems here. Nonetheless, the already drawn conclusion that the main direction of development of most systems is their complex integration in direction of management support system.

The Benefits Resulting from Linking – MIS & ES In this case Expert Systems supply: supervision and review of the process of registration, retrieval and execution of information processes, simplification of a correct base management for operators, optimization of questions and search paths as well as the amount of transfer data, intelligent-interfaces-like operation in commercial deposition structured databases. In such a kind of the architecture management information system (MIS) - provides information for ES as well as simplifies core data manipulation.

Integration: MIS & ES

Integration ES & DSS Cooperation gives the following effects: possibility of logical explanation of undertaken decisions and results collected, faster accomplishment of operations, when the acquired results of the DSS are input data for ES, proper identification of the reverse situation, an increase in possibility of choice for the user – using a system of two types of compound databases as regards the required needs of the logical decision process, generation of variant solutions (DSS) and linking to them alternative functions, which should be undertaken for their retrieval. There are three possibilities: Expert System as independent component of the Decision Support System Expert System expanding the decision making process in the Decision Support System Expert System unified with the Decision Support System

Integration ES & DSS Here ES is quite a separate element of the combined system and the final user can use it only under particular circumstances – only even it is quite impossible to solve a particular problem operating on the database or model base. No direct connections between them.

Integration ES & DSS The system has links not only with management systems but - directly - with date and model bases, too. It means that the user has in fact three independent possibilities: to work with database, with the model base and with the ES. ES has no background, so the model and database in this situation acts as an additional support for its characteristics.

Integration ES & DSS Total unification of ES and DSS into an intelligent expert or knowledge system.

Integration EIS & DSS   The basic method of integrating systems, which inform management and DSS is using them with the recent information generated by EIS as input information. In more complicated cases we expect to see a loop of the reverse compound through a special intelligent interface which will allow for the creation of questions to DSS, and in the opposite direction it will send interpretations and recommendations obtained from DSS. In short we can split this process into two parts: After introductory treatment in EIS data will be used as input data to DSS, EIS is used for further interpretations of solutions achieved with the help of DSS.

Integration EIS & DSS

Integration ES & EIS It seems that these two systems are seldom (only sometimes) linked in practice EIS can return with questions to the ES in the hope of solving particular, specialist problems which they have and changes of obtaining appropriate solutions. EIS can also refer to the knowledge base or procedures base of ES in situations when their user of interface is equipped with communication mechanism, which allows them such a function. Now and again ES acts as a regular provider of reports (with a substantial grade) generated on the basis of data sent from EIS.

Integration ES & EIS

Integration EIS & MIS It is the oldest and most natural system of linking two IS. It makes full use of all the database mechanism and at the same time only extracts information, which is needed by the management in a given moment. In this way, there arises an extra method independent of the user interface on a management level. Its basic characteristics: possible ongoing observation of events in the company and its surroundings (EIS - as an intelligent interface to the database system), reverse - memory of the interpretation of the EIS results in the database.

Integration EIS & MIS

Integration Between Systems of the Same Type This kind of linking applies mainly to: ES - information exchange between systems from various categories or branches or DSS - strengthening of the functions of humble (small, weak) systems through specialized transformation systems

Integration Within Unified Enterprise Systems Therefore the basic characteristics of such systems are: functional complexity – i.e. the inclusion of its whole range of functions and processes going on in the organization (that does not disturb the selling of one part of the system in practice) structural compound – from one side a complex functional stimulation (the size of the system would be enough!), from the other a joining of various types of system as a whole one, finally making use of various technological integration. considerable ease of use – all new technical gadgets are quickly added to existing systems or new versions are created which differ by, for example a more attractive user interface. A common imposed idea about solving office problems with Windows put big pressure on systems creators, in the direction of building “Windows-style” interfaces - i.e. such that ensured ease of use for users who are accustomed to it. common usage – all companies who want to survive on the ever narrowing more competitive market look for salvage in cost minimization. Such salvage is provided by the management and production support computer system. If it is used in the correct way, the substantial effects cause an increase of technological interest, and with this comes an increase in common usage of such systems.

Integrated Management Information Systems Benefits: More productive than forming a whole system (faster in construction and correction), Eliminates completely manual handling of information, Owning a larger functionality than the simple sum of the applications functions (synergy). Scenarios: Integration of already existing applications, Building a new applications integrated with existing ones, Typical problems: Cooperation needs a common language, Organizational problems: there are various levels/platforms: -       hardware, -       operation system -       networks Organizations have various structures and development strategies and therefore functional applications, During application connection a complicated structure arises as regards the application2application connection

Integrated Enterprise Systems Following conditions must be satisfied: common information handling for the whole organization, without a dispensable surplus, which denotes, that the information about every thing is collected only once, ideally from the source, and sent to every processes which is ready to use it, unique collection system, transforming and information sending, unique media collection and information handling, common tools and system development procedures, unique user dialogue procedures.

Integrated Enterprise Systems Development 1957 in the USA - American Production & lnventory Control Society (APICS) was established - for maintaining standards of computers application in production’ organizations management In late 50. APICS made assesments for the first standard MRP (Material Requirements Planning). This standard let us compute accurate quantity of row materials (resources) adequately for flexible demand on commodities (assortment of products, articles) in time. The main goal of MRP: Inventory reduction (in warehouses and interoperational inventories), Accurate defining supply time of row materials and semi-finished articles supply Precise ddetermining of production costs, Better usage of technical (production) infrastructure, Faster reaction under environmental changes, Control of individual stages of production. 1964 – Inventory Control System – the first information system with integrated functions of purchase, storage and distribution of commodities; in next years firstly created mainly for inwentory management in warehouses and for serial industrial production, particulary in electro-machinery branch,

Integrated Enterprise Systems Development 1989 APICS create new standard MRP II (Manufacturing Resource Planning commonly used in all great integrated information systems Standard MRP II was extended (in relation with the previous one) about elements connected with sale (retail and wholesale) and functions supported strategic production management In 90. – all functions and processes were included in standard MRP II Now it takes into account all spheres of management of the firm connected with preparation of production, production planning and management and sale or distribution production goods Besides of row materials - in MRP II there were human relations, financial flows, auxiliary materials etc.

Integrated Enterprise Systems Development Mid-90 standard ERP (Enterprise Resource Planning – not approved) - Main purpose – complete integration of all levels of management of the company ERP included all proceses of production and distribution, which integrating various areas of firm activity, implementing critical – for success - information flows and let direct react for market changes Information updating - in real time and information for decision making process is accesable in that momment Additionally – procedures for simulationg variuos operations with possible analysis of their results (financial included).

Integrated Systems Development ERP areas: Customer service – database about clients, orders processing, orders service, EDI – transfer of e-documents, internet access, Production – wholesale servis, production costs calculating, purchasing materials rows, establishing time-table of production, forecasting of capabilities, calculating of critical level of inventories, process production control etc., Finance – accounting, accounting documents flow control, preparing reports according to customer needs, etc., Logistic chain itegration - connection with next subsystems CRM (Customer Relationship Management), SCM (Supply Chain Management), VRM (Vendor Relationship Manegement)

Internet area Inventory Control MRP MRP II ERP ERP II System evolution direction – total complexity Internet area Inventory Control MRP MRP II ERP ERP II 1960 1970 1980 1990 2000

Enterprise Integrated Systems Built around thousands of predefined business processes that reflect best practices Finance/accounting: General ledger, accounts payable, etc. Human resources: Personnel administration, payroll, etc. Manufacturing/production: Purchasing, shipping, etc. Sales/marketing: Order processing, billing, sales planning, etc. To implement, firms: Select functions of system they wish to use Map business processes to software processes Use software’s configuration tables for customizing This slide describes the functions in an enterprise software package and how it would be implemented by a firm. Ask students why it is typically best to perform only minimal changes to enterprise software and instead, change the way the firm works in order to conform to the software’s business processes.

Business Value of Integrated Enterprise Systems Increase operational efficiency Provide firmwide information to support decision making Enable rapid responses to customer requests for information or products Include analytical tools to evaluate overall organizational performance This slide discusses the business values of enterprise systems. What does it mean for the firm that enterprise systems enforce the use of common standardized definitions and formats for data by the entire organization.?

How Enterprise Integrated Systems Work Enterprise systems feature a set of integrated software modules and a central database that enables data to be shared by many different business processes and functional areas throughout the enterprise This graphic illustrates the function of enterprise software to integrate and share data between the different business functions.

Integrated Enterprise Systems Development ERP areas: Customer service – database about clients, orders processing, orders service, EDI – transfer of e-documents, internet access, Production – wholesale servis, production costs calculating, purchasing materials rows, establishing time-table of production, forecasting of capabilities, calculating of critical level of inventories, process production control etc. ustalanie., Finance – accounting, accounting documents flow control, preparing reports according to customer needs,etc. Logistic chain itegration - connection with next subsystems CRM (Customer Relationship Management), SCM (Supply Chain Management), VRM (Vendor Relationship Manegement)

Evolution of ERP Systems

Structure of ERP Systems

Modules overview of ERP Systems

ERP Diagram

Market share 2010 according to Gartner Dataquest No. Vendor Revenue (million $) Market share (%) 1. SAP 4726 28.7 2. Oracle Applications 1674 10.2 3. The Sage Group 1221 7.4 4. Microsoft Dynamics 616 3.7 5. SSA Global Technologies 464 2.8 6. Lawson Software 391 2.4 7. Epicor 384 2.33

ERP Advantages and Disadvantages Benefits: ERP automate business processes and enable process changes, what brings a lot benefits in operational activities such like: cost reduction, cycle time reduction, productivity improvement, quality improvement, customer service improvement, with a centralized database and build in data analysis capabilities, the system is helping in managerial activities for example: better resource management, improves decision making and planning, improves performance, ERP systems with their large-scale business involvement and internal and external integration capabilities can assist in achieving strategic benefits such as: support business growth, build business innovations, build cost leadership, generate product differentiation (including customization), build external linkages (customers and suppliers), enabling e-commerce, ERP systems has integrated a standard application architecture, which provides an infrastructure that can build business flexibility for current and future changes, IT cost reduction, increased IT infrastructure capability, the integrated information processing capabilities of ERP can support organizational changes, facilitate business learning, build common vision, change employee behavior, increase employee moral and satisfaction.

ERP Advantages and Disadvantages Personnel turnover; companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP. Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage. ERP systems can be very expensive especially for multinational companies. ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability. Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards. ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.

ERP Advantages and Disadvantages Systems can be difficult to use. Systems are too restrictive and do not allow much flexibility in implementation and usage. The system can suffer from the "weakest link" problem—an inefficiency in one department or at one of the partners may affect other participants. Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications. Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level). The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale. Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software. There are frequent compatibility problems with the various legacy systems of the partners. The system may be over-engineered relative to the actual needs of the customer.

ERP Life Cycle

Trends of ERP development ERP initiatives are most common: Upgrade. In 2008, a meaningful percentage of companies were going through major and minor upgrades of their ERP environment. Rationalize and standardize. Many diversified companies that have grown by acquisition now face a significant challenge in that they have multiple ERP vendors and installations running. To improve process consistency and reduce internal support costs, many companies have embarked on a long-term strategy to standardize on a single-instance/single-vendor ERP strategy. Multitier (multileyer). The multitier ERP strategy seems to run counter to the notion of ERP standardization but is a viable strategy for companies with a number of smaller subsidiaries. Integrate. Improving integration among applications is the leading application strategy priority among enterprise companies, representing a critical priority among 33% of companies. Integration of applications is moving from a traditional batch, flat-file mode to virtually real-time, message-based integration using SOA technologies. Expand. ERP systems have been historically hard to use and are typically deployed to a limited set of core users who enter and retrieve data from the systems on a daily basis. Alternative user interfaces - including Web-based self-service, Adobe forms, Microsoft Office, and other technologies - are more readily available now to roll out certain ERP capabilities to a broader set of less frequent users across the enterprise. Newer role-based user experience designs as well as vastly improved BI capabilities are becoming more evident, making these systems more accessible and approachable. Replace. Replacement becomes a necessity at some point, due to the technology obsolescence of older legacy systems and high levels of customization that compromise the upgrade path. ERP systems, however, typically have a useful life of 15 to 20 years or more when proactively maintained.

Supply Chain Management Systems The supply chain Network of organizations and processes for: Procuring raw materials Transforming them into products Distributing the products Upstream supply chain: Firm’s suppliers, suppliers’ suppliers, processes for managing relationships with them Downstream supply chain: Organizations and processes responsible for delivering products to customers This slide introduces the concept of the supply chain. Supply chain management software is a type of enterprise software for managing complicated supply chains that include many suppliers. The text gives the example of Nike’s sneakers’ supply chain. What types of firms are in the upstream supply chain? In the downstream supply chain?

Supply Chain Management Systems Nike’s Supply Chain This graphic illustrates the major entities in Nike’s supply chain. Ask students what the difference is between tier 1, 2, and 3 suppliers. This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.

Supply Chain Management Systems Information and supply chain management Inefficiencies cut into a company’s operating costs Can waste up to 25% of operating expenses Just-in-time strategy: Components arrive as they are needed Finished goods shipped after leaving assembly line Safety stock Buffer for lack of flexibility in supply chain Bullwhip effect Information about product demand gets distorted as it passes from one entity to next across supply chain This slide discusses the effects of timely and untimely information on a supply chain. Ask students what causes inefficiencies in a supply chain (parts shortages, underutilized plant capacity, excessive finished goods inventory, high transportation costs). These are caused by untimely information. Perfect information can results in a just-in-time strategy. Because of uncertainties, manufacturers keep a safety stock. Another effect of uncertainties is the bullwhip effect.

Supply Chain Management Systems Supply chain planning systems Model existing supply chain Demand planning Optimize sourcing, manufacturing plans Establish inventory levels Identifying transportation modes Supply chain execution systems Manage flow of products through distribution centers and warehouses This slide discusses the two main types of supply chain management systems. Ask students to describe what demand planning is (it determines how much product a business needs to make to satisfy customer demand).

Supply Chain Management Systems Global supply chains and the Internet Before Internet, supply chain coordination hampered by difficulties of using disparate internal supply chain systems Enterprise systems supply some integration of internal supply chain processes but not designed to deal with external supply chain processes Intranets and Extranets Intranets: To improve coordination among internal supply chain processes Extranets: To coordinate supply chain processes shared with their business partners This slide discusses how Internet technology has changed supply chains, allowing integration with external supply chains, using intranets and extranets. Ask students what the value is of sharing supply chain information with external supply chain partners.

Intranets and Extranets for Supply Chain Management Intranets integrate information from isolated business processes within the firm to help manage its internal supply chain. Access to these private intranets can also be extended to authorized suppliers, distributors, logistics services, and, sometimes, to retail customers to improve coordination of external supply chain processes. This graphic illustrates how an intranet can be used to integrate information from isolated business processes within the firm.

Supply Chain Management Systems Global supply chain issues Global supply chains typically span greater geographic distances and time differences More complex pricing issues (local taxes, transportation, etc.) Foreign government regulations Internet helps companies manage many aspects of global supply chains Sourcing, transportation, communications, international finance This slide discusses the additional complexities experienced by global supply chains. The text cites the example of Koret of California, which uses e-SPS Web-based software to gain end-to-end visibility into its entire global supply chain. Today’s apparel industry relies heavily on outsourcing to contract manufacturers in China and other low-wage countries. Apparel companies are starting to use the Web to manage their global supply chain and production issues.

Business Value of Supply Chain Management Systems Match supply to demand Reduce inventory levels Improve delivery service Speed product time to market Use assets more effectively Reduced supply chain costs Increased sales This slide examines the value of using SCM systems to businesses. Ask students how increase sales can result from a more efficient supply chain.

The Future Internet-Drive Supply Chain This graphic illustrates the multidirectional communications within a future supply chain driven by the Internet. Private industrial networks and net marketplaces are discussed in Chapter 10. Private industrial networks are typically a large firm using an extranet to link to its suppliers and other key business partners. Net marketplaces are digital marketplaces based on Internet technology for many different buyers and sellers The future Internet-driven supply chain operates like a digital logistics nervous system. It provides multidirectional communication among firms, networks of firms, and e-marketplaces so that entire networks of supply chain partners can immediately adjust inventories, orders, and capacities.

Customer Relationship Management Systems What is customer relationship management? Knowing the customer In large businesses, too many customers and too many ways customers interact with firm Customer relationship management (CRM) systems Capture and integrate customer data from all over the organization Consolidate and analyze customer data Distribute customer information to various systems and customer touch points across enterprise Provide single enterprise view of customers This slide introduces the concept of customer relationship management as a key function of the business and the use of CRM systems to provide a single place to consolidate and analyze data about the customer. Ask students to provide examples of the different types of customer data that would be captured by a firm. What types of valuable information does the firm need to know about its customers (most profitable, loyal customers.)

Customer Relationship Management (CRM) This graphic illustrates the functions found in the integrated applications of a CRM system. CRM systems examine customers from a multifaceted perspective. These systems use a set of integrated applications to address all aspects of the customer relationship, including customer service, sales, and marketing.

Customer Relationship Management Systems CRM software packages More comprehensive packages have modules for: Partner relationship management (PRM) Employee relationship management (ERM) Most packages have modules for Sales force automation (SFA): Sales prospect and contact information, and sales quote generation capabilities; etc. Customer service: Assigning and managing customer service requests; Web-based self-service capabilities; etc. Marketing: Capturing prospect and customer data, scheduling and tracking direct-marketing mailings or e-mail; etc. This slide discusses the types of CRM software available, which range from niche tools to full-scale enterprise-wide applications. Ask students for examples of PRM functions (Integrating lead generation, pricing, promotions, order configurations, and availability, tools to assess partners’ performances) and ERM functions (Setting objectives, employee performance management, performance-based compensation, employee training.)

How CRM Systems Support Marketing This graphic gives an example of how CRM systems can support marketing by analyzing and evaluating marketing campaigns. Customer relationship management software provides a single point for users to manage and evaluate marketing campaigns across multiple channels, including e-mail, direct mail, telephone, the Web, and wireless messages.

CRM Software Capabilities The major CRM software products support business processes in sales, service, and marketing, integrating customer information from many different sources. Included are support for both the operational and analytical aspects of CRM. This graphic illustrates the range of functions included in the sales, marketing, and service modules in a CRM package. As noted in the text, CRM software is business-process driven, incorporating hundreds of business processes thought to represent best practices in each of these areas. To achieve maximum benefit, companies need to revise and model their business processes to conform to the best-practice business processes in the CRM software.

Customer Relationship Management Systems Operational CRM: Customer-facing applications such as sales force automation, call center and customer service support, and marketing automation Analytical CRM: Analyze customer data output from operational CRM applications Based on data warehouses populated by operational CRM systems and customer touch points Customer lifetime value (CLTV) This slide discusses the two main types of CRM software – operational and analytical. Ask students how the CLTV is calculated ( it is based on the relationship between the revenue produced by a specific customer, the expenses incurred in acquiring and servicing that customer, and the expected life of the relationship between the customer and the company.)

Analytical CRM Data Warehouse This graphic illustrates the main components of analytical CRM. Data is captured from various channels and fed into a customer data warehouse, where OLAP, data mining, and other analysis tools help identify profitable customers, churn rates, etc. Analytical CRM uses a customer data warehouse and tools to analyze customer data collected from the firm’s customer touch points and from other sources.

Customer Relationship Management Systems Business value of customer relationship management Increased customer satisfaction Reduced direct-marketing costs More effective marketing Lower costs for customer acquisition/retention Increased sales revenue Reduced churn rate Churn rate: Number of customers who stop using or purchasing products or services from a company. Indicator of growth or decline of firm’s customer base This slide discusses the value to businesses of implementing a CRM system. How would marketing be made more effective by using a CRM system?

Enterprise Applications: New Opportunities and Challenges Enterprise application challenges Highly expensive to purchase and implement enterprise applications – total cost may be 4 to 5 times the price of software Requires fundamental changes Technology changes Business processes changes Organizational changes Incurs switching costs, dependence on software vendors Requires data standardization, management, cleansing This slide looks at the challenges firms face when they implement enterprise applications. Ask students to describe what switching costs are. What problems could result from being dependent on a single software vendor?

Enterprise Applications: New Opportunities and Challenges Next generation enterprise applications Enterprise solutions / suites: Replacing stand-alone enterprise, CRM, SCM systems Make these applications more flexible, Web-enabled, integrated with other systems Open-source and on-demand applications SaaS, Salesforce.com Service platform: Integrates multiple applications to deliver a seamless experience for all parties Order-to-cash process Portals: Increasingly, new services delivered through portals This slide looks at the trends in enterprise software. The text cites the example of enterprise solutions from SAP, which combines key applications in finance, logistics and procurement, and human resources administration into a core ERP component. Businesses then extend these applications by linking to function-specific Web services such as employee recruiting or collections management provided by SAP and other vendors. SAP provides over 500 Web services through its Web site. Ask students to define open-source, and on-demand. What are the benefits of service platforms?

Thank you very much for your attention! Witold Chmielarz Questions - vitec@post.pl

ERP example – IFS Applications

Basic modules Master Production Scheduling (MPS) Item Master Data (Technical Data) Bill of Materials (BOM) (Technical Data) Production Resources Data (Manufacturing Technical Data) Inventories & Orders (Inventory Control) Purchasing Management Material Requirements Planning (MRP) Shop Floor Control (SFC) Capacity planning or Capacity Requirements Planning (CRP) Standard Costing (Cost Control) Cost Reporting / Management (Cost Control) Distribution Resource Planning (DRP)

Additional functionalities Business Planning Lot Traceability Contract Management Tool Management Engineering Change Control Configuration Management Shop Floor Data Collection Sales Analysis and Forecasting Finite Capacity Scheduling (FCS)

Related systems General Ledger Accounts Payable (Purchase Ledger) Accounts Receivable (Sales Ledger) Sales Order Management Distribution Requirements Planning (DRP) [Automated] Warehouse Management Project Management Technical Records Estimating Computer-aided design/Computer-aided manufacturing (CAD/CAM)

The MRP II system integrates modules together so that they use common data and freely exchange information, in a model of how a manufacturing enterprise should and can operate. The MRP II approach is therefore very different from the “point solution” approach, where individual systems are deployed to help a company plan, control or manage a specific activity. MRP II is by definition fully integrated or at least fully interfaced.

MRP II systems can provide: Better control of inventories iImproved scheduling Productive relationships with suppliers For Design / Engineering: Improved design control Better quality and quality control For Financial and Costing: Reduced working capital for inventory Improved cash flow through quicker deliveries Accurate inventory records Timely and valid cost and profitability information

ERP Enterprise resource planning (ERP) is an integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources It is a software architecture whose purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders ERP is built on a centralized database and normally utilizing a common computing platform, consolidate all business operations into a uniform and enterprise wide system environment

IFS App Component Chart

Example – IFS App for automotive industry CRP (Capacity Requirements Planning) - planowanie zdolności produkcyjnych PDM Product data management PLM Product lifecycle management

Example – IFS App for aviation

Example – IFS App for Defence Basic Data Required (BDR)

Example – IFS App for telecommunications

Thank you very much for your attention! Witold Chmielarz Questions - vitec@post.pl

MANAGEMENT INFORMATION SYSTEMS Part 4 e-COMMERCE AND e-BANKING Prof. Witold Chmielarz, PhD , Oskar Szumski, PhD Faculty of Management University of Warsaw

LEARNING OBJECTIVES Identify the unique features of e-commerce, digital markets, and digital goods. Describe how Internet technology has changed business models. Identify the various types of e-commerce and explain how e-commerce has changed consumer retailing and business-to-business transactions. Evaluate the role of m-commerce in business, and describe the most important m-commerce applications. Identify the principal payment systems for electronic commerce.

Information Society – Ultimate Goal of Development …An information society is a society in which the creation, distribution, diffusion, use, integration and manipulation of information is a significant economic, political, and cultural activity… …The knowledge economy is its economic counterpart whereby wealth is created through the economic exploitation of understanding… E-Commerce is only small part of it…

e-Commerce Definitions …Electronic Commerce (E-Commerce) is an artificial socio-economic structure, functioning based on widely used virtual nets, dynamic complexity and specific infrastructure. From this definition, it can be derived, that this structure cannot be directly transferred to the physical world, but some elements as payments and commodities originate from this world. In some areas of science, E-Commerce is defined as virtual commerce, although the prior is considerably wider as it includes processes such as telephone transactions… (B. Kubiak, Korowicki A. 1999) ...An emerging concept that describes the process of buying and selling or exchanging of products, services, and information via computer networks including the Internet ... (Turban, at all 2000),

e-Commerce Definitions ...To include only business transactions that deal with customers and suppliers, and it is often described in terms of the Internet, implying that there are no other communications alternatives ... (McLeod,...2001) ...The sharing of business information, maintainin business relationships, and conducting business transactions by means of telecommunications networks … (Zwass, 1998) ...E-commerce – exchange the information across electronic networks, at any stage in the supply chain, whether within an organization, between businesses (B2B), between businesses and consumers (B2C), or between the public and private sector, whether paid or unpaid... (UK government),

E – Enterprise - the most fundamental element of the E-Commerce is E- Enterprise The most frequently it is be described as an institutional unit possessing ability to exchange goods – capital, information, products and services, in an electronic manner In practice, it can be the source (producer), interacting part of trade chain, as well as the organizer (online auctions for example) of transactions taking place in the Internet. E – Marketplace is an online marketplace where buyers and sellers meet to exchange products, services, or information Electronic markets can be supplemented by intra-organizational (intranets) or inter-organizational (extranets) information systems

E - Transactions can be best defined as the ability of consumers to purchase products and services in the e-marketplace using Internet technologies and infrastructure. The Internet is rapidly becoming the medium through which a large share of communications and commerce takes place. Online transitions are the new means of conducting business, which are taking over the traditional ones. Despite the recent dot.com bubble burst, online transactions have become one of the main ways to do business, to buy goods and services. They are an important mean of communication for governmental institutions.

e-Commerce from Perspectives: Communication perspective – EC is delivery of information, product/services, or payments over telephone lines, computer networks, or any other electronic measns, Business process perspective – EC is the application of technology toward the automation of business transactional and work flow, Service perspective – EC – is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery, An online perspective – the buying and selling of products and information online. (Kalakota and Winston, 1997)

Electronic Commerce and the Internet (Laudons…) E-commerce Use of the Internet and Web to transact business Digitally enabled transactions History of e-commerce Began in 1991 and grew exponentially; still growing at an annual rate of 16 percent Rapid growth led to market bubble 1999 While many companies failed, many survived with soaring revenues 2002 E-commerce today the fastest growing form of retail trade in U.S., Europe, Asia This slide discusses what e-commerce is, and what the state of e-commerce is today. The text states that e-commerce history mirrors those of other technology innovations. What other innovations is e-commerce similar to? The book discusses new trends in e-commerce. Ask the students to describe some of these trends.

The Growth of E-Commerce This graphic illustrates the continuing growth of e-commerce. The dot-com bubble burst in March 2001. Retail e-commerce revenues have grown exponentially since about 1991 and have only recently “slowed” to a very rapid 16% annual increase, which is projected to remain the same until the end of 2012

Electronic Commerce and the Internet Eight unique features of e-commerce technology: Ubiquity - Internet/Web technology available everywhere: work, home, etc., and anytime Global reach - the technology reaches across national boundaries, around Earth Universal standards - one set of technology standards: Internet standards Richness - supports video, audio, and text messages (multi-) This slide discusses reasons why e-commerce has grown so quickly – because of the unique nature of the Internet and e-commerce, which are richer and more powerful than previous technology revolutions like radio and TV. Ask students what the effects are of the four features listed on this slide. Ubiquity: Marketplace removed from temporal, geographic locations to become “marketspace”. Enhanced customer convenience and reduced shopping costs Global reach: Commerce enabled across cultural and national boundaries seamlessly and without modification. Marketspace includes, potentially, billions of consumers and millions of businesses worldwide. Universal standards: Disparate computer systems easily communicate with each other. Lower market entry costs—costs merchants must pay to bring goods to market. Lower consumers’ search costs—effort required to find suitable products. Richness: Possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people. Video, audio, and text marketing messages can be integrated into single marketing message and consumer experience.

Eight unique features (cont.) Interactivity - the technology works through interaction with the user Information density - vast increases in information density—the total amount and quality of information available to all market participants Personalization/Customization - technology permits modification of messages, goods Social technology - the technology promotes user content generation and social networking This slide continues the discussion of the unique features of the Internet and e-commerce. Ask students what the effects are of the four features listed on this slide. Interactivity: Consumers engaged in dialog that dynamically adjusts experience to the individual. Consumer becomes co-participant in process of delivering goods to market. Information density: Greater price transparency. Greater cost transparency. Enables merchants to engage in price discrimination. Personalization/Customization: Personalized messages can be sent to individuals as well as groups. Products and services can be customized to individual preferences. Social technology: New Internet social and business models enable user content creation and distribution, and support social networks.

Key concepts in e-commerce Digital markets reduce Information asymmetry Search costs Transaction costs Menu costs Digital markets enable Price discrimination Dynamic pricing Disintermediation This slide introduces digital markets and discusses the effects of digital markets on the ways companies conduct business. Ask students to define the terms listed here, and also to explain how each of these effects (lowered information asymmetry, etc.) are created by digital markets. Information asymmetry: when one party in a transaction has more information that is important for the transaction than the other party Search costs: The effort to find suitable products Transaction costs: The cost of participating in a market Menu costs: Merchants’ costs of changing prices Price discrimination: Selling the same goods, or nearly the same goods, to different targeted groups at different prices. Dynamic pricing: The price of a product varies depending on the demand characteristics of the customer or the supply situation of the seller Disintermediation: The removal of organizations or business process layers responsible for intermediary steps in a value chain

The Benefits of Disintermediation to the Consumer This graphic illustrates how disintermediation reduces prices to consumers. It also allows manufacturers to earn more profit for the product. The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer.

Key concepts in e-commerce Digital goods Goods that can be delivered over a digital network - e.g., music tracks, video, software, newspapers, books Cost of producing first unit almost entire cost of product: marginal cost of producing 2nd unit is about zero Costs of delivery over the Internet very low Marketing costs remain the same; pricing highly variable Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.) This slide continues the discussion of key concepts in e-commerce, looking at digital goods and how these compare with traditional goods. Ask students how their purchases of digital goods have changed over the past five years. Are digital goods equal in value to their traditional counterparts? What benefits and drawbacks do they have?

Internet business models Pure-play models - internet is primary mode of operation Clicks-and-mortar models (a type of business model that includes both online and offline operations, which typically include a website and a physical store. A click-and-mortar company can offer customers the benefits of fast, online transactions or traditional, face to face service=clicks&brick - see: Clicks&Bricks - offline and online operations, but Bricks&Mortar – only offline operations) Social Networks Online meeting place Social shopping sites Can provide ways for corporate clients to target customers through banner ads and pop-up ads Online marketplace: Provides a digital environment where buyers and sellers can meet, search for products, display products, and establish prices for those products This slide and the next several slides discuss new business models that are enabled by the Internet and e-commerce. While many of the new business models are pure-play, some, especially in the retail industry, are clicks-and-mortar. Some of the new models take advantage of the Internet’s communication capabilities, such as the social networking sites. Ask students what other sites take advantage of the Internet’s communication abilities. Ask students to differentiate between banner ads and popup ads.

Content provider Providing digital content, such as digital news, music, photos, or video, over the Web Online syndicators: Aggregate content from multiple sources, package for distribution, and resell to third-party Web sites Service provider Provides Web 2.0 applications such as photo sharing and interactive maps, and services such as data storage Portal “Supersite” that provides comprehensive entry point for huge array of resources and services on the Internet This slide continues the discussion of new Internet business models. Ask students to give examples of these business models. Ask how these business models create revenue. Content provider – Access fees, advertising Portal – Advertising Service provider – subscription, advertising

Virtual storefront: Sells physical products directly to consumers or to individual businesses Information broker: Provides product, pricing, and availability information to individuals and businesses Transaction broker: Saves users money and time by processing online sales transactions and generating a fee for each transaction This slide continues the discussion of Internet business models. Ask students how each of these models creates revenue and ask them to provide an example of that business model.

Types of Electronic Commerce Business-to-consumer (B2C) Business-to-business (B2B) Consumer-to-consumer (C2C) Mobile commerce (m-commerce) This slide introduces the types of e-commerce. B2C, B2B, and C2C e-commerce are categorized according to the nature of the participants. M-commerce is a category based on the nature of the connection to the Internet. Ask students to provide examples of the different types of e-commerce listed here.

Types of e-Transactions: Business-to-Customer (B2C) – includes retail transactions of products, services or information from business to individual shoppers. The typical example is a shopper at Amazon.com or Merlin.com.pl Business-to-business (B2B) – trade contacts based not only on search for new customers and target markets, but also the search for: partners to invest jointly, building optimized supply chain, trade information, building cooperational nets, and acquiring know-how. This type of transaction is commonly supported by traditional means of communication such as phone calls, meetings and faxes. Today, over 85% of EC volume is B2B. Cunningham, M. S. (2001). How to Build a Profitable E-Commerce Strategy. Cambridge: Perseus Pub.

Types of e-transactions: Customer-to-customer (C2C) – in this type of transaction, customers sell directly to other customers. A great example of customer-to-customer is an online auction, like Ebay.com or Allegro.pl, that faciliate trade among individual customers. Mobile Commerce (M-Commerce) – transactions and activities conducted entirely or partially in a wireless environment.

What else? (types of e-transactions): Customer-to-business (C2B) – this category includes individual customers who use the Internet to sell goods to organizations, as well as individuals who seek sellers to make bids on their products or services. Priceline.com, an online travel agency, where customers define price that they want to pay, is a typical example of C2B.

What else? (types of e-transactions): E-learning – training or education is provided online. Green Industries Institute which will be analyzed in is an example of e-learning. E-Goverment – happens when governmental entity buys or provides information, service or product to individual citizens (G2C) or to businesses (G2B). Full information and database of tax forms on Internal Revenue Services (IRS) web site is an example of both G2C and G2B.

IOS and e-Market Features Customer relationship is determined in advance with anticipation it will be an ongoing relationship based on multiple transactions IOS may be built around private or publicly accesible networks Advance arrangements result in agreements on the nature and format of business documents that will be exchanged and payments Advance arrangements are made so both parties know which communication networks will be integral to the system Joint guildelines and expectations of each party are formulated so each knows how the systemis to be used and when transactions will be submited and received by each business partner Two types of relationships may exist: Customer/seller linkage is established in time of transactions and may be for one transaction only (just purchase), Customer/seller purchase agreement is establish for a defined period (a subscribtion transaction) Electronic markets are built around publicly accesible networks Sellers determine, in conjunction with the market maker which business transactions they will provide Customers and sellers independently determine which communication networks they will use in participating in the electronic market. The network used may vary from transaction to transaction, No joint guideliness are drawn in advance THE BASE OF B2B THE BASE OF B2C and the others

Interactive marketing and personalization Web sites are bountiful source of details about customer behavior, preferences, buying patterns used to tailor promotions, products, services, and pricing Clickstream tracking tools: Collect data on customer activities at Web sites Used to create personalized Web pages Collaborative filtering: Compares customer data to other customers to make product recommendations This slide introduces the use of Internet-based techniques for achieving greater customer intimacy. Ask students for examples of clickstream tracking and collaborative filtering tools in action (Amazon’s recommendations for new products). Ask students to describe the types of information that can be gleaned about their habits from a web site.

Has increasing influence in politics, news Blogs Personal web pages that contain series of chronological entries by author and links to related Web pages Has increasing influence in politics, news Corporate blogs: New channels for reaching customers, introducing new products and services Blog analysis by marketers Customer self-service Web sites and e-mail to answer customer questions or to provide customers with product information Reduces need for human customer-support expert This slide continues the discussion of Internet-based techniques for enhancing customer intimacy. Ask students to explain why marketers are looking to analyze blog content, and content from chat rooms and message boards. Ask students to describe and evaluate their experiences in using any Web-based customer self-services, such as FedEx or UPS package tracking.

B2B e-commerce: New efficiencies and relationships Electronic data interchange (EDI) Computer-to-computer exchange of standard transactions such as invoices, purchase orders Major industries have EDI standards that define structure and information fields of electronic documents for that industry More companies increasingly moving away from private networks to Internet for linking to other firms E.g., Procurement: Businesses can now use Internet to locate most low-cost supplier, search online catalogs of supplier products, negotiate with suppliers, place orders, etc. This slide looks at changes brought to B2B e-commerce by Internet technologies. Note that the Internet and Web technology enable businesses to create new electronic storefronts for selling to other businesses with multimedia graphic displays and interactive features similar to those for B2C commerce. Alternatively, businesses can use Internet technology to create extranets or electronic marketplaces for linking to other businesses for purchase and sale transactions.

Electronic Data Interchange (EDI) This graphic illustrates how EDI is used by firms and their suppliers to automate transactions for both B2B e-commerce and continuous replenishment. Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment. Suppliers can automatically send data about shipments to purchasing firms. The purchasing firms can use EDI to provide production and inventory requirements and payment data to suppliers.

Private industrial networks (private exchanges) Large firm using extranet to link to its suppliers, distributors and other key business partners Owned by buyer Permits sharing of: Product design and development Marketing Production scheduling and inventory management Unstructured communication (graphics and e-mail) This slide continues the discussion of ways the Internet and Web technologies have changed B2B e-commerce. One way is in using an extranet to link to the firm’s suppliers. The text provides the example of VW Group Supply, which links the Volkswagen Group and its suppliers. VW Group Supply handles 90 percent of all global purchasing for Volkswagen, including all automotive and parts components.

A Private Industrial Network This graphic illustrates a private industrial network, and how it can link to both suppliers and distributors. A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities.

Net marketplaces (e-hubs) Single market for many buyers and sellers Industry-owned or owned by independent intermediary Generate revenue from transaction fees, other services Use prices established through negotiation, auction, RFQs, or fixed prices May focus on direct or indirect goods May support long-term contract purchasing or short-term spot purchasing May serve vertical or horizontal marketplaces This slide continues the discussion of ways the Internet and Web technologies have changed B2B e-commerce, in this case by the ability to create Net marketplaces. Ask students to distinguish between and provide examples of direct and indirect goods. (Direct goods are goods used in a production process, such as sheet steel for auto body production. Indirect goods are all other goods not directly involved in the production process, such as office supplies or products for maintenance and repair.) Ask students to distinguish between vertical and horizontal marketplaces.

A Net Marketplace This graphic illustrates a net marketplace, and the functions that it can provide to participants in managing their transactions. The text provides the example of Exostar, an aerospace and defense industry-sponsored Net marketplace that focuses on long-term contract purchasing relationships and on providing common networks and computing platforms for reducing supply chain inefficiencies. More than 16,000 trading partners in the commercial, military, and government sectors use Exostar’s sourcing, e-procurement, and collaboration tools for both direct and indirect goods. Net marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers.

Exchanges Independently owned third-party Net marketplaces Connect thousands of suppliers and buyers for spot purchasing Typically provide vertical markets for direct goods for single industry (food, electronics) Proliferated during early years of e-commerce; many have failed Competitive bidding drove prices down and did not offer long-term relationships with buyers or services to make lowering prices worthwhile This slide continues the discussion of ways the Internet and Web technologies have changed B2B e-commerce, in this case by the ability to create exchanges. The text provides the example of FoodTrader.com, which automates spot purchases among buyers and sellers from more than 180 countries in the food and agriculture industry.

M-commerce services and applications Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily growing Location-based services Banking and financial services Wireless Advertising Games and entertainment This slide introduces m-commerce, the use of wireless mobile devices for purchasing goods and services. M-commerce is especially well-suited for specific types of applications and services. Ask students what applications and services they use with their cell-phones. Have any purchased games or entertainment, and from what companies?

Global M-commerce Revenue 2000-2012 This graph illustrates the steady growth of m-commerce sales. Have any of the students purchased something using their cell phone or mobile laptop computer? M-commerce sales represent a small fraction of total e-commerce sales, but that percentage is steadily growing.

M-Commerce Limitations in mobile’s access of Web information Data limitations Small display screens Wireless portals (mobile portals) Feature content and services optimized for mobile devices to steer users to information they are most likely to need This slide continues the discussion of m-commerce. Ask students what their experience is of the data limitations and display screens for their mobile phones. Do any use wireless portals, and if so, which ones?

e-Banking e-Banking - complex of information systems for maintenance: e-Banking - form of bank services to facilitate access to customers’s account with computer or the other electronic devices and connections (Council of e-Banking) e-Banking - complex of information systems for maintenance: home and office banking tele-banking credit cards automatic teller machines ATM virtual transactions. (Janc, Kotlinski) e- Banking - electronic net and information bank systems usage for client’s convenience in tradictional and modern payment systems. The ultimate purpose is creation bank-accounting system without the paper (Chmielarz)

e-Banking Electronic banking (cyberbanking) – includes various banking activities conducted from home, business, or on the road, instead of at physical bank location. E-banking – has capabilities ranging from paying bills to securing a loan electronically It started with the use of propriety software and private networks but was not particularly popular until the emergence of the Internet Allows customers to access their accounts and execute orders through a simple-to-use Web site It is inexpensive alternative to branch banking and a chance to enlist remote customers (Turban)

Some of the advanteges of e-banking: Get current account balances at any time – you can easily check the status of your checking, savings, and money market accounts Obtain charge and credit card statements – you can even set up your account to pay off cards automatically every month Pay bills – electronic payments from your accounts are normally credited the same day or the next. The cost of paying bills electronically may well be less than the postage involved in sending out a large number of payments each month Download account transactions – it’s easy to import them directly with the money transfer system Transfer money between accounts Balance your accounts Send e-mail to your bank A new meaning for „banker’s hours” – in any time, any place Handle your finances when traveling Additional services – for example free phone banking

Internet-banking: part of e-Banking services realized only by Internet Virtual banking: part od e-banking realized ONLY and EXCLUSIVELY by net (maybe Internet, too) e-Banking Internet Banking Virtual Banking

e-Banking = home-banking + office banking + selfbanking + interbanking (clearing systems) + POS (point of sales) + finance transfere nets + e-Payments

Phases of information systems in banks development – some stages Archaic phase, where the communication is based one by one on the mail, telegraph, telephone - from the second-half of the XIX century to the second-half of the XX century, Preliminary phase of communication computer-support - 1956-1964, Early phase of the electronic data processing systems based on batch processing - 1965-1969, Phase of the intense development of Management Information Systems - 1970-1977, Productive phase of systems as: Decision Support Systems, Expert Systems, Executive Information Systems, video-data - 1978-1985, Phase of technological changes - 1986-90, Phase of application integration on the basis of computer techniques and the telecommunications on the basis of the modem communication - 1990-1995, Phase of remote systems - electronic banking - from 1992, Phase of global systems - online and virtual banking - from 1996; to now

Electronic banking based on communication channels of distribution can be divided as follows: Online banking (through viewer of web pages), Dedicated computer banking (by specialist providing software installed locally on a computer), Telephone banking (verbal communication and IVR), Portable banking (communication using WAP technologies, SMS), Terminal banking (cash machines, self-service stands, POS), Television banking (access by digital television);

Online banking (Internet banking) Most important and most developing electronic banking communication channel is online banking (internet banking) Its success is gained from Internet development all over the world. One of its main criteria is servicing bank accounts through World Wide Web browsers It is not necessary to install specific software as in PC banking

Dedicated computer banking (PC banking) Communication is set up between bank servers and dedicated software installed on customer’s PC over modem line, ISDN, LAN etc. Customer connected to bank system downloads data and execute operations on his own PC Generated operations are being sent to bank server. PC banking cannot be know as internet banking even if user is connected to bank server via internet broadband connection. In technical literature there are lots of terms describing PC banking: home banking, office banking and electronic corporate banking.

Telephone banking Another kind of communication channel is telephone banking, which uses voice communication to act bank operations. There are two main brands of this communication. Call center as two way voice communication and IVR (Interactive Voice Response) as one way voice communication. Stationary and cell phones can be used for telephone banking, but also it can be replaced by internet telephony

Portable banking Portable banking differs from another communication channels with special non-voice technologies prepared for all kind of communicators, cell phones, PDA etc. Its practical usage is customized now to SMS, WAP technology and applications preinstalled on portable devices as Java

Terminal banking channel Terminal banking channel (self-banking) is used on terminals provided by banks in public areas It is used for cash withdraws, checking account balance and executing account operations (bank transfers) Other and more functional terminals are multimedia kiosks. It gives ability to use many communication channels as internet banking (access to WWW), telephone banking (free IVR and call center phone) with possibility to cash withdraw It can be said that multimedia kiosk combines three of communication channels, but main factor placing it to terminal banking channel is that multimedia kiosks are offered in fixed localizations For the simplest terminal banking channel we classify electronic points of sale (POS) POS services purchase transactions in shops, trade markets which have card readers Its functionality is limited to authorize payments

The types of models of electronic banking are next important criterion of identification: multi-channel model (using the network of bank units and electronic channels), model of the virtual bank (not-using the net of bank units), model of the financial bank-supermarket (aggregation of financial services in the Internet)

Multi-channel model (Bricks & Clicks) it is model of the offering all channels of distribution. Most important feature is that this model supports all kinds of distribution channels. Model of the virtual bank (Clicks only) relies on basing activity of the bank exclusively on electronic banking. Therefore the most important feature favouring the virtual banking is resignation from bank departments. In this model, Internet and cash machines are main channels of distribution. Definitely a model of the financial bank-supermarket is different. This model consists taking the adviser and the financial intermediary in the Internet. In this model its brand and the transaction online service are basic capital of the bank - often determined as “front end”. Bank is using outsourcing.

Bank’s cost transactions via different channels of distribution Cost of one transaction US$ Traditional bank branch 1,07 Phone banking 0,54 ATM 0,27 Electronic banking 0,015 Internet banking 0,01 (Booz, Allen & Hamilton (banking sector - USA))

Electronic Commerce Payment Systems Types of electronic payment systems: Digital wallet Stores credit card and owner identification information and enters the shopper’s name, credit card number, and shipping information automatically when invoked to complete a purchase Accumulated balance digital payment systems Used for micropayments ($10 or less) Accumulating debit balance that is paid periodically on credit card or telephone bills This slide introduces the types of electronic payment systems used to pay for goods on the Internet. Ask students which of these payment systems they have used, and to evaluate the system’s ease of use.

Electronic Commerce Payment Systems Stored value payment systems Enable online payments based on value stored in online digital account May be merchant platforms or peer-to-peer (PayPal) Digital checking Extend functionality of existing checking accounts to be used for online payments Electronic billing presentment and payment systems Paying monthly bills through electronic fund transfers or credit cards This slide continues the look at the different types of electronic payment systems. Have any students used electronic billing?

Electronic Commerce Payment Systems Digital payments systems for m-commerce: Three types of mobile payment systems in use in Japan Stored value system charged by credit cards or bank accounts Mobile debit cards Mobile credit cards This slide looks at payment systems used in m-commerce. Note that in Europe and Asia, phones are integrated into a large array of financial institutions, while in the U.S. cell phone service resides behind a “walled garden” of telephone providers.

The Internet - a real sales channel? Yes, for it represents a really competitive edge: Opportunity to market products and services without any middleman or intermediary, so with higher margins Adapted to non-perishable goods, but less to perishable ones The sectors that have benefited from e-commerce (from DirectPanel, 2007): cultural products (CD’s, DVD’s) 75% (penetration rate) computer products 58% tourism 57% clothing 53% electrical appliances 39%

The Internet a pre-sales channel? Real estates agents soon realised the interest of websites to advertise their offers. The purchase cannot be done online, but helps a lot. Counselling matters, for prices may be high. e-Commerce spreads as confidence in the purchasing process is built. New economic models are developed, which also marginally benefits traditional sales channels

The Benefits of EC (to Organizations) Expands the marketplace to national and international markets. With minimal capital outlay, a company can easily and quickly locate more customars, the best suppliers and business partners worldwide, Decreases the costs of creating, processing, distributing, storing and retriving paper-based information (administrative costs to 85%, electronic payments are 95% cheaper and so on), Allows reduced inventories and overhead by facilitationg current („pull”) type supply management. In the system process starts from customer orders and uses just-in-time manufacturing This processing enables expensive customization of the products and services which provides competitive advantage to its implementers. Diminishing telecommunication cost (internet much cheaper than commerce nets Improved image, improved customer service, newfound business partners, simplified processes, increased productivity, eliminating paper, expending access to information, reduced transportation costs, increased flexibility.

The Benefits of EC (to Consumers) Enables customers to shop or do other transactions 24 hours a day, all yer around, from almost any location, Provides customers with more choices, they can select from many vendors and from mare products, Frequently provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparison, In some cases, especially with digitized products, EC allows quick delivery, Makes it possible to participate in virtual auctions, Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiensces, Facilitates competition, which results in substantial discounts

The Benefits of EC (to Society) Enables more individuals to work at home and to do less traveling for shopping, resulting in less traffic on the roads and lower air pollution, Allows some merchandise to be sold at lower prices, so less affluent people can buy more and increase their standard of living, Enables people in Third World countries and rural areas to enjoy product and services that othervise are not available for them, This includes opportunities to learn professions and earn college degrees. EC facilitates delivery of public services – health care, education, distribution of government social services (cost reduction, improved quality)

The Limitations of EC - Technical There is a lack of system security, reliability, and some communications protocols, The software development tools are still evolving and changing rapidly, It’s difficult to integrate the Internet and EC software with some existing applications and databases, Vendors may need special Web servers and other insfastructures, in additions to the network servers, Some EC software might not fit with some hardware or may be incompatible with some operating systems or other components

The Limits of EC – Non-Technical Costs and justifications – in house it may be very high, and mistake due to lack of experience may result in delays (34, 8%), Lack of trust and user resistance – customers do not trust an unknown faceless seller, paperless transactions and electronic money (4,4%). Other limiting factors: Many legal issues are as yet unresolved, and government regulations and standards are not refined enough for many circumstances, EC, as a discipline, is still evolving and changing rapidly. Many people are looking for more stable area before they enter into it, There are not enough support services (clearance centers for EC transactions, tax centers etc.), In most applicationss there are not yet enough sellers and buyers for profitable EC operations, EC could result in a breakdown of human relations, Access to the Internet is still expensive and/or inconvenient for many potential customers.

The Limits of New Technologies A certain feeling of intrusion and defiance. New channels of communication appeared thanks to new technologies, which has resulted in a new relationship with customers. From the customer’s point of view: Lack of familiarity with new technologies The web has sometimes become the only way of accessing and giving information. What about the people who are not connected? Changing consumption habits and modes takes time. Some reluctances may be explainable, other ones illogical

The Limits of New Technologies Sociological limits - fears: Fear of paying online is the number one hindrance to the development of online commerce (this trend is being reversed). In 2006, more than 90% of the people interviewed considered online payments potentially unsafe. 38% mentioned the fear not to have any interlocutor in case of a problem. The opportunity to be able to buy anything, anywhere, offsets the fear of paying online. Another fear among webusers: the fear of seeing one’s banking data hacked.

The Limits of New Technologies Sociological limits - fears: Fear of viruses or infringement on privacy Fear of receiving executable files which would disrupt the computer’s functions Fear of worms, likely to paralyse your computer Fear of Trojan horses likely to bypass your computer’s security systems and allow it to be penetratedFear of tracking: collecting information on a webuser with or without his/her being aware of it Fear of spyware Multiplication of online questionnaireHacking of personal data

Examples of Electronic Payment Systems for e-Commerce

Thank you very much for your attention! Witold Chmielarz Questions - vitec@post.pl