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Lecture 1

Meaning and Role of Information Systems

As a consumer, you have instant access to millions of pieces of data. With a few
clicks of the mouse button, you can find anything from current stock prices and video
clips of current movies. You can get product descriptions, pictures, and prices from
thousands of companies across India and around the world. Trying to sell services and
products? You can purchase demographic, economic, consumer buying pattern, and
market-analysis data. Your firm will have internal financial, marketing, production,
and employee data for past years. This tremendous amount of data provides
opportunities to managers and consumers who know how to obtain it and analyze it to
make better decisions.
Today information systems are everywhere; from supermarkets to airline reservations,
libraries and banking operations they have become part of our daily lives.
The first step in learning how to apply information technology to solve problems is to
get a broader picture of what is meant by the term information system. Computers are
only one component of an information system. A computer information system (CIS)
consists of related components like hardware, software, people, procedures, and
collections of data.
The goal of Information System is to enable managers to make better decisions by
providing quality information.
The term information technology (IT) represents the various types of hardware and
software used in an information system, including computers and networking
The physical equipment used in computing is called hardware.
The set of instructions that controls the hardware is known as software.
In the early days of computers, the people directly involved in are tended to be
programmers, design analysts, and a few external users. Today, almost everyone in
the firm is involved with the information system.
Procedures are instructions that help people use the systems. They include items such
as user manuals, documentation, and procedures to ensure that backups are made
Databases are collections of related data that can be retrieved easily and processed by
the computers.

Quality is an important issue in business today, particularly as it relates to

information systems. The quality of an information system is measured by its ability
to provide exactly the information needed by managers in a timely manner. The
information must be accurate and up-to-date.
Users should be able to receive the information in a variety of formats: tables of data,
graphs, summary statistics, or even pictures or sound:

Framework for Business End Users

The field of information systems encompassses many complex technologies, abstract
behavioral concepts, and specialized applications in countless business and non
business areas. Thus, you should concentrate your efforts in five areas of knowledge:
• Foundation Concepts: Fundamental behavioral and technical concepts

• Technology: Major concepts, developments, and Management issues in IT –
software, hardware, network, database mgmt etc…
• Applications: Using emails for fast communication, internet, intranet, & extranet
to gather the information, for operations and management.
• Development: How end users or information specialists develop information
systems solutions to business problems using fundamental problem – solving and
development methodologies.
• Management: Effectively managing the resources and business strategies involved
in using IT at end user, enterprise and global level of business.

Key Terms Used In Information System

Data, Information, Knowledge, and Wisdom
Let us consider the case of a retail store that is trying to increase sales.
Some of the data available includes sales levels for the last 36 months, advertising
expenses, and customer comments from surveys. By itself, this data may be
interesting, but it must be organized and analyzed to be useful in making a decision.
For example, a manager might use economic and marketing models to forecast
patterns and determine relationships among various advertising expenses and sales.
The resulting information (presented in equations, charts, and tables) would clarify
relationships among the data and would be used to decide how to proceed It requires
knowledge to determine how to analyze data and make decisions.
Education and experience create knowledge in humans. A manager learns which data
to collect, the proper models to apply, and ways to analyze results for making better
decisions. In some cases, this knowledge can be transferred to specialized computer
programs (expert systems).
Wisdom is more difficult to define but represents the ability to learn from experience
and adapt to changing conditions. In this example, wisdom would enable a manager to
spot trends, identify potential problems, and develop new techniques to analyze the

Characteristics of Information
Now, let us discuss about the characteristics of good information

• Timeliness: Information must reach the user in a timely manner, just when it is
needed; not too early, because by the time it is used it would be out-of-date; not too
late because the user will not be able to incorporate it into his/her decision-making.

• Appropriateness: Information must be relevant to the person who is using it. It

must be within the sphere of his/her activities so that it can be used to reduce
uncertainty in his/her decision-making.

• Conciseness: Information should always contain the minimum amount of detail that
is appropriate for the user. Too much detail causes information overload.

• Frequency: Frequency is related to timeliness. Too often the information presented

is linked to the calendar (end of the week, beginning of the month); its frequency
should be synchronized with the timing of the decision making of the user.

• Understandability: The format and presentation of information are very important.

Some people prefer tabular information, whereas others may need it in a graphical
form. Also the use of colors enhances the understandability of what is presented.

• Relevant: It pertains to the particular problem. What data is relevant depends on the
decision-making model used. E.g. university admissions officials may choose to
consider the results of some high-school test irrelevant, if they believe that it does not
improve the chances of some applicant later becoming a successful student.

• Complete: All the relevant parts are included. E.g. marketing data about household
incomes may lead to bad decisions, if not accompanied by consumption habits of the
target population.

• Current: Decisions are often based on the latest information available

• Economical: The costs of gathering information should be justified by the overall


Lecture 2

What is a System?
A system is a group of interrelated components working together toward a common
goal by accepting inputs and producing outputs in an organized transformation
process. System will have the following basic interacting components (functions):
1. Input
2. Processing
3. Output
4. Feedback
5. Control

What is an Information System?

Now, it is time to see the real meaning and concept of Information Systems. Too often
you hear someone say, "Oh yeah, I know how to use a computer. I can surf the Web
with the best of them and I can play Solitaire for hours. I'm really good at computers."
Okay. So that person can pound a keyboard, use a mouse at lightning speed, and has a
list of favorite Web sites a mile long. But the real question is "Is that person
information literate?" Just because you can pound the keyboard doesn't necessarily
mean you can leverage the technology to your advantage or the advantage of your
organization. An organization can gather and keep all the data on its customers that a
hard drive can hold. You can get all the output reports that one desk can physically
hold. You can have the fastest Internet connection created to date. But if the
organization doesn't take advantage of customer data to create new opportunities, then
all it has is useless information. If the output report doesn't tell the management that it
has a serious problem on the factory floor, then all that's been accomplished is to kill a
few more trees. If you don't know how to analyze the information from a Web site to
take advantage of new sales leads, then what have you really done for yourself today?
Most of us think only of hardware and software when we think of an Information
System. There is another component of the triangle that should be considered, and
that's the people side, or "persware." Think of it this way:

We talk about the input, processing, output and feedback processes. Most important is
the feedback process; unfortunately it's the one most often overlooked. Just as in the
triangle above, the hardware (input and output) and the software (processing) receive
the most attention. With those two alone, you have computer literacy. But if you don't
use the "persware" side of the triangle to complete the feedback loop, you don't
accomplish much. Add the "persware" angle with good feedback and you have the
beginnings of information literacy. An information system differs from other kinds of
systems in that its objective is to monitor/document the operations of some other
system, which we can call a target system. An information system cannot exist
without such a target system. For example, production activities would be the target
system for a production scheduling system, human resources in the business
operations would be the target system of a human resource information system, and so
on. It is important to recognise that within a vending machine there is a
component/sub-system that can be considered an information system. In some sense,
every reactive system will have a subsystem that can be considered an information
system whose objective is to monitor and control such a reactive system.

Information Systems are more than computers. Using Information Systems effectively
requires an understanding of the management, organization, and information
technology for shaping the systems.

Managers perceive business challenges in the environment; set the organizational
strategy for responding, allocate human and financial resources to achieve the strategy
and coordinate the work. Different levels of managers are:
Senior Managers: make long-range strategic decisions about products and services to
Middle Managers: Carry out the programs and plans of Senior Managers
Operational Managers: Responsible for monitoring the firm’s daily activities.





The key elements of an organization are its people, structure, and operating
procedures, politics, and culture. Major functions of an organization are:

Function Purpose
Sales and marketing Selling the organization’s products and services
Manufacturing Producing products and services
Finance Managing the organization’s financial assets (cash,
stocks, bonds, etc.)
Accounting Maintaining the organization’s financial records
(receipts, paychecks, etc) accounting for flow of funds.
Human Resources Attracting, developing, and maintaining the
organization’s labor force; maintaining employee


An organization requires many different kinds of skills and people:

• Managers: Decision Makers
• Knowledge Workers: (Engineers, architects, or scientists) Design products of
• Data Workers: (Secretaries, Bookkeepers, and Clerks) Process the organization’s
• Production or Service Workers: (Machinists, Assemblers, or Packers) Produce the
products or services of the organization.

Computer Based Information Systems (CBIS) utilize the following IT technologies:

Computer Hardware: Various physical equipments

Computer Software: Preprogrammed instructions, system software, application
software, etc..
Storage Technology: Using media for storage such as hard disk, tape drives, CD,
DVD, etc..
Telecommunication Technology: Consists of both physical devices and software,
links the various pieces of hardware and transfers data from one physical location to

An End User Perspective of Information System

Anyone who uses the information system or the information it produces is an end
user. They are
• People of the organization
• Information System Specialist: System Analysts or Professional Computer
• Managerial End User: Managers, Entrepreneur, or Managerial level
Professional. The managerial end users use spread sheets, emails.
It is desired today that every person in the organization must be able to use internet
and emails, spreadsheets, database management packages, and the business software
to support specific work activity.

An Enterprise Perspective of Information Systems

From an enterprise perspective, an information system us an organizational and
management solutions, based on information technology to a challenge possessed by
the environment. Today the success of any enterprise not only depends on the
efficiency on minimizing costs, time, and use of information resources but also
depends on the effectiveness of the information technology in supporting the
organization business. The Information Systems function represents:
• A major functional area of business that is as important to business success as
the functions of accounting, finance, operations management, marketing, and
human resource management.
• An important contribution to operational efficiency, employee productivity
and morale, and customer service and satisfaction.

• A major source of information and support needed to promote effective
decision making by managers.
• An important ingredient in developing competitive products and services that
give an organization a strategic advantage in the global marketplace.
• A major part of the resources of an enterprise and its cost of doing business,
thus posing a major resource management challenges.
• A vital, dynamic, and challenging career opportunity for millions of men and

Lecture – 3
Components of an IS
In an organization, information systems consist of the following components. These
components will formulate a system, which will help us to gather the required
information for making decision in various levels of management.

• Data - Input that the system takes to produce information

• Hardware - Computer itself and its peripheral equipment: input, output, storage
devices; includes data communication equipment
• Software - Sets of instructions that tell the computer how to input, process, output
and store data
• Communication networks - Hardware and software specializing in transmission
and reception of electronic data
• People - IS professionals and users who design, construct, operate and maintain IS
• Procedures - Rules to process data, e.g. priorities in running different applications,
security measures, routines for malfunctioning IS, etc.

Information System Resources

Every Information System is equipped with the following resources. The goals of
information systems can be easily achieved by employing these resources to their
optimum level by keeping in view that the purpose of using IS in an organization.
• People Resources
o End users
o IS specialists
• Hardware Resources
o Machines
o Media
• Software Resources
o Program
Operating Systems (OS) Examples: Windows, Unix, etc.
Application Software Examples: Excel, Access, MS-Word, etc.
Application software that makes people buy computers that can run the software.
Example: email system. To use an email system (software), people buy computers.
o Procedures:
Operating instructions for the people who will use an information system.
Examples: Instructions for filling out a paper form or using a software package.

• Data Resources:
o Data vs. Information
1. Data:
Raw facts, observations, business transactions Objective measurements of the
attributes (characteristics) of entities (people, places, things, events, etc.)
Attributes can be last name, first name, gender, etc. for an entity of "people."
2. Information:
Data that have been converted into a meaningful and useful context for specific end
Processed data placed in a context that gives it value for specific end users.
1. Its form is aggregated, manipulated, and organized.
2. Its content is analyzed and evaluated.
3. It is placed in a proper context for a human user.
• Network Resources:
o Communications media
o Communications processors
o Network access & control software

Role of information systems

Information systems perform three vital roles in any type of organization:
• Support of business operations.
• Support of managerial decision making.
• Support of strategic competitive advantage.

Types of Information Systems

Transaction processing systems were among the earliest computerized systems.

Their primary purpose is to record, process, validate, and store transactions that take
place in the various functional areas of a business for future retrieval and use. A
transaction processing system (TPS) is an information system that records company
transactions (a transaction is defined as an exchange between two or more business
Transaction processing systems (TPS) are cross-functional information
systems that process data resulting from the occurrence of business transactions.
Transactions are events that occur as part of doing business, such as sales,
purchases, deposits, withdrawals, refunds, and payments. Transaction processing
activities are needed to capture and process data, or the operations of a business
would grind to a halt.
Let us look at a simple example of a business transaction. McDonald's, which
sells a large number of hamburgers every day, orders raw materials from its suppliers.
Each time the company places an order with a supplier, a transaction occurs and a
transaction system records relevant information, such as the supplier's name, address,
and credit rating, the kind and quantity of items purchased, and the invoice amount.

Types of Transactions
Note that the transactions can be internal or external.
When a department orders office supplies from the purchasing department, an
internal transaction occurs, when a customer places an order for a product, an
external transaction occurs.

• Internal Transactions: Those transactions, which are internal to the
company and are related with the internal working of any organization. For example
Recruitment Policy, Promotion Policy, Production policy etc
• External Transactions: Those transactions, which are external to the
organization and are related with the external sources, are regarded as External
Transaction. For example sales, purchase etc.

Characteristics of Transaction Processing Systems

1. A TPS records internal and external transactions for a company. It is a repository of
data that is frequently accessed by other systems
2. A TPS performs routine, repetitive tasks. It is mostly used by lower-level managers
to make operational decisions
3. Transactions can be recorded in batch mode or online. In batch mode, the files are
updated periodically; in online mode, each transaction is recorded as it occurs.
4. There are six steps in processing a transaction. They are data entry, data validation,
data processing and revalidation, storage, - output generation, and query support.

Features of TPS
1. A TPS supports different tasks by imposing a set of rules and guidelines that
specify how to record, process, and store a given transaction. There are many uses of
transaction processing systems in our everyday lives, such as when we make a
purchase at retail store, deposit or withdraw money at a bank, or register for classes at
a university. Almost all organizations, regardless of the industry in which they
operate, have a manual or automated TPS
2. A TPS is the data lifeline for a company because it is the source of data for other
information systems, such as MIS and DSS (Decision Support Systems). Hence, if the
TPS shuts down, the consequences can be serious for the organization
3. A TPS is also the main link between the organization and external entities, such as
customers, suppliers, distributors, and regulatory agencies
4. TPS exist for the various functional areas in an organization, such as finance,
accounting, manufacturing, production, human resources, marketing quality control,
engineering, and research and development.

Process of Transaction Processing System

The six steps in processing a transaction are:
a. Data entry
b. Data Capture
c. Data validation
d. Processing and revalidation
e. Storage
f. Output generation
g. Query support

a. Data Entry
To be processed, transaction data must first be entered into the system. There
are a number of input devices for entering data, including the keyboard and the
mouse. Documents generated at the point where a transaction occurs are called source
documents and become input data for the system. For example, when a customer

returns an item at a store, the sales receipt becomes the source document for the
transaction "return item for refund".
The use of automated methods of data entry is known as source data

Methods for Data Entry:

• Keyboard/video display terminals
• Optical character recognition (OCR) devices, such as optical scanning wands and
grocery check-out scanners.
• Magnetic ink character recognition (MICR) devices, such as MICR reader/sorters
used in banking for check
• Other technologies, including electronic mice, light pens, magnetic stripe cards,
voice input, and tactile. Input also be used as input device depending upon the
application requirement

b. Data Capture
We could capture transaction data as close as possible to the source that
generates the data. Salespersons capture data that rarely changes by prerecording it on
machine-readable media, or by storing it on the computer system.

Tips for Data Capturing

• Captures data directly without the use of data media by optical scanning of bar codes
printed on product packaging. It ensures the accuracy and reliability of data by

c. Data Validation
There are two steps in validation: error detection and error correction,
Error detection is performed by one set of control mechanism, and error correction is
done by another.
Some commonly used error detection procedures are checking the data for
appropriate font (text, numbers, etc), checking for aberrations (abnormalities) (values
that are too low or too high), and checking for missing data, invalid data, and
inconsistent data. Missing data refers to fields that are missing a mandated data value.
For example, if the number of hours worked by a part-time employee is
missing on a payroll form; that is a missing-data error.
Invalid data is data that is outside the range
For example, if the number of hours worked by a part-time employee is 72
hours per week instead of the 1120 hours, then we have invalid data
Inconsistent data means that the same data item assumes different values in
different places without a valid reason.
For example, if payroll records show that an employee worked 25 hours per

d. Processing and Revalidation

Once the accuracy and reliability of the data are validated, the data are ready
for processing. There are two ways to process the transactions: online and batch mode
Following methods are available for Data Processing:

• Online transaction processing (OLTP) is the almost instantaneous
processing of data. The term online means that the input device is directly
linked to the TPS and therefore the data are processed as soon as it is entered
into the system. Input device may be at a remote location and be linked to the
system by networks or by telecommunications systems. Some examples of
online transaction processing are ATM transactions, student registration for
classes, flight reservations.

• Batch Processing: Transactions are accumulated over time and processed

identically. Batch processing may be done on a daily, weekly, or monthly
basis or any other time period appropriate to the application. For example, a
company may process the travel expenses of its employees on a monthly basis,
whereas batch processing usually involves gathering source documents
originated by business transactions, such as sales orders and invoices, into
groups called batches.
A transaction file contains information about a group of transactions that
occurred in a given period of time. It is processed using techniques such as
sorting, merging, and so on. Once the transaction file has been processed, the
next step is to update the master file, which is permanent record of all
transactions that have occurred. Each time the master file is updated with
information from the transaction file, a new master file, including most current
transaction data, is generated.

e. Data Storage
Processed data must be carefully and properly stored for future use. Data
storage is a critical consideration-for many organizations because the value and
usefulness of data diminish if data are not properly stored.
The next step in the processing of a transaction is to output the results of the
transaction to the decision maker.

f. Output Generation
Once data has been input, validated, processed, revalidated and stored, the
output can be communicated to decision makers in two ways:
• Documents and reports
• Forms: screens or panels.
Documents are a popular output method. They can be processed further, either
to generate additional information or to present the same information in a different
format. Some examples of documents are invoices, paychecks, purchase, invoices.,
sales receipts, and job orders
What is the difference between documents and reports? A document is
usually a record of one transaction, whereas a report is a summary of two or more
transactions. For example, the manager of a retail store may receive an invoice (i.e., a
document) from a supplier indicating the quantity and type of each item ordered and
the total cost of the order. A report, on the other hand, may summarize all the invoices
from a given supplier.
Computer output need not always be presented in hard-copy form (such as
reports, documents, and printouts), but can also appear on computer screens and
panels. Such soft-copy presentations are known as forms

g. Query Support

The last step in processing a transaction is querying the system. Query
facilities allow users to process data and information that may otherwise not be
readily available. For example, a sales manager may query the system for the number
of damaged items in a given store
Many transaction-processing systems allow you to use the Internet, intranets,
extranets, and web browsers or database management query languages to make
inquiries and receive responses concerning the results of transaction processing
activity. Typically, responses are displayed in a variety of pre-specified formats or
screens. Examples of queries include:
• Checking on the status of a sales order
• Checking on the balance in an account
• Checking on the amount of stock in inventory
Transaction processing systems are responsible for capturing, storing, and providing
access to the basic data of the organization. The goal is to capture the transaction data
as soon as possible. Common collection methods include
• Point-of sale services
• Process control
• Electronic data interchange
• Electronic commerce websites.

Lecture 4

An Information System is an organized combination of people, hardware, software,

communication networks & data resources that collects, transforms & disseminates
information in an organization.

People have relied on information systems to communicate with each other using a
variety of physical devices (Hardware), Information Processing Instructions &
Procedures (Software), Communication Channels (Networks) & Store Data (Data

Information Systems are conceptually classified into two categories:

• Operations Support System
• Management Support System


• Produce a variety of information products for internal & external use.

• They do not emphasize on producing specific information products that can

best be used by managers.

• Its role is to efficiently process business transactions, control industrial

processes, support enterprise communications & collaboration & update
corporate databases.

• It is Classified into three categories:

1. Transaction Processing Systems

• Record & process data resulting from business transactions.
• Typical examples are information systems that process sales,
purchases & inventory changes.
• The results of such processing are used to update customer,
inventory & other organizational databases.
• These databases then provide the data resources that can be
processed & used by Management Information System, Decision
Support System & Executive Information System.
• Also produce A variety of information products for internal or
external use.
• Process transactions in two basic ways:
i. Batch Processing.
In this, Transaction data is accumulated over a period of
time & is processed periodically.
ii. Relative (Online Processing).
In this, data is processed immediately after a transaction
occurs. E.g. Point of scale (POS) system at retail stores may
use electronic cash register terminals to capture & transmit
sales data over telecommunication links to regional
computer centers for immediate (Real Time) or nightly
(Batch) Processing.

2. Process Control System
• Operation support system also makes routine decisions that control
operational processes.
• E.g. of automation automatic inventory reorder decisions & production
control decisions.
• This includes a category of information systems called process control
systems, in which decisions adjusting a physical production processes
are automatically made by computers.
E.g. A petroleum refiner uses electronic sensors linked to computer, to
continually monitor chemical processes. The computers monitor a
chemical process, capture & process data detected by sensors & make
instant (Real Time) adjustments to appropriate refinery processes.

3. Enterprise Collaboration Systems

• are information systems that use a variety of information technologies
to help people work together.
• Help us collaborate to communicate ideas, share resources &
coordinate our cooperative work efforts as members of the many
formal and informal process & project teams and other workgroups
that are a vital part of today’s organizations.
• Its goal is to use information technology to enhance the productivity
and creativity of teams and workgroups in the modern business
• Example: Many businesses form teams of engineers, marketing
specialists, and other knowledge workers to develop new products or
improve existing ones. They may form virtual teams of people from
several departments and locations within a company and include
outside consultants as team members. Such teams would make heavy
use of Internet, corporate intranets and extranets and collaboration
software known as groupware. They then could easily collaborate via
electronic mail, discussion forums, data & videoconferencing &
multimedia project Websites on the company’s intranet. In this way, a
product development team could efficiently communicate with each
other and coordinate their work activities, and effectively collaborate
in the development or improvement of products and services.

Lecture 6

An Information System is an organized combination of people, hardware, software,

communication networks & data resources that collects, transforms & disseminates
information in an organization.

People have relied on information systems to communicate with each other using a
variety of physical devices (Hardware), Information Processing Instructions &
Procedures (Software), Communication Channels (Networks) & Store Data (Data

Information Systems are broadly classified into two categories:

• Operations Support System

• Management Support System


Support of
Support of Managerial
Operations Making


Processing Team and Workgroup Prespecified Information
Business PROCESS Collaboration Reporting for DECISION Tailored for
Transactions CONTROL Managers SUPPORT Executives
Control of Interactive
Industrial Decision
Processes Support


• An operational support system (OSS) is a set of programs that help a

communications service provider monitor, control, analyze and manage a
telephone or computer network.
• An OSS supports processes such as maintaining network inventory,
provisioning services, configuring network components, and managing faults.
• Produce a variety of information products for internal & external use.

• They do not emphasize on producing specific information products that can
best be used by managers.

• Its role is to efficiently process business transactions, control industrial

processes, support enterprise communications & collaboration & update
corporate databases.

There are four key elements of OSS:

• Processes
o the sequence of events
• Data
o the information that is acted upon
• Applications
o the components that implement processes to manage data
• Technology
o how we implement the applications

Functions of an OSS may include the following components:

• Order processing, accounting, billing and cost management

• Network inventory, service provision, design and assign
• Network discovery and reconciliation, trouble and fault management, capacity
• Network elements, asset and equipment management, field service

OSS can be classified into three categories:

4. Transaction Processing Systems

• Record & process data resulting from business transactions.
• Typical examples are information systems that process sales,
purchases & inventory changes.
• The results of such processing are used to update customer,
inventory & other organizational databases.
• These databases then provide the data resources that can be
processed & used by Management Information System, Decision
Support System & Executive Information System.
• Also produce a variety of information products for internal or
external use.
• Process transactions in two basic ways:
i. Batch Processing.
In this, Transaction data is accumulated over a period of
time & is processed periodically.
ii. Relative (Online Processing).
In this, data is processed immediately after a transaction
occurs. E.g. Point of scale (POS) system at retail stores may
use electronic cash register terminals to capture & transmit
sales data over telecommunication links to regional

computer centers for immediate (Real Time) or nightly
(Batch) Processing.

5. Process Control System

• Operation support system also makes routine decisions that control
operational processes. E.g. of automation are automatic inventory
reorder decisions & production control decisions.
• A system consisting of a computer, process control equipment, and
possibly a process interface system. It is a category of information
systems, in which decisions adjusting a physical production processes
are automatically made by computers.
• E.g. A petroleum refiner uses electronic sensors linked to computer, to
continually monitor chemical processes. The computers monitor a
chemical process, capture & process data detected by sensors & make
instant (Real Time) adjustments to appropriate refinery processes.

6. Enterprise Collaboration Systems

• Abbreviated as ECS, Enterprise Collaboration Systems is a
type of information system (IS).
• ECS is a combination of groupware, tools, Internet, extranets and other
networks needed to support enterprise-wide communications, such as
the sharing of documents and knowledge to specific teams and
individuals within the enterprise. ECS are information systems that use
a variety of information technologies to help people work together.
• Some examples of enterprise communication tools include e-
mail, videoconferencing, collaborative document sharing, project
management tools and others.
• The objective of an ECS is to provide each user with the tools
for managing communications, documents and other information that
individuals need to manage their own tasks efficiently in their
• Help us collaborate to communicate ideas, share resources &
coordinate our cooperative work efforts as members of the many
formal and informal process & project teams and other workgroups
that are a vital part of today’s organizations.
• It uses information technology to enhance the productivity and
creativity of teams and workgroups in the modern business enterprise.

Lecture 7


• When information systems focus on providing information and support for
effective decision making by managers, they are called Management Support
• MSS was introduced when the concept of MIS originated in the 1960’s.
• MIS became buzzword of almost all attempts to relate computer technology
and systems theory to data processing in organizations.
• MIS concept is recognized as vital to efficient and effective information
systems in organizations for two reasons:
1. It emphasizes management orientation of
information technology in business. A major goal of computer based
information systems should be the support of management decision-
making, not merely the processing of data generated by business
2. It emphasizes that a system framework should be
used for organizing information systems applications. Business
applications of information technology viewed as interrelated and
integrated computer-based information systems and not as independent
data processing jobs.

Several major types of information systems are needed to support a variety of

managerial end user responsibilities:
1. Management Information Systems
2. Decision Support Systems
3. Executive Information Systems

1. Management Information Systems:

• The most common form of Management Support System
• Management Information Systems (MIS) is a general name for the
academic discipline covering the application of people, technologies,
and procedures — collectively called information systems — to solve
business problems. e.g. Decision Support Systems, Expert systems,
and Executive information systems.
• It provides information about business operations. It's also used to refer
to the people who manage these systems.
• Provide managerial end users with information products that support
much of their day-to-day decision making needs.
• Provide a variety of reports and displays to management.
• Used broadly in a number of contexts and includes (but is not limited
to): decision support systems, resource and people management
applications, project management, and database retrieval applications.
• Content of these information products are specified in advance by
managers so that they contain information that managers need.
• Receive information about internal operations from databases that have
been updated by transaction processing systems.

• Obtain data about business environment from external sources.
• Information products provided to managers include displays and
reports that can be furnished on demand, periodically according to a
predetermined schedule, or whenever exceptional conditions occur.

2. Decision Support Systems:

• Are a natural progression from information reporting systems and
transaction processing systems.
• Are interactive, computer based information systems that use decision
models and specialized databases to assist the decision making
processes of managerial end users.
• Provide managerial end users with information in an interactive
session on an adhoc (as needed) basis.
• Provides managers with analytical modeling, simulation, data retrieval,
and information presentation capabilities.
• Managers generate the information they need for more unstructured
types of decisions in an interactive, simulation-based process.
• When using a decision support system, managers are simulating and
exploring possible alternatives and receiving tentative information
based on alternative sets of assumptions. So, managerial end users
donot have to specify their information needs in advance.
• Decision Support Systems interactively help them find the information
they need.

3. Executive Information Systems (EIS)

• Tailored to the strategic information needs of top management.
• Top executives get the information they need from many sources
including letters, memos, periodicals, and reports produced manually
as well as by computer systems.
• Other sources are meetings, telephone calls, and social activities
• Goal of computer based executive information systems is to provide
top management with immediate and easy access to selective
information about key factors that are critical to accomplishing a firm’s
strategic objectives. So EIS are easy to operate and understand.
• Graphic displays are used extensively, & immediate access to internal
and external databases is provided.
• EIS provide information about the current status and projected trends
for key factors selected by top executives.
• EIS have become so popular in recent years that the use is spreading
information ranks of middle management.

Lecture 8
Information System:
An information system can be any organized combination of people, hardware,
software, communications networks and data resources that collects, transforms and
disseminates information in an organization.

Strategic Management:
Typically, a board of directors and an executive committee of the CEO and top
executives develop overall organizational goals, strategies, policies, and objectives as
part of a strategic planning process. They also monitor the strategic performance of an
organization and its overall direction in the political, economic and competitive
business environment.

Information System for Strategic Management

The major role of information systems applications in business was to provide
effective support of a company’s strategies for gaining competitive advantage. This
strategic role of information systems involves using information technology to
develop products, services and capabilities that gives a company major advantages
over the competitive forces it faces in the global marketplace.
This creates strategic information systems, information systems that support or shape
the competitive position and strategies of a business enterprise.
A company can survive and succeed in the long run only if it successfully develops
strategies to confront five competitive forces that shape the structure of competition in
its industry. Michael Porter gave a classic model of competitive strategy in which any
business that wants to survive and succeed must develop ad implement strategies to
effectively counter-

 The rivalry of competitors within the industry

 The threat of new entrants
 The threat of substitutes
 The bargaining power of customers
 The bargaining power of suppliers.

Lecture 9
Competitive Forces
Bargaining Bargaining Rivalry of Threat Threat of
Power of Power of Competitors of New Substitutes
Customers Suppliers Entrants



E Innovation
E Growth

T Alliance
Other Strategies

The figure illustrates that business can counter the threats of competitive forces that
they face by implementing five basic competitive strategies.

 Cost Leadership Strategy: Becoming a low-cost producer of products and

services in the industry. Also, a firm can find ways to help its suppliers or
customers reduce their costs or to increase the costs of their competitors.

 Differentiation Strategy: Developing ways to differentiate a firm’s products

and services from its competitors’ or reduce the differentiation advantages of
competitors. This may allow a firm to focus its products or services to give it
advantage in particular segments or niches of a market.

 Innovation Strategy: Finding new ways of doing business. This may involve
the development of unique products and services, or entry into unique markets
or market niches. It may also involve radical changes to the business processes
for producing or distributing products and services that are so different from
the way the business has been conducted that they alter the fundamental
structure of an industry.

 Growth Strategy: Significantly expanding a company’s capacity to produce

goods and services, expanding into global markets, diversifying into new
products and services, or integrating into related products or services.

 Alliance Strategy: Establishing new business linkages and alliances with

customers, suppliers, competitors, consultants and other companies. These
linkages may include mergers, acquisitions, joint ventures, forming of “virtual
companies”, or other marketing, manufacturing or distribution agreements
between a business and its trading partners.

Lecture 10
The following table gives a summary of how information technology can be used to
implement the five basic competitive strategies. Many companies are using Internet
technologies as the foundation for such strategies.
Basic Strategies in the Business Use of Information Technology
Lower Costs
 Use IT to substantially reduce the cost of business processes.
 Use IT to lower the costs of customers or suppliers.
 Develop new IT features to differentiate products and services.
 Use IT features to reduce the differentiation advantages of competitors.
 Use IT features to focus products and services at selected market niches.
 Create new products and services that include IT components.
 Develop unique new markets or market niches with the help of IT.
 Make radical changes to business processes with IT that dramatically cut
costs, improve quality, efficiency or customer service or shorten time to
Promote Growth
 Use IT to manage regional and global business expansion.
 Use IT to diversify and integrate into other products and services.
Develop Alliances
 Use IT to create virtual organizations of business partners.
 Develop inter-enterprise information systems linked by the Internet and
extranets that support strategic business relationships with customers,
suppliers, subcontractors and others.
Other competitive strategies
There are many other competitive strategies in addition to the five basic strategies;
they can also be implemented with information technology. These are:
 Locking in customers or suppliers
 Building switching costs
 Raising barriers to entry
Leveraging investment in information technology.

Lecture 11




Management Information
Control Tactical Planning

Helps to
Control Implement Pure
and Mixed
Through Strategy Breakthrough
Evaluates the Results
and Exercise Control
Revise Strategies

Achieve Goals and


Lecture 12

Value Chain Analysis

Michael Porter suggested an approach of analysis of internal and external resources

across distinct functional areas which consisted of identifying the series of

steps/activities which are undertaken by the firm and are strategically relevant for

meeting customer demand and in respect of which the firm may potentially have an

edge over its competitors. Thus the internal factors of key importance are sought to be

linked with the chain of value activities through systematic identification of the

discrete activities as potential sources of strength and weaknesses. The chain consists

of a series of activities that create and build value. They culminate in the total value

delivered by an organization. The value chain is a systematic approach to examining

the development of competitive advantage.

There are, for most business enterprises, two broad categories of value activities:

Primary Activities and Support Activities.

Lecture 13

Activities in Value chain

Primary Activities

Based on technological and strategic distinctness, the Primary Activities are generally

divisible into five basic categories:

1. Inbound Logistics: - These are activities associated with automated

procurement, Just-In-Time warehousing, storage, inventory control and return

to suppliers etc.

2. Operations: - Activities involved are transformation of inputs into outputs with

the help of Computer Aided Flexible Manufacturing assembly, packaging,

testing etc.

3. Outbound Logistics: - These include activities which are associated with

Online Point of Sale and Order Processing, warehousing of finished goods,

scheduling deliveries etc.

4. Marketing and Sales: - This category includes activities such as Interactive

Targeted Marketing, online sales promotion, channel selection and pricing etc.

5. Customer Service: - These are activities aimed at providing service to enhance

and maintain the value of product through Customer Relationship


Support Activities

Supporting activities which provide the infrastructure for primary activities are also

required to be identified by isolating them on the basis of technological and strategic

distinctiveness. Four categories of support activities are generally distinguished as


1. Procurement of Resources: - This activity is responsible for all purchasing of

goods, services and materials. The aim is to secure the lowest possible price

for purchases of the highest possible quality. They will be responsible for

outsourcing, and E-Purchasing, using IT and web-based technologies to

achieve procurement aims through E-commerce Auctions and Exchanges for


2. Technology Development: - Technology is an important source of competitive

advantage. Companies need to innovate to reduce costs and to protect and

sustain competitive advantage. This could include production technology like

Computer Aided Engineering, design of Extranets for Partners, Internet

marketing activities, lean manufacturing, and many other technological


3. Human Resource Management: - Employees are an expensive and vital

resource. An organization would manage recruitment and selection, training

and development by developing a Career Development Intranet for employees,

and rewards and remuneration. The mission and objectives of the organization

would be driving force behind the HRM strategy.

4. Administrative Collaboration and Support Services: - This activity includes

and is driven by corporate or strategic planning and involves developing of

Collaborative Workflow Intranet Based System.

The Value Chain Analysis helps in achieving competitive advantage by the firm over

its competitors and delivering products and services of greater value to its customers.

Lecture 14

Planning for Information Systems

The plan for development and implemantatin is te basic neccessity for MIS . With the
advancement of coputer technology , it is now possible to recognise information as a
valuable resources like money and capacity. It is necessary to link its acquisition ,
storage, use , and disposal as per the business needs for meeting the business
objectives . Such a broad-based activity can be executed only when it is conceived as
a system . We need a Management Information System flexible enough to deal with
the changing nformation needs of the organisaton .It should be conceived as an open
system continuosly interacting with the business enviroment with a built-in
mechanism to provide the desired informatin as per the new requirements of the
managemnet. The designing of such an open system is a complex task. It can be
achieved only if the MIS is planned , keeping in view , the plan of the business
management of the organsation. The paln of MIS is concurrent o the business plan of
the organisation . The information needs for the implementation of the business plan
should find places in the MIS. To ensure such an alignment possibility , it is necessary
that the business paln – strategic or otherwise , states the information needs. The
information needs are then traced to the source data and the systems in the
organisation which generates such data . The system of information generation is so
planned that strategic information is provided for the strategic planning , control
information is provided for a short term plannng and execution . The details of
information are provided to the operations management to assess the status of an
activity and to find ways to make up , if necessary . Once the management needs are
translated into information needs , it is left for the designer to evolve a paln of
develeopment and implemantation .

The Factors involved are –

1. MIS goals and objectives

The MIS goals and objectives will consider managemnent philosophy , policy
constraints , business risk , internal and external enviroment of the organisation and

the buisness . The goals and the objectives of the MIS would be so stated that they
can be measured .

2. Strategy for the plan achievemnet

The designer has to take a number of strategic decisions for the achievement of the
MIS goals and obejectives . They are :

a) Development strateg
b) System develelopment strateg
c) Resoureces for the system development
d) Manpower composition

3. The architecture of the MIS

The architecture of the MIS plan provides a system and subsystem structure and their
input , output and linkages . It also provides a way to handle the systems or subsystem
by way of simplification , coupling and decoupling of susbsystems . It spells out in
detail the subsystems from the data entry to processing , analysis to modelling , and
storage to printing .

4. The system development schedule

A schedule is made for the development of the system . While preparing the schedule
due consideratin is given to the importance of the system in the overall information
requirement . Due regard is also given to logical system development . For example ,
it is necessary to develop the accounting system first and then the analysis .
5. Hardware and software plan
Giving due regard to the technical and operational feasibility , the economics of
investment is worked out . Then the plan of procument is made after selecting the
handware and software . One can take the phased approach of investment starting
from the lower congfiguration of hardware going over to higher as develoment takes
place . The process is to match the technical decisions with the financial decisions .
The system development schedule is linked with the information requirements which
in turn , are linked with the goals and objectives of the business .

6. Ascertainng the class of information

The design of the MIS should consider the class of information as a whole and
provide suitable information system architecture to generate the information for
various users in the organisation . Let us now proceed to ascertain the information
needs of each class .

Lecture 15


Organisational - The number of employees , products , services , locations , the type

of business , turnover ad variety of the details of each one of these entities

Functional –- Purchases , sales , production , stocks , receivables , payables ,

outstandings , budgets statutory information.

Knowledge – The trends in sales , production technology . The devations from the
budgets , targets , norms etc . Competitors information , industry and business
information plan performance and target; and its analysis .

Decision support – Status information on a particular aspect , such as utilisation ,

profitability standard , requirement versus availability . Information for problem
solving and modelling . Quantitative information on the business status . Non-living
inventory , overdue payments and receiveables.

Operational – Information on the production , sales , purchase , despatches

consumptions , etc. in the form of planned versus actual . The information for
monitoring of execution schedules .

Business Planning Systems:

The Business Systems Planning offering defines and plans the applications and
technical architecture within an enterprise.

•Its focus on data and especially on processes was an entirely new way to view the
firm and to build systems; this process approach has since been copied by many
•BSP is very comprehensive – and thus time consuming and expensive.

The goals of a Business Systems Plan (BSP) are to:

 Understand the issues and opportunities with the current applications and
technical architecture

 Develop a future state and migration path for the technology that supports the
 Provide business executives with a direction and decision making framework
for IT capital expenditures
 Provide IS with a blueprint for development

The result of a BSP project is an actionable roadmap that aligns technology

investments to business strategy.


Critical Success Factor

 Critical Success Factor (CSF) is a business term for an element which is

necessary for an organization or project to achieve its mission. For example, a
CSF for a successful Information Technology (IT) project is user involvement.
 The concept of "success factors" was developed by D. Ronald Daniel of
McKinsey & Company in 1961.The process was refined by Jack F. Rockart in
1986.[3] In 1995 James A. Johnson and Michael Friesen applied it to many
sector settings, including health care.
 A plan should be implemented that considers a platform for growth and profits
as well as takes into consideration the following critical success factors:
 Money factors: positive cash flow, revenue growth, and profit margins.
 Acquiring new customers and/or distributors -- your future.
 Customer satisfaction -- how happy are they?
 Quality -- how good is your product and service?
 Product or service development -- what's new that will increase business with
existing customers and attract new ones?
 Intellectual capital -- increasing what you know that's profitable.
 Strategic relationships -- new sources of business, products and outside
 Employee attraction and retention -- your ability to do extend your reach.
 Sustainability -- your personal ability to keep it all going
 A critical success factor is not a key performance indicator (KPI). Critical
success factors are elements that are vital for a strategy to be successful. KPIs
are measures that quantify objectives and enable the measurement of strategic
 For example:
 KPI = number of new customers

CSF = installation of a call centre for providing quotations

Threats to Computerized Information Systems
• Hardware failure
• Fire
• Software failure
• Electrical problem
• Personnel actions
• User errors
• Terminal access penetration
• Program changes
• Theft of data, services, equipment
• Telecommunications problems
TABLE 16.1
The above list points out some of the technical, organizational, and environmental
threats to
Information Systems. The weakest link in the chain is poor management of the
system. If managers at all levels do not make security and reliability their number one
priority, then the threats to an Information Systems can easily become real. With
distributed computing used extensively in network systems, you have more points of
entry, which can make attacking the system easy. The more people you have using the
system, the more potential for fraud and abuse of the information maintained in that
system. Yes, it’s hard to control everyone’s actions. That is why you have to make it
everybody’s business to protect the system. It is easy for people to say that they are
only one person and therefore they will not make much difference. Nevertheless, it
only takes one person to disable a system or destroy data. Let us see why.
Hackers, those who intentionally create havoc or do damage to a computer system,
have been around for a long time. Many companies don’t report hackers attempts to
enter their systems because they don’t want people to realize their systems are
vulnerable. That makes gathering real statistics about hacking attempts and successes
hard. It is a huge problem, though. Some hackers penetrate systems just to see if they
can. They use special computer systems that continually check for password files that
can be copied. Or they look for areas of the system that have been “left open,” so to
speak, which they can use to enter the system. Sometimes they don’t do any damage,
but far too often they destroy files, erase data, or steal data for their own use. Other
hackers attack systems because they don’t like the company. Password theft is the
easiest way for hackers to gain access to a system. No, they don’t come into your
office at night and look at the piece of paper in your desk drawer that has your
password written on it. They generally use specially written software programs that
can build various passwords to see if any of them will work. That’s why you should
use odd combinations of letters and numbers not easily associated with your name to
create your password. The longer the password, the harder it is to replicate.
Have you ever picked up a cold or the flu from another human? Probably. You then
spread it to two or three other people through touch or association. Those people
spread it to two or three more people each. Pretty soon it seems that everyone on
campus or at work is sick. That is how computer viruses are spread. You copy a file
from an infected source, use the file, and maybe send it to friends or associates. The
virus is now on your computer and spreads to files other than the original. You then
send the same or even a different file to a few friends and their computers are
infected. In March 1999 a virus called Melissa was written by a hacker and sent out

via an email attachment. While the virus didn’t damage any computer files or data, it
severely hampered normal operations of many companies and Internet Service
Providers through the increased number of emails it generated. Here’s what CERT
(Computer Emergency Response Team) said about it: “Melissa was different from
other macro viruses because of the speed at which it spread. The first confirmed
reports of Melissa were received on Friday, March 26, 1999. By Monday, March 29,
it had reached more than 100,000 computers. Some sites had to take their mail
systems off-line. One site reported receiving 32,000 copies of mail messages
containing Melissa on their systems within 45 minutes.” Whether you use a stand-
alone PC or your computer is attached to a network, you’re just asking for trouble if
you don’t have antivirus software. This type of software checks every incoming file
for viruses. Not if, but when, you receive an infected file, the software alerts you to its
presence. You can choose to delete the file or “clean” it. Make sure you update your
antivirus software every 30 to 60 days because new viruses are constantly being
written and passed around.


Concerns for System Builders and Users

Every user must be concerned about potential destruction of the Information Systems
on which they rely. We can’t stress this point enough. Let us look at three concerns:
disasters, security, and errors. Natural disasters such as fires and earthquakes can
strike at any time. A spilled cup of coffee can also do some damage!
As the lesson points out, many companies create fault-tolerant systems that are used
as back-ups to help keep operations running if the main system should go out. These
back-up systems add to the overall cost of the system, but think about the losses if the
company’s system goes down. Add the cost of lost productivity by the employees to
the lost transactions and unhappy customers; you do the math. Just imagine what
would happen if an airline reservation system (a typical online transaction processing
system) went down. Have you ever called a company to place an order for a new
dress and it couldn’t take your order because the computer was down? Maybe you
called back later and maybe you didn’t.
Companies spend a lot of money on physical security such as locks on doors or fences
around supply depots. They need to do the same thing on their Information Systems.
Here the security is in the policies, procedures, and technical measures the company
uses to keep out unauthorized users or prevent physical damage to the hardware.
Surely you’ve heard the saying, “Garbage In, Garbage Out.” What may seem like a
simple error to you may not be to the customer. Let’s flip that around; what if you
wanted to fly to Dallas on March 15 and the reservation clerk booked you on a flight
for April 15? The potential for error exists all through the processing cycle. You must
be cognizant of these error points when designing and building a system, especially an
end-user developed system.


Computer Hardware

Computer hardware is the physical part of a computer, including the digital circuitry,
as distinguished from the computer software that executes within the hardware. The
hardware of a computer is infrequently changed, in comparison with software and
data, which are "soft" in the sense that they are readily created, modified or erased on
the computer. Firmware is a special type of software that rarely, if ever, needs to be
changed and so is stored on hardware devices such as read-only memory (ROM)
where it is not readily changed (and is, therefore, "firm" rather than just "soft").
Most computer hardware is not seen by normal users. It is in embedded systems in
automobiles, microwave ovens, electrocardiograph machines, compact disc players,
and other devices. Personal computers, the computer hardware familiar to most
people, form only a small minority of computers (about 0.2% of all new computers
produced in 2003). See Market statistics.

A typical Personal computer consists of a case or chassis in a tower shape (desktop)

and the following parts:

Internals of typical personal computer

Typical Motherboard found in a computer

Inside a Custom Computer
The motherboard is the "heart" of the computer, through which all other components
Central processing unit (CPU) - Performs most of the calculations which enable a
computer to function.
Computer fan - Used to lower the temperature of the computer; a fan is almost always
attached to the CPU, and the computer case will generally have several fans to
maintain a constant airflow.
Random Access Memory (RAM) - Fast-access memory that is cleared when the
computer is powered-down. RAM attaches directly to the motherboard, and is used to
store programs that are currently running.
Firmware usually Basic Input-Output System (BIOS) based or in newer systems
Extensible Firmware Interface (EFI) compliant
Internal Buses - Connections to various internal components.
• HyperTransport
• CSI (expected in 2008)
• AGP (being phased out)
• VLB (outdated)
• ISA (outdated)
• EISA (outdated)
• MCA (outdated)
External Bus Controllers - used to connect to external peripherals, such as printers and
input devices. These ports may also be based upon expansion cards, attached to the
internal buses.
• parallel port
• serial port
• firewire
A case that holds a transformer, voltage control, and (usually) a cooling fan, and
supplies power to the rest of the computer.
Control hard disk, floppy disk, CD-ROM and other drives; the controllers sit directly
on the motherboard (on-board) or on expansion cards, such as a Disk array controller.
Produces the output for the computer display. This will either be built into the
motherboard or attached in its own separate slot (PCI, PCI-E or AGP), in the form of
a Graphics Card.

• CD - the most common type of removable media, inexpensive but has a short
• CD-ROM Drive
• CD Writer
• DVD-ROM Drive
• DVD Writer
• DVD-RAM Drive
• Blu-ray
• BD-ROM Drive
• BD Writer
• Floppy disk (outdated)
• Zip drive (outdated)
• USB flash drive - AKA a Pen Drive, a portable form of storage.
• Tape drive - mainly for backup and long-term storage.
Hardware that keeps data inside the computer for later use and remains persistent
even when the computer has no power.
Hard disk - for medium-term storage of data.
Solid state drive - similar in use to a hard disk, but using more recent technology.
Disk array controller - a device to manage several hard disks, for example to achieve
performance improvement.
Enables the computer to output sound to audio devices, as well as accept input from a
microphone. Most modern computers have sound cards built-in to the motherboard,
though it is common for a user to install a separate sound card as an upgrade.
Connects the computer to the Internet and/or other computers.
Modem - for dial-up connections
Network card - for DSL/Cable internet, and/or connecting to other computers.
In addition, hardware can include external components of a computer system. The
following are either standard or very common.

Wheel Mouse
Includes various input and output devices, usually external to the computer system


• Text input devices
• Keyboard
• Pointing devices
• Mouse
• Trackball
• Gaming devices
• Joystick
• Gamepad
• Game controller
• Image, Video input devices
• Image scanner
• Webcam
• Audio input devices
• Microphone

• Image, Video output devices
• Printer Peripheral device that produces a hard copy of a document.
• Monitor Device that displays a video signal, similar to a television, to
provide the user with information and an interface with which to interact.
• Audio output devices
• Speakers A device that converts analog audio signals into the
equivalent air vibrations in order to make audible sound.
• Headset A device similar in functionality to computer speakers used
mainly to not disturb others nearby.

Capacity planning

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demands for its products. In the context of capacity
planning, "capacity" is the maximum amount of work that an organization is capable
of completing in a given period of time.
A discrepancy between the capacity of an organization and the demands of its
customers results in an inefficiency, either in under-utilized resources or unfulfilled
customers. The goal of capacity planning is to minimize this discrepancy. Demand for
an organization's capacity varies based on changes in production output, such as
increasing or decreasing the production quantity of an existing product, or producing
new products. Capacity can be increased through introducing new techniques,
equipment and materials, increasing the number of workers or machines, increasing
the number of shifts, or acquiring additional production facilities.
Capacity is calculated: (number of machines or workers) x (number of shifts) x
(utilization) x (efficiency).
The broad classes of capacity planning are lead strategy, lag strategy, and match
Lead strategy is adding capacity in anticipation of an increase in demand. Lead
strategy is an aggressive strategy with the goal of luring customers away from the
company’s competitors. The possible disadvantage to this strategy is that it often
results in excess inventory, which is costly and often wasteful.
Lag strategy refers to adding capacity only after the organization is running at full
capacity or beyond due to increase in demand (North Carolina State University,
2006). This is a more conservative strategy. It decreases the risk of waste, but it may
result in the loss of possible customers.
Match strategy (also known as the tracking strategy) is adding capacity in small
amounts in response to changing demand in the market. This is a more moderate
In the context of systems engineering, capacity planning is used during system design
and system performance monitoring.


Computer Software
Computer software consisting of programs, enables a computer to perform specific
tasks, as opposed to its physical components (hardware) which can only do the tasks
they are mechanically designed for. The term includes application software such as
word processors which perform productive tasks for users, system software such as
operating systems, which interface with hardware to run the necessary services for
user-interfaces and applications, and middleware which controls and co-ordinates
distributed systems.
The term "software" is sometimes used in a broader context to describe any electronic
media content which embodies expressions of ideas such as film, tapes, records, etc.[1]

Computer software is so called in contrast to computer hardware, which encompasses

the physical interconnections and devices required to store and execute (or run) the
software. In computers, software is loaded into RAM and executed in the central
processing unit. At the lowest level, software consists of a machine language specific
to an individual processor. A machine language consists of groups of binary values
signifying processor instructions (object code), which change the state of the
computer from its preceding state. Software is an ordered sequence of instructions for
changing the state of the computer hardware in a particular sequence. It is usually
written in high-level programming languages that are easier and more efficient for
humans to use (closer to natural language) than machine language. High-level
languages are compiled or interpreted into machine language object code. Software
may also be written in an assembly language, essentially, a mnemonic representation
of a machine language using a natural language alphabet. Assembly language must be
assembled into object code via an assembler.
The term "software" was first used in this sense by John W. Tukey in 1958.[2] In
computer science and software engineering, computer software is all computer
programs. The concept of reading different sequences of instructions into the memory
of a device to control computations was invented by Charles Babbage as part of his
difference engine. The theory that is the basis for most modern software was first
proposed by Alan Turing in his 1935 essay Computable numbers with an application
to the Entscheidungsproblem.[3]

System software helps run the computer hardware and computer system. It includes
operating systems, device drivers, diagnostic tools, servers, windowing systems,
utilities and more. The purpose of systems software is to insulate the applications
programmer as much as possible from the details of the particular computer complex
being used, especially memory and other hardware features, and such accessory
devices as communications, printers, readers, displays, keyboards, etc.

Programming software usually provides tools to assist a programmer in writing

computer programs and software using different programming languages in a more
convenient way. The tools include text editors, compilers, interpreters, linkers,
debuggers, and so on. An Integrated development environment (IDE) merges those
tools into a software bundle, and a programmer may not need to type multiple
commands for compiling, interpreter, debugging, tracing, and etc., because the IDE
usually has an advanced graphical user interface, or GUI.

Application software allows end users to accomplish one or more specific (non-
computer related) tasks. Typical applications include industrial automation, business
software, educational software, medical software, databases, and computer games.
Businesses are probably the biggest users of application software, but almost every
field of human activity now uses some form of application software. It is used to
automate all sorts of functions.

A program may not be sufficiently complete for execution by a computer. In

particular, it may require additional software from a software library in order to be
complete. Such a library may include software components used by stand-alone
programs, but which cannot work on their own. Thus, programs may include standard
routines that are common to many programs, extracted from these libraries. Libraries
may also include 'stand-alone' programs which are activated by some computer event
and/or perform some function (e.g., of computer 'housekeeping') but do not return
data to their calling program. Programs may be called by one to many other programs;
programs may call zero to many other programs.
[edit] Three layers

Starting in the 1980s, application software has been sold in mass-produced packages
through retailers.

Users often see things differently than programmers. People who use modern general
purpose computers (as opposed to embedded systems, analog computers,
supercomputers, etc.) usually see three layers of software performing a variety of
tasks: platform, application, and user software.
Platform software
Platform includes the firmware, device drivers, an operating system, and typically a
graphical user interface which, in total, allow a user to interact with the computer and
its peripherals (associated equipment). Platform software often comes bundled with
the computer. On a PC you will usually have the ability to change the platform
Application software
Application software or Applications are what most people think of when they think
of software. Typical examples include office suites and video games. Application
software is often purchased separately from computer hardware. Sometimes
applications are bundled with the computer, but that does not change the fact that they
run as independent applications. Applications are almost always independent
programs from the operating system, though they are often tailored for specific
platforms. Most users think of compilers, databases, and other "system software" as
User-written software
User software tailors systems to meet the users specific needs. User software include
spreadsheet templates, word processor macros, scientific simulations, and scripts for
graphics and animations. Even email filters are a kind of user software. Users create

this software themselves and often overlook how important it is. Depending on how
competently the user-written software has been integrated into purchased application
packages, many users may not be aware of the distinction between the purchased
packages, and what has been added by fellow co-workers.


Outsourcing became part of the business lexicon during the 1980s and refers to the
delegation of non-core operations from internal production to an external entity
specializing in the management of that operation.
The process of outsourcing formalizes the description of the non-core operation into a
contractual relationship between the client and the supplier. Under the new
contractual agreement the supplier acquires the means of production which may
include people, processes, technology, intellectual property and assets. The structure
of the client organization changes as the client agrees to procure the services of the
outsourcer for the term of the contractual agreement.
The decision to outsource is often made in the interest of lowering firm costs,
redirecting or conserving energy directed at the competencies of a particular business,
or to make more efficient use of labor, capital, technology and resources.

Outsourcing involves the transfer of the management and/or day-to-day execution of
an entire business function to an external service provider.[1] The client organization
and the supplier enter into a contractual agreement that defines the transferred
services. Under the agreement the supplier acquires the means of production in the
form of a transfer of people, assets and other resources from the client. The client
agrees to procure the services from the supplier for the term of the contract. Business
segments typically outsourced include information technology, human resources,
facilities and real estate management, and accounting. Many companies also
outsource customer support and call center functions, manufacturing and engineering.
Outsourcing and offshoring are used interchangeably in public discourse despite
important technical differences. Outsourcing involves contracting with a supplier, this
may or may not involve some degree of offshoring. Offshoring is the transfer of an
organizational function to another country, regardless of whether the work is
outsourced or stays within the same corporation[2][3] . With the globalization of
outsourcing companies the distinction between outsourcing and offshoring will
become less clear over-time. This is evident in the increasing presence of Indian
outsourcing companies in the U.S. and UK. The globalization of outsourcing
operating models has resulted in new terms such as nearshoring and rightshoring that
reflect the changing mix of locations. This is seen in the opening of offices and
operations centers by Indian companies in the U.S. and UK.[4].[5]
Multisourcing refers to large (predominantly IT) outsourcing agreements. [6]
Multisourcing is a framework to enable different parts of the client business to be
sourced from different suppliers. This requires a governance model that
communicates strategy, clearly defines responsibility and has end-to-end integration.

Process of outsourcing

Deciding to outsource
The decision to outsource is taken at a strategic level and normally requires board
approval. Outsourcing is the divestiture of a business function involving the transfer
of people and the sale of assets to the Supplier. The process begins with the Client
identifying what is to be outsourced and building a business case to justify the
decision. Only once a high level business case has been established for the scope of
services will a search begin to choose an outsourcing partner.
Supplier shortlist
A short list of potential suppliers is drawn-up from companies that are capable of
providing the services and match the screening criteria. Screening can be enhanced by
issuing a Request for Information (RFI) to a wider audience.
Supplier proposals
A Request for Proposal(RFP) is issued to the shortlist suppliers requesting a proposal
and a price.
Supplier competition
A competition is held where the Client marks and scores the supplier proposals. This
may involve a number of face-to-face meetings to clarify the client requirements and
the supplier response. The suppliers will be qualified out until only a few remain. This
is known as down select in the industry. It is normal to go into the due diligence stage
with two suppliers to maintain the competition. Following due diligence the suppliers
submit a Best and Final Offer (BAFO) for the client to make the final down select
decision to one supplier. It is not unusual for two suppliers to go into competitive
The negotiations take the original RFP, the supplier proposals, BAFO submissions
and convert these into the contractual agreement between the Client and the Supplier.
This stage finalizes the documentation and the final pricing structure.
Contract finalization
At the heart of every outsourcing deal is a contractual agreement that defines how the
Client and the Supplier will work together. This is a legally binding document and is
core to the governance of the relationship. There are three significant dates that each
party signs up to the contract signature date, the effective date when the contract
terms become active and a service commencement date when the supplier will take
over the services.
The transition will begin from the effective date and normally run until four months
after service commencement date. This is the process for the staff transfer and the
take-on of services.
The transformation is the term normally applied to the program of projects that are
included in the contract. These projects make the changes to the environment required
to meet the commitments in the proposal.
Ongoing service delivery
This is the execution of the agreement and lasts for the term of the contract.

Termination or renewal
Near the end of the contract term a decision will be made to terminate or renew the
contract. Termination may involve taking back services insourcing or the transfer of
services to another supplier.

What is ERP?
Enterprise resource planning software, or ERP, doesn't live up to its acronym. Forget
about planning—it doesn't do much of that—and forget about resource, a throwaway
term. But remember the enterprise part. This is ERP's true ambition. It attempts to
integrate all departments and functions across a company onto a single computer
system that can serve all those different departments' particular needs. That is a tall
order, building a single software program that serves the needs of people in finance as
well as it does the people in human resources and in the warehouse. Each of those
departments typically has its own computer system optimized for the particular ways
that the department does its work. But ERP combines them all together into a single,
integrated software program that runs off a single database so that the various
departments can more easily share information and communicate with each other.
That integrated approach can have a tremendous payback if companies install the
software correctly.
Take a customer order, for example. Typically, when a customer places an order, that
order begins a mostly paper-based journey from in-basket to in-basket around the
company, often being keyed and rekeyed into different departments' computer
systems along the way. All that lounging around in inbaskets causes delays and lost
orders, and all the keying into different computer systems invites errors. Meanwhile,
no one in the company truly knows what the status of the order is at any given point
because there is no way for the finance department, for example, to get into the
warehouse's computer system to see whether the item has been shipped. "You'll have
to call the warehouse" is the familiar refrain heard by frustrated customers.
ERP vanquishes the old standalone computer systems in finance, HR, manufacturing
and the warehouse, and replaces them with a single unified software program divided
into software modules that roughly approximate the old standalone systems. Finance,
manufacturing and the warehouse all still get their own software, except now the
software is linked together so that someone in finance can look into the warehouse
software to see if an order has been shipped. Most vendors' ERP software is flexible
enough that you can install some modules without buying the whole package. Many
companies, for example, will just install an ERP finance or HR module and leave the
rest of the functions for another day.

How can ERP improve a company's business performance?

ERP's best hope for demonstrating value is as a sort of battering ram for improving
the way your
company takes a customer order and processes it into an invoice and revenue—
otherwise known as the order fulfillment process. That is why ERP is often referred to
as back-office software. It doesn't handle the up-front selling process (although most
ERP vendors have recently developed CRM software to do this); rather, ERP takes a
customer order and provides a software road map for automating the different steps
along the path to fulfilling it. When a customer service representative enters a
customer order into an ERP system, he has all the information necessary to complete
the order (the customer's credit rating and order history from the finance module, the
company's inventory levels from the warehouse moduleand the shipping dock's
trucking schedule from the logistics module, for example). People in these different
departments all see the same information and can update it. When one department
finishes with the order it is automatically routed via the ERP system to the next
department. To find out where the order is at any point, you need only log in to the

ERP system and track it down. With luck, the order process moves like a bolt of
lightning through the organization, and customers get their orders faster and with
fewer errors than before. ERP can apply that same magic to the other major business
processes, such as employee benefits or financial reporting. That, at least, is the dream
of ERP. The reality is much harsher. Let's go back to those inboxes for a minute. That
process may not have been efficient, but it was simple. Finance did its job, the
warehouse did its job, and if anything went wrong outside of the department's walls, it
was somebody else's problem. Not anymore. With ERP, the customer service
representatives are no longer just typists entering someone's name into a computer
and hitting the return key. The ERP screen makes them businesspeople. It flickers
with the customer's credit ra ting from the finance department and the product
inventory levels from the warehouse. Will the customer pay on time? Will we be able
to ship the order on time? These are decisions that customer service representatives
have never had to make before, and the answers affect the customer and every other
department in the company. But it's not just the customer service representatives who
have to wake up. People in the warehouse who used to keep inventory in their heads
or on scraps of paper now need to put that information online. If they don't, customer
service reps will see low inventory levels on their screens and tell customers that their
requested item is not in stock. Accountability, responsibility and communication have
never been tested like this before. People don't like to change, and ERP asks them to
change how they do their jobs. That is why the value of ERP is so hard to pin down.
The software is less important than the changes companies make in the ways they do
business. If you use ERP to improve the ways your people take orders, manufacture
goods, ship them and bill for them, you will see value from the software. If you
simply install the software without changing the ways people do their jobs, you may
not see any value at all—indeed, the new software could slow you down by simply
replacing the old software that everyone knew with new software that no one does.


ERP Features
Companies that install ERP do not have an easy time of it. Don't be fooled when ERP
vendors tell you about a three or six month average implementation time. Those short
(that's right, six months is short) implementations all have a catch of one kind or
another: The company was small, or the implementation was limited to a small area of
the company, or the company used only the financial pieces of the ERP system (in
which case the ERP system is nothing more than a very expensive accounting
system). To do ERP right, the ways you do business will need to change and the ways
people do their jobs will need to change too. And that kind of change doesn't come
without pain. Unless, of course, your ways of doing business are working extremely
well (orders all shipped on time, productivity higher than all your competitors,
customers completely satisfied), in which case there is no reason to even consider
ERP. The important thing is not to focus on how long it will take—real
transformational ERP efforts usually run between one and three years, on average—
but rather to understand why you need it and how you will use it to improve your

What will ERP fix in my business?

There are five major reasons why companies undertake ERP.
Integrate financial information—As the CEO tries to understand the company's
overall performance, he may find many different versions of the truth. Finance has its
own set of revenue numbers, sales has another version, and the different business
units may each have their own version of how much they contributed to revenues.
ERP creates a single version of the truth that cannot be questioned because everyone
is using the same system.

• Integrate customer order information—ERP systems can become the place where
the customer order lives from the time a customer service representative receives it
until the loading dock ships the merchandise and finance sends an invoice. By having
this information in one software system, rather than scattered among many different
systems that can't communicate with one another, companies can keep track of orders
more easily, and coordinate manufacturing, inventory and shipping among many
different locations at the same time.

• Standardize and speed up manufacturing processes—Manufacturing companies

—especially those with an appetite for mergers and acquisitions—often find that
multiple business units across the company make the same widget using different
methods and computer systems. ERP systems come with standard methods for
automating some of the steps of a manufacturing process. Standardizing those
processes and using a single, integrated computer system can save time, increase
productivity and reduce head count.

• Reduce inventory—ERP helps the manufacturing process flow more smoothly, and
it improves visibility of the order fulfillment process inside the company. That can
lead to reduced inventories of the stuff used to make products (work-in-progress
inventory), and it can help users better plan deliveries to customers, reducing the
finished good inventory at the warehouses and shipping docks. To really improve the
flow of your supply chain, you need supply chain software, but ERP helps too.

• Standardize HR information—Especially in companies with multiple business
units, HR may not have a unified, simple method for tracking employees' time and
communicating with them about benefits and services. ERP can fix that. In the race to
fix these problems, companies often lose sight of the fact that ERP packages are
nothing more than generic representations of the ways a typical company does
business. While most packages are exhaustively comprehensive, each industry has its
quirks that make it unique. Most ERP systems were designed to be used by discrete
manufacturing companies (that make physical things that can be counted), which
immediately left all the process manufacturers (oil, chemical and utility companies
that measure their products by flow rather than individual units) out in the cold. Each
of these industries has struggled with the different ERP vendors to modify core ERP
programs to their needs.

ERP and Business
It's critical for companies to figure out if their ways of doing business will fit within a
ERP package before the checks are signed and the implementation begins. The most
common reason that companies walk away from multimillion-dollar ERP projects is
that they discover the software does not support one of their important business
processes. At that point there are two things they can do: They can change the
business process to accommodate the software, which will mean deep changes in long
established ways of doing business (that often provide competitive advantage) and
shake up important people's roles and responsibilities (something that few companies
have the stomach for). Or they can modify the software to fit the process, which will
slow down the project, introduce dangerous bugs into the system and make upgrading
the software to the ERP vendor's next release excruciatingly difficult because the
customizations will need to be torn apart and rewritten to fit with the new version.
Needless to say, the move to ERP is a project of breathtaking scope, and the price tags
on the front end are enough to make the most placid CFO a little twitchy. In addition
to budgeting for software costs, financial executives should plan to write checks to
cover consulting, process rework, integration testing and a long laundry list of other
expenses before the benefits of ERP start to manifest themselves.
Underestimating the price of teaching users their new job processes can lead to a rude
shock down the line, and so can failure to consider data warehouse integration
requirements and the cost of extra software to duplicate the old report formats. A few
oversights in the budgeting and planning stage can send ERP costs spiraling out of
control faster than oversights in planning almost any other information system

What does ERP really cost?

Meta Group recently did a study looking at the total cost of ownership (TCO) of ERP,
including hardware, software, professional services and internal staff costs. The TCO
numbers include getting the software installed and the two years afterward, which is
when the real costs of maintaining, upgrading and optimizing the system for your
business are felt. Among the 63 companies surveyed—including small, medium and
large companies in a range of industries—the average TCO was $15 million (the
highest was $300 million and lowest was $400,000). While it's hard to draw a solid
number from that kind of range of companies and ERP efforts, Meta came up with
one statistic that proves that ERP is expensive no matter what kind of company is
using it. The TCO for a "heads-down" user over that period was a staggering $53,320.

When will I get payback from ERP—and how much will it be?
Don't expect to revolutionize your business with ERP. It is a navel-gazing exercise
that focuses
on optimizing the way things are done internally rather than with customers, suppliers
or partners. Yet the navel gazing has a pretty good payback if you're willing to wait
for it—a Meta Group study of 63 companies found that it took eight months after the
new system was in (31 months total) to see any benefits. But the median annual
savings from the new ERP system were $1.6 million.
What are the hidden costs of ERP?
Although different companies will find different land mines in the budgeting process,
those who have implemented ERP packages agree that certain costs are more

commonly overlooked or underestimated than others. Armed with insights from
across the business, ERP pros vote the following areas as most likely to result in
budget overrun.

1. Training
Training is the near-unanimous choice of experienced ERP implementers as the most
underestimated budget item. Training expenses are high because workers almost
invariably have to learn a new set of processes, not just a new software interface.
Worse, outside training companies may not be able to help you. They are focused on
telling people how to use software, not on educating people about the particular ways
you do business. Prepare to develop a curriculum yourself that identifies and explains
the different business processes that will be affected by the ERP system. One
enterprising CIO hired staff from a local business school to help him develop and
teach the ERP business-training course to employees. Remember that with ERP,
finance people will be using the same software as warehouse people and they will
both be entering information that affects the other. To do this accurately, they have to
have a much broader understanding of how others in the company do their jobs than
they did before ERP came along. Ultimately, it will be up to your IT and
businesspeople to provide that training. So take whatever you have budgeted for ERP
training and double or triple it up front. It will be the best ERP investment you ever

2. Integration and testing

Testing the links between ERP packages and other corporate software links that have
to be built on a case-by-case basis is another often-underestimated cost. A typical
manufacturing company may have add-on applications from the major—e-commerce
and supply chain—to the minor—
sales tax computation and bar coding. All require integration links to ERP. If you can
buy addons from the ERP vendor that are pre-integrated, you're better off. If you need
to build the links yourself, expect things to get ugly. As with training, testing ERP
integration has to be done from a process-oriented perspective. Veterans recommend
that instead of plugging in dummy data and moving it from one application to the
next, run a real purchase order through the system, from order entry through shipping
and receipt of payment—the whole order-to-cash banana— preferably with the
participation of the employees who will eventually do those jobs.

3. Customization
Add-ons are only the beginning of the integration costs of ERP. Much more costly,
andsomething to be avoided if at all possible, is actual customization of the core ERP
software itself. This happens when the ERP software can't handle one of your
business processes and you decide
to mess with the software to make it do what you want. You're playing with fire. The
customizations can affect every module of the ERP system because they are all so
tightly linked together. Upgrading the ERP package—no walk in the park under the
best of circumstances— becomes a nightmare because you'll have to do the
customization all over again in the new version. Maybe it will work, maybe it won't.
No matter what, the vendor will not be there to support you. You will have to hire
extra staffers to do the customization work, and keep them on for good to maintain it.

4. Data conversion

It costs money to move corporate information, such as customer and supplier records,
product design data and the like, from old systems to new ERP homes. Although few
CIOs will admit it, most data in most legacy systems is of little use. Companies often
deny their data is dirty until they actually have to move it to the new client/server
setups that popular ERP packages require. Consequently, those companies are more
likely to underestimate the cost of the move. But even clean data may demand some
overhaul to match process modifications necessitated—or inspired—by the ERP

5. Data analysis
Often, the data from the ERP system must be combined with data from external
systems for
analysis purposes. Users with heavy analysis needs should include the cost of a data
warehouse in
the ERP budget—and they should expect to do quite a bit of work to make it run
smoothly. Users
are in a pickle here: Refreshing all the ERP data every day in a big corporate data
warehouse is
difficult, and ERP systems do a poor job of indicating which information has changed
from day
to day, making selective warehouse updates tough. One expensive solution is custom
programming. The upshot is that the wise will check all their data analysis needs
before signing
off on the budget.
6. Consultants ad infinitum
When users fail to plan for disengagement, consulting fees run wild. To avoid this,
companies should identify objectives for which its consulting partners must aim when
training internal staff. Include metrics in the consultants' contract; for example, a
specific number of the user company's staff should be able to pass a project-
management leadership test—similar to what Big Five consultants have to pass to
lead an ERP engagement.

7. Replacing your best and brightest

It is accepted wisdom that ERP success depends on staffing the project with the best
and brightest from the business and IS divisions. The software is too complex and the
business changes too dramatic to trust the project to just anyone. The bad news is a
company must be prepared to replace many of those people when the project is over.
Though the ERP market is not as hot as it once was, consultancies and other
companies that have lost their best people will be hounding yours with higher salaries
and bonus offers than you can afford—or that your HR policies permit. Huddle with
HR early on to develop a retention bonus program and create new salary strata for
ERP veterans. If you let them go, you'll wind up hiring them—or someone like them
—back as consultants for twice what you paid them in salaries.


System Quality Problems: Software and Data

It would be nice to have a perfect world, but we donÕt. Defects in software and data
are real. You as an end user can't do much about the software, but you can do
something about the data you input.

Bugs and Defects

The term bug, used to describe a defect in a software program, has been around since
the 1940s and 1950s. Back then, computers were powered by vacuum tubes -
hundreds and thousands of them. Grace Hopper, an early pioneer, was troubleshooting
a computer that had quit running. When her team opened the back of the computer to
see what was wrong, they found a moth had landed on one of the tubes and burned it
out. So the term "bug" came to describe problems with computers and software. With
millions of lines of code, it's impossible to have a completely error-free program.
Most software manufacturers know their products contain bugs when they release
them to the marketplace. They provide free updates and fixes on their Web sites.
That's why its a good idea not to buy the original version of a new software program
but to wait until some of the major bugs have been found b y others and fixed by the
Because bugs are so easy to create, most unintentionally, you can reduce the number
of them in
your programs by using the tools discussed in other chapters to design good programs
from the beginning. Many bugs originate in poorly defined and designed programs
and just keep infiltrating all parts of the program.

The Maintenance Nightmare

You simply can't build a system and then ignore it. It needs constant and continual
attention. The fact is that half of a company's technology staff time is devoted to
maintenance. When you're considering organizational changes, no matter how minor
they may seem, you must consider what changes need to be made to the systems that
support the business unit. Keep in mind that software is very complex nowadays. You
just might have to search through thousands or millions of lines of code to find one
small error that can cause major disruptions to the smooth functioning of the system.
In the SDLC lesson, we stress good system analysis and design. How well you did
back then will play out in the maintenance of the system. If you did a good job,
maintenance will be reduced. If you did a poor job analyzing and designing the
system, maintenance will be a far more difficult task.

Data Quality Problems

Let's bring the problem of poor data quality closer to home. What if the person
updating your college records fails to record your grade correctly for this course and
gives you a D instead of a B or an A? What if your completion of this course isn't
even recorded? Think of the time and difficulty you'll experience getting the data
Information Systems security is everyone's business. Use antivirus software on your
computer and update it every 30-60 days. The "it won't happen to me" attitude is
trouble. Many system quality problems can be solved by instituting measures to
decrease the bugs and defects in software and data entry.


Supply chain management

Supply chain management (SCM) is the process of planning, implementing, and

controlling the operations of the supply chain as efficiently as possible. Supply Chain
Management spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point-of-origin to point-of-consumption. The term
supply chain management was coined by consultant Keith Oliver, of strategy
consulting firm Booz Allen Hamilton in 1982.

The definition one America professional association put forward is that Supply Chain
Management encompasses the planning and management of all activities involved in
sourcing, procurement, conversion, and logistics management activities. Importantly,
it also includes coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers, and customers. In essence,
Supply Chain Management integrates supply and demand management within and
across companies.

Some experts distinguish Supply Chain Management and logistics, while others
consider the terms to be interchangeable.

Supply Chain Management is also a category of software products.

Supply chain event management (abbreviated as SCEM) is a consideration of all

possible occurring events and factors that can cause a disruption in a supply chain.
With SCEM possible scenarios can be created and solutions can be planned.

Supply chain management problems

Supply chain management must address the following problems:

• Distribution Network Configuration: Number and location of suppliers,

production facilities, distribution centers, warehouses and customers.
• Distribution Strategy: Centralized versus decentralized, direct shipment, Cross
docking, pull or push strategies, third party logistics.
• Information: Integrate systems and processes through the supply chain to share
valuable information, including demand signals, forecasts, inventory and
transportation etc.
• Inventory Management: Quantity and location of inventory including raw
materials, work-in-process and finished goods.
• Cash-Flow: Arranging the payment terms and the methodologies for
exchanging funds across entities within the supply chain.

Supply chain execution is managing and coordinating the movement of materials,

information and funds across the supply chain. The flow is bi-directional.


Supply chain management is a cross-functional approach to managing the movement

of raw materials into an organization and the movement of finished goods out of the
organization toward the end-consumer. As corporations strive to focus on core
competencies and become more flexible, they have reduced their ownership of raw
materials sources and distribution channels. These functions are increasingly being
outsourced to other corporations that can perform the activities better or more cost
effectively. The effect has been to increase the number of companies involved in
satisfying consumer demand, while reducing management control of daily logistics
operations. Less control and more supply chain partners led to the creation of supply
chain management concepts. The purpose of supply chain management is to improve
trust and collaboration among supply chain partners, thus improving inventory
visibility and improving inventory velocity.

Several models have been proposed for understanding the activities required to
manage material movements across organizational and functional boundaries. SCOR
is a supply chain management model promoted by the Supply Chain Management
Council. Another model is the SCM Model proposed by the Global Supply Chain
Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and
operational levels of activities.


• Strategic network optimization, including the number, location, and size of

warehouses, distribution centers and facilities.
• Strategic partnership with suppliers, distributors, and customers, creating
communication channels for critical information and operational
improvements such as cross docking, direct shipping, and third-party logistics.
• Product design coordination, so that new and existing products can be
optimally integrated into the supply chain, load management
• Information Technology infrastructure, to support supply chain operations.
• Where to make and what to make or buy decisions
• Align overall organizational strategy with supply strategy


• Sourcing contracts and other purchasing decisions.

• Production decisions, including contracting, locations, scheduling, and
planning process definition.
• Inventory decisions, including quantity, location, and quality of inventory.
• Transportation strategy, including frequency, routes, and contracting.
• Benchmarking of all operations against competitors and implementation of
best practices throughout the enterprise.
• Milestone payments


• Daily production and distribution planning, including all nodes in the supply

• Production scheduling for each manufacturing facility in the supply chain
(minute by minute).
• Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers.
• Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers.
• Inbound operations, including transportation from suppliers and receiving
• Production operations, including the consumption of materials and flow of
finished goods.
• Outbound operations, including all fulfillment activities and transportation to
• Order promising, accounting for all constraints in the supply chain, including
all suppliers, manufacturing facilities, distribution centers, and other

[edit] Supply chain management

Organizations increasingly find that they must rely on effective supply chains, or
networks, to successfully compete in the global market and networked economy.[1] In
Peter Drucker's (1998) management's new paradigms, this concept of business
relationships extends beyond traditional enterprise boundaries and seeks to organize
entire business processes throughout a value chain of multiple companies.

During the past decades, globalization, outsourcing and information technology have
enabled many organizations such as Dell and Hewlett Packard, to successfully operate
solid collaborative supply networks in which each specialized business partner
focuses on only a few key strategic activities (Scott, 1993). This inter-organizational
supply network can be acknowledged as a new form of organization. However, with
the complicated interactions among the players, the network structure fits neither
"market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of
performance impacts different supply network structures could have on firms, and
little is known about the coordination conditions and trade-offs that may exist among
the players. From a system's point of view, a complex network structure can be
decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally,
companies in a supply network concentrate on the inputs and outputs of the processes,
with little concern for the internal management working of other individual players.
Therefore, the choice of internal management control structure is known to impact
local firm performance (Mintzberg, 1979).

In the 21st century, there have been a few changes in business environment that have
contributed to the development of supply chain networks. First, as an outcome of
globalization and proliferation of multi-national companies, joint ventures, strategic
alliances and business partnerships were found to be significant success factors,
following the earlier "Just-In-Time", "Lean Management" and "Agile Manufacturing"
practices.[2] Second, technological changes, particularly the dramatic fall in
information communication costs, a paramount component of transaction costs, has
led to changes in coordination among the members of the supply chain network
(Coase, 1998).

Many researchers have recognized these kinds of supply network structure as a new
organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual
Corporation", Global Production Network", and "Next Generation Manufacturing
System".[3] In general, such a structure can be defined as "a group of semi-
independent organizations, each with their capabilities, which collaborate in ever-
changing constellations to serve one or more markets in order to achieve some
business goal specific to that collaboration" (Akkermans, 2001).

Supply chain business process integration

Successful SCM requires a change from managing individual functions to integrating

activities into key supply chain processes. An example scenario: the purchasing
department places orders as requirements become appropriate. Marketing, responding
to customer demand, communicates with several distributors and retailers, and
attempts to satisfy this demand. Shared information between supply chain partners
can only be fully leveraged through process integration.

Supply chain business process integration involves collaborative work between

buyers and suppliers, joint product development, common systems and shared
information. According to Lambert and Cooper (2000) operating an integrated supply
chain requires continuous information flows, which in turn assist to achieve the best
product flows. However, in many companies, management has reached the conclusion
that optimizing the product flows cannot be accomplished without implementing a
process approach to the business. The key supply chain processes stated by Lambert
(2004) are:

• Customer relationship management

• Customer service management
• Demand management
• Order fulfillment
• Manufacturing flow management
• Supplier relationship management
• Product development and commercialization
• Returns management

One could suggest other key critical supply business processes combining these
processes stated by Lambert such as:

a. Customer service management

b. Procurement
c. Product development and commercialization
d. Manufacturing flow management/support
e. Physical distribution
f. Outsourcing/partnerships
g. Performance measurement

a) Customer service management process

Customer Relationship Management concerns the relationship between the

organization and its customers.Customer service provides the source of customer
information. It also provides the customer with real-time information on promising
dates and product availability through interfaces with the company's production and
distribution operations. Successful organizations use following steps to build
customer relationships:

• determine mutually satisfying goals between organization and customers

• establish and maintain customer rapport

• produce positive feelings in the organization and the customers

b) Procurement process

Strategic plans are developed with suppliers to support the manufacturing flow
management process and development of new products. In firms where operations
extend globally, sourcing should be managed on a global basis. The desired outcome
is a win-win relationship, where both parties benefit, and reduction times in the design
cycle and product development is achieved. Also, the purchasing function develops
rapid communication systems, such as electronic data interchange (EDI) and Internet
linkages to transfer possible requirements more rapidly. Activities related to obtaining
products and materials from outside suppliers. This requires performing resource
planning, supply sourcing, negotiation, order placement, inbound transportation,
storage and handling and quality assurance. Also, includes the responsibility to
coordinate with suppliers in scheduling, supply continuity, hedging, and research to
new sources or programmes.

c) Product development and commercialization

Here, customers and suppliers must be united into the product development process,
thus to reduce time to market. As product life cycles shorten, the appropriate products
must be developed and successfully launched in ever shorter time-schedules to remain
competitive. According to Lambert and Cooper (2000), managers of the product
development and commercialization process must:

1. coordinate with customer relationship management to identify customer-

articulated needs;
2. select materials and suppliers in conjunction with procurement, and
3. develop production technology in manufacturing flow to manufacture and
integrate into the best supply chain flow for the product/market combination.

d) Manufacturing flow management process

The manufacturing process is produced and supplies products to the distribution

channels based on past forecasts. Manufacturing processes must be flexible to respond
to market changes, and must accommodate mass customization. Orders are processes
operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the
manufacturing flow process lead to shorter cycle times, meaning improved
responsiveness and efficiency of demand to customers. Activities related to planning,
scheduling and supporting manufacturing operations, such as work-in-process storage,
handling, transportation, and time phasing of components, inventory at manufacturing
sites and maximum flexibility in the coordination of geographic and final assemblies
postponement of physical distribution operations.

e) Physical distribution

This concerns movement of a finished product/service to customers. In physical

distribution, the customer is the final destination of a marketing channel, and the

availability of the product/service is a vital part of each channel participant's
marketing effort. It is also through the physical distribution process that the time and
space of customer service become an integral part of marketing, thus it links a
marketing channel with its customers (e.g. links manufacturers, wholesalers,

f) Outsourcing/partnerships

This is not just outsourcing the procurement of materials and components, but also
outsourcing of services that traditionally have been provided in-house. The logic of
this trend is that the company will increasingly focus on those activities in the value
chain where it has a distinctive advantage and everything else it will outsource. This
movement has been particularly evident in logistics where the provision of transport,
warehousing and inventory control is increasingly subcontracted to specialists or
logistics partners. Also, to manage and control this network of partners and suppliers
requires a blend of both central and local involvement. Hence, strategic decisions
need to be taken centrally with the monitoring and control of supplier performance
and day-to-day liaison with logistics partners being best managed at a local level.

g) Performance measurement

Experts found a strong relationship from the largest arcs of supplier and customer
integration to market share and profitability. By taking advantage of supplier
capabilities and emphasizing a long-term supply chain perspective in customer
relationships can be both correlated with firm performance. As logistics competency
becomes a more critical factor in creating and maintaining competitive advantage,
logistics measurement becomes increasingly important because the difference
between profitable and unprofitable operations becomes more narrow. A.T. Kearney
Consultants (1985) noted that firms engaging in comprehensive performance
measurement realized improvements in overall productivity. According to experts
internal measures are generally collected and analyzed by the firm including

1. Cost
2. Customer Service
3. Productivity measures
4. Asset measurement, and
5. Quality.

External performance measurement is examined through customer perception

measures and "best practice" benchmarking, and includes 1) customer perception
measurement, and 2) best practice benchmarking.

Components of Supply Chain Management are 1. Standardisation 2. Postponement 3.



A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these finished products to
customers. Supply chains exist in both service and manufacturing organizations,
although the complexity of the chain may vary greatly from industry to industry and
firm to firm.
Below is an example of a very simple supply chain for a single product, where raw
material is procured from vendors, transformed into finished goods in a single step,
and then transported to distribution centers, and ultimately, customers. Realistic
supply chains have multiple end products with shared components, facilities and
capacities. The flow of materials is not always along an arborescent network, various
modes of transportation may be considered, and the bill of materials for the end items
may be both deep and large.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations
have their own objectives and these are often conflicting. Marketing's objective of
high customer service and maximum sales dollars conflict with manufacturing and
distribution goals. Many manufacturing operations are designed to maximize
throughput and lower costs with little consideration for the impact on inventory levels
and distribution capabilities. Purchasing contracts are often negotiated with very little
information beyond historical buying patterns. The result of these factors is that there
is not a single, integrated plan for the organization---there were as many plans as
businesses. Clearly, there is a need for a mechanism through which these different
functions can be integrated together. Supply chain management is a strategy through
which such an integration can be achieved.
Supply chain management is typically viewed to lie between fully vertically
integrated firms, where the entire material flow is owned by a single firm, and those
where each channel member operates independently. Therefore coordination between
the various players in the chain is key in its effective management. Cooper and Ellram
[1993] compare supply chain management to a well-balanced and well-practiced relay
team. Such a team is more competitive when each player knows how to be positioned
for the hand-off. The relationships are the strongest between players who directly pass
the baton, but the entire team needs to make a coordinated effort to win the race.

Supply Chain Decisions

We classify the decisions for supply chain management into two broad categories --
strategic and operational. As the term implies, strategic decisions are made typically
over a longer time horizon. These are closely linked to the corporate strategy (they
sometimes {\it are} the corporate strategy), and guide supply chain policies from a
design perspective. On the other hand, operational decisions are short term, and focus
on activities over a day-to-day basis. The effort in these type of decisions is to
effectively and efficiently manage the product flow in the "strategically" planned
supply chain.

There are four major decision areas in supply chain management: 1) location, 2)
production, 3) inventory, and 4) transportation (distribution), and there are both
strategic and operational elements in each of these decision areas.

Location Decisions
The geographic placement of production facilities, stocking points, and sourcing
points is the natural first step in creating a supply chain. The location of facilities
involves a commitment of resources to a long-term plan. Once the size, number, and
location of these are determined, so are the possible paths by which the product flows
through to the final customer. These decisions are of great significance to a firm since
they represent the basic strategy for accessing customer markets, and will have a
considerable impact on revenue, cost, and level of service. These decisions should be
determined by an optimization routine that considers production costs, taxes, duties
and duty drawback, tariffs, local content, distribution costs, production limitations,
etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough discussion of
these aspects.) Although location decisions are primarily strategic, they also have
implications on an operational level.

Production Decisions
The strategic decisions include what products to produce, and which plants to produce
them in, allocation of suppliers to plants, plants to DC's, and DC's to customer
markets. As before, these decisions have a big impact on the revenues, costs and
customer service levels of the firm. These decisions assume the existence of the
facilities, but determine the exact path(s) through which a product flows to and from
these facilities. Another critical issue is the capacity of the manufacturing facilities--
and this largely depends the degree of vertical integration within the firm. Operational
decisions focus on detailed production scheduling. These decisions include the
construction of the master production schedules, scheduling production on machines,
and equipment maintenance. Other considerations include workload balancing, and
quality control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every
stage of the supply chain as either raw materials, semi-finished or finished goods.
They can also be in-process between locations. Their primary purpose to buffer
against any uncertainty that might exist in the supply chain. Since holding of
inventories can cost anywhere between 20 to 40 percent of their value, their efficient
management is critical in supply chain operations. It is strategic in the sense that top
management sets goals. However, most researchers have approached the management
of inventory from an operational perspective. These include deployment strategies
(push versus pull), control policies --- the determination of the optimal levels of order
quantities and reorder points, and setting safety stock levels, at each stocking location.
These levels are critical, since they are primary determinants of customer service

Transportation Decisions
The mode choice aspect of these decisions are the more strategic ones. These are
closely linked to the inventory decisions, since the best choice of mode is often found
by trading-off the cost of using the particular mode of transport with the indirect cost

of inventory associated with that mode. While air shipments may be fast, reliable, and
warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail
may be much cheaper, but they necessitate holding relatively large amounts of
inventory to buffer against the inherent uncertainty associated with them. Therefore
customer service levels, and geographic location play vital roles in such decisions.
Since transportation is more than 30 percent of the logistics costs, operating
efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments
versus Lot-for-Lot), routing and scheduling of equipment are key in effective
management of the firm's transport strategy.

Supply Chain Modeling Approaches

Clearly, each of the above two levels of decisions require a different perspective. The
strategic decisions are, for the most part, global or "all encompassing" in that they try
to integrate various aspects of the supply chain. Consequently, the models that
describe these decisions are huge, and require a considerable amount of data. Often
due to the enormity of data requirements, and the broad scope of decisions, these
models provide approximate solutions to the decisions they describe. The operational
decisions, meanwhile, address the day to day operation of the supply chain. Therefore
the models that describe them are often very specific in nature. Due to their narrow
perspective, these models often consider great detail and provide very good, if not
optimal, solutions to the operational decisions.
To facilitate a concise review of the literature, and at the same time attempting to
accommodate the above polarity in modeling, we divide the modeling approaches into three
areas --- Network Design, ``Rough Cut" methods, and simulation based methods. The
network design methods, for the most part, provide normative models for the more strategic
decisions. These models typically cover the four major decision areas described earlier, and
focus more on the design aspect of the supply chain; the establishment of the network and the
associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for
the operational decisions. These models typically assume a "single site" (i.e., ignore the
network) and add supply chain characteristics to it, such as explicitly considering the site's
relation to the others in the network. Simulation methods is a method by which a
comprehensive supply chain model can be analyzed, considering both strategic and
operational elements. However, as with all simulation models, one can only evaluate the
effectiveness of a pre-specified policy rather than develop new ones. It is the traditional
question of "What If?" versus "What's Best?".

Network Design Methods

As the very name suggests, these methods determine the location of production,
stocking, and sourcing facilities, and paths the product(s) take through them. Such
methods tend to be large scale, and used generally at the inception of the supply
chain. The earliest work in this area, although the term "supply chain" was not in
vogue, was by Geoffrion and Graves [1974]. They introduce a multicommodity
logistics network design model for optimizing annualized finished product flows from
plants to the DC's to the final customers. Geoffrion and Powers [1993] later give a
review of the evolution of distribution strategies over the past twenty years,
describing how the descendants of the above model can accommodate more echelons
and cross commodity detail.
Breitman and Lucas [1987] attempt to provide a framework for a comprehensive
model of a production-distribution system, "PLANETS", that is used to decide what
products to produce, where and how to produce it, which markets to pursue and what

resources to use. Parts of this ambitious project were successfully implemented at
General Motors.
Cohen and Lee [1985] develop a conceptual framework for manufacturing strategy
analysis, where they describe a series of stochastic sub- models, that considers
annualized product flows from raw material vendors via intermediate plants and
distribution echelons to the final customers. They use heuristic methods to link and
optimize these sub- models. They later give an integrated and readable exposition of
their models and methods in Cohen and Lee [1988].
Cohen and Lee [1989] present a normative model for resource deployment in a global
manufacturing and distribution network. Global after-tax profit (profit-local taxes) is
maximized through the design of facility network and control of material flows within
the network. The cost structure consists of variable and fixed costs for material
procurement, production, distribution and transportation. They validate the model by
applying it to analyze the global manufacturing strategies of a personal computer
Finally, Arntzen, Brown, Harrison, and Trafton [1995] provide the most
comprehensive deterministic model for supply chain management. The objective
function minimizes a combination of cost and time elements. Examples of cost
elements include purchasing, manufacturing, pipeline inventory, transportation costs
between various sites, duties, and taxes. Time elements include manufacturing lead
times and transit times. Unique to this model was the explicit consideration of duty
and their recovery as the product flowed through different countries. Implementation
of this model at the Digital Equipment Corporation has produced spectacular results
--- savings in the order of $100 million dollars.
Clearly, these network-design based methods add value to the firm in that they lay
down the manufacturing and distribution strategies far into the future. It is imperative
that firms at one time or another make such integrated decisions, encompassing
production, location, inventory, and transportation, and such models are therefore
indispensable. Although the above review shows considerable potential for these
models as strategic determinants in the future, they are not without their
shortcomings. Their very nature forces these problems to be of a very large scale.
They are often difficult to solve to optimality. Furthermore, most of the models in this
category are largely deterministic and static in nature. Additionally, those that
consider stochastic elements are very restrictive in nature. In sum, there does not seem
to yet be a comprehensive model that is representative of the true nature of material
flows in the supply chain.

Rough Cut Methods

These models form the bulk of the supply chain literature, and typically deal with the
more operational or tactical decisions. Most of the integrative research (from a supply
chain context) in the literature seem to take on an inventory management perspective.
In fact, the term "Supply Chain" first appears in the literature as an inventory
management approach. The thrust of the rough cut models is the development of
inventory control policies, considering several levels or echelons together. These
models have come to be known as "multi-level" or "multi-echelon" inventory control
models. For a review the reader is directed to Vollman et al. [1992].


Customer Relationship Management

What is CRM (customer relationship management)?

CRM (customer relationship management) is an information industry term for

methodologies, software, and usually Internet capabilities that help an enterprise
manage customer relationships in an organized way. For example, an enterprise might
build a database about its customers that described relationships in sufficient detail so
that management, salespeople, people providing service, and perhaps the customer
directly could access information, match customer needs with product plans and
offerings, remind customers of service requirements, know what other products a
customer had purchased, and so forth.

According to one industry view, CRM consists of:

• Helping an enterprise to enable its marketing departments to identify and

target their best customers, manage marketing campaigns with clear goals and
objectives, and generate quality leads for the sales team.
• Assisting the organization to improve telesales, account, and sales
management by optimizing information shared by multiple employees, and
streamlining existing processes (for example, taking orders using mobile
• Allowing the formation of individualized relationships with customers, with
the aim of improving customer satisfaction and maximizing profits;
identifying the most profitable customers and providing them the highest level
of service.
• Providing employees with the information and processes necessary to know
their customers, understand their needs, and effectively build relationships
between the company, its customer base, and distribution partners.

Aspects of CRM

There are three aspects of CRM which can each be implemented in isolation from
each other:

• Operational CRM- automation or support of customer processes that include a

company’s sales or service representative
• Collaborative CRM- direct communication with customers that does not
include a company’s sales or service representative (“self service”)
• Analytical CRM- analysis of customer data for a broad range of purposes

META Group (acquired by Gartner in April 2005) developed this conceptual

architecture in the late 1990s, and dubbed it the “CRM Ecosystem”

Operational CRM

Operational CRM provides support to "front office" business processes, including

sales, marketing and service. Each interaction with a customer is generally added to a

customer's contact history, and staff can retrieve information on customers from the
database as necessary.

One of the main benefits of this contact history is that customers can interact with
different people or different contact “channels” in a company over time without
having to repeat the history of their interaction each time.

Consequently, many call centers use some kind of CRM software to support their call
centre agents.

Collaborative CRM

Collaborative CRM covers the direct interaction with customers, for a variety of
different purposes, including feedback and issue-reporting. Interaction can be through
a variety of channels, such as web pages, email, automated phone (Automated Voice
Response AVR) or SMS.

The objectives of Collaborative CRM can be broad, including cost reduction and
service improvements.

Analytical CRM

Analytical CRM analyses customer data for a variety of purposes including

• design and execution of targeted marketing campaigns to optimise marketing

• design and execution of specific customer campaigns, including customer
acquisition, cross-selling, up-selling, retention
• analysis of customer behaviour to aid product and service decision making
(e.g. pricing, new product development etc.)
• management decisions, e.g. financial forecasting and customer profitability
• prediction of the probability of customer defection (churn).

Analytical CRM generally makes heavy use of predictive analytics.


Several commercial CRM software packages are available which vary in their
approach to CRM. However, CRM is not just a technology, but rather a holistic
approach to an organization's philosophy in dealing with its customers. This includes
policies and processes, front-of-house customer service, employee training,
marketing, systems and information management. Hence, it is important that any
CRM implementation considers not only technology, but furthermore the broader
organizational requirements.

The objectives of a CRM strategy must consider a company’s specific situation and
its customers needs and expectations.

Technology Considerations

The technology requirements of a CRM strategy can be complex and far reaching.
The basic building blocks include

• A database to store customer information. This can be a CRM specific

database or an Enterprise Data warehouse.
• Operational CRM requires customer agent support software.
• Collaborative CRM requires customer interaction systems, eg an interactive
website, automated phone systems etc.
• Analytical CRM requires statistical analysis software as well as software that
manages any specific marketing campaigns.

Each of these can be implemented in a basic manner or in a high end complex


Key Functionalities

A typical CRM system is subdivided into three basic sub modules:

1. Marketing
2. Sales
3. Service


Marketing sub module primarily deals with providing functionalities of Long-term

planning and Short-term execution of Marketing related Activities within an

Marketing Planning

Long-term Market Plans can be made and Quantitative as well as Qualitative

measures (targets) can be set for a defined period and for different product groups,
geographies etc. These are then monitored based on the actual performance
throughout the defined period.

Campaign Management

Short-Term execution includes running Marketing campaigns via different

communication channels targeting a pre-defined group of potential buyers with a
specific message referring to a product or a group of products.

Lead Management

One key objective of the Marketing function is to generate sales related leads, which
finally get converted into Sales Revenues for the company. Marketing campaigns with
the specific objective of generating leads (Prospective customers who may be
interested in a product). Lead management deals with processing these Leads,
carrying out a sanity check, evaluating the genuineness of the information (Since,
there is a lot of information that is gathered during Marketing Campaigns it becomes
necessary to screen these leads), and finally converting them to Hot Leads or Cold


Sales functionalities are focused on helping the Sales team to execute and manage the
presales process better and in an organized manner. Sales team is responsible for
regularly capturing key customer interactions, any leads or opportunities they are
working on etc, in CRM system. The system helps by processing this data, monitoring
against the targets and proactively alerting the sales person with recommended further
actions based on company's sales policy.

Opportunity Management

Opportunities help the Sales team by organizing all the relevant data regarding a
prospective deal into one place. It is characterized by the details such as Prospective
customer, expected budget, total spending, products interested in, expected closing
date, Key players in the deal and their key characteristics, important dates and
milestones etc.
The Opportunity has several phases, e.g. initiation, identification, qualification, RFP
received, quotation sent, final stage, won or lost. Of course these phases can be
defined based on individual company needs. A CRM system helps in each phase by
"Guiding" the Sales representative to carry out certain suggested activities as defined
by the company's sales policy. It creates reminders and planned activities within the
system. e.g. if the Opportunity has reached "RFP received" stage, and the deal size is
more than (say) 50,000 USD, the system can prompt the representative to hold a
review discussion with a senior manager. This is often referred as "Guided Sales
Methodology". Opportunities can be directly converted into Quotations or Sales

Quotation and Sales Order Management

Opportunities, if they reach a Quotation phase, can be converted to a quotation, and, if

won gets converted to a Sales order. Standard features of creating a "linked"
Quotation or Sales Order from opportunities are provided. These Sales orders then
flow to the Back-End (ERP) system for further execution and Delivery.

Activity Management

Activities represent various Sales or Service related interactions with the customer
(meetings, discussions, telephone calls, emails). Activity Management provides a
platform to consolidate all the interactions with customer into a single platform,
helping to build a 360 degree view of customer. Activities can be synchronized to MS
Outlook/Lotus Notes Calendar items (Meetings and Tasks)


Service related functionalities are focused on effectively managing the customer

service (Planned or Unplanned), avoid "leakage" of Warranty based services, avoid
"Penalties" arising due to Non conformity of SLA (Service Level Agreements), and
provide first and Second Level support to Customers. Several functionalities are
mentioned below:

1. Service Order Management

2. Service Contract Management
3. Planned Services management
4. Warranty Management
5. Installed Base (Equipment) Management
6. SLA Management
7. Resource Planning and Scheduling
8. Knowledge Management (FAQs, How to guides)
9. Call Center Support

10. Resource Planning and Workforce Management

Channels of communication

It is also important to mention here that a CRM system is capable of executing all the
three sub modules via multiple communication Channels. These channels can be:

1. Direct
2. Online (Internet)
3. Call Center (via Phone/FAX/Email etc)

All the three CRM Sub Modules (Marketing, Sales and Service) can be executed
across these Communication channels. Based on these criteria, CRM offerings can be
further sub divided into following:

Channel Direct Internet Call Center

/ CRM Module
Marketing Web Marketing Tele Marketing
Sales Web Shop Tele Sales
Customer Self Service
Service Online Service Tele Service

While there are numerous reports of "failed" implementations of various types of

CRM projects, these are often the result of unrealistic high expectations and
exaggerated claims by CRM vendors.

In contrast there are a growing number of successes. One example is the National
Australia Bank (NAB) which has pursued a CRM strategy for over ten years and has
won numerous awards for its efforts. [1] [2]

Privacy and Data Security

The data gathered as part of CRM must consider customer privacy and data security.
Customers want the assurance that their data is not shared with third parties without
their consent and not accessed illegally by third parties.

Customers also want their data used by companies to provide a benefit for them. For
instance, an increase in unsolicited telemarketing calls is generally resented by
customers while a small number of relevant offers is generally appreciated by


Data warehouse

A data warehouse is the main repository of an organization's historical data, its

corporate memory. It contains the raw material for management's decision support
system. The critical factor leading to the use of a data warehouse is that a data analyst
can perform complex queries and analysis, such as data mining, on the information
without slowing down the operational systems.

Bill Inmon, an early and influential practitioner, has formally defined a data
warehouse in the following terms;

• subject-oriented, meaning that the data in the database is organized so that all
the data elements relating to the same real-world event or object are linked
• time-variant, meaning that the changes to the data in the database are tracked
and recorded so that reports can be produced showing changes over time;
• non-volatile, meaning that data in the database is never over-written or deleted
- once committed, the data is static, read-only, but retained for future
reporting; and
• integrated, meaning that the database contains data from most or all of an
organization's operational applications, and that this data is made consistent.

A data warehouse might be used to find the day of the week on which a company sold
the most widgets in May 1992, or how employee sick leave the week before the
winter break differed between California and New York from 2001–2005.

While operational systems are optimized for simplicity and speed of modification (see
OLTP) through heavy use of database normalization and an entity-relationship model,
the data warehouse is optimized for reporting and analysis (online analytical
processing, or OLAP). Frequently data in data warehouses are heavily denormalised,
summarised or stored in a dimension-based model. This is not always required to
achieve acceptable query response times, however.


Data Warehouses became a distinct type of computer database during the late 1980s
and early 1990s. They were developed to meet a growing demand for management
information and analysis that could not be met by operational systems. Operational
systems were unable to meet this need for a range of reasons:

• The processing load of reporting reduced the response time of the operational
• The database designs of operational systems were not optimized for
information analysis and reporting,
• Most organizations had more than one operational system, so company-wide
reporting could not be supported from a single system, and
• Development of reports in operational systems often required writing specific
computer programs which was slow and expensive

As a result, separate computer databases began to be built that were specifically
designed to support management information and analysis purposes. These data
warehouses were able to bring in data from a range of different data sources, such as
mainframe computers, minicomputers, as well as personal computers and office
automation software such as spreadsheet, and integrate this information in a single
place. This capability, coupled with user-friendly reporting tools and freedom from
operational impacts, has led to a growth of this type of computer system.


As technology improved (lower cost for more performance) and user requirements
increased (faster data load cycle times and more features), data warehouses have
evolved through several fundamental stages:

• Offline Operational Databases — Data warehouses in this initial stage are

developed by simply copying the database of an operational system to an off-
line server where the processing load of reporting does not impact on the
operational system's performance.
• Offline Data Warehouse — Data warehouses in this stage of evolution are
updated on a regular time cycle (usually daily, weekly or monthly) from the
operational systems and the data is stored in an integrated reporting-oriented
data structure
• Real Time Data Warehouse — Data warehouses at this stage are updated on
a transaction or event basis, every time an operational system performs a
transaction (e.g. an order or a delivery or a booking etc.)
• Integrated Data Warehouse — Data warehouses at this stage are used to
generate activity or transactions that are passed back into the operational
systems for use in the daily activity of the organization.


The term data warehouse architecture is primarily used today to describe the overall
structure of a Business Intelligence system. Other historical terms include decision
support systems (DSS), management information systems (MIS), and others.


In OLTP — online transaction processing systems relational database design use the
discipline of data modeling and generally follow the Codd rules of data normalization
in order to ensure absolute data integrity. Less complex information is broken down
into its most simple structures (a table) where all of the individual atomic level
elements relate to each other and satisfy the normalization rules. Codd defines 5
increasingly stringent rules of normalization and typically OLTP systems achieve a
3rd level normalization. Fully normalized OLTP database designs often result in
having information from a business transaction stored in dozens to hundreds of tables.
Relational database managers are efficient at managing the relationships between
tables and result in very fast insert/update performance because only a little bit of data
is affected in each relational transaction.

OLTP databases are efficient because they are typically only dealing with the
information around a single transaction. In reporting and analysis, thousands to
billions of transactions may need to be reassembled imposing a huge workload on the
relational database. Given enough time the software can usually return the requested
results, but because of the negative performance impact on the machine and all of its

hosted applications, data warehousing professionals recommend that reporting
databases be physically separated from the OLTP database.

In addition, data warehousing suggests that data be restructured and reformatted to

facilitate query and analysis by novice users. OLTP databases are designed to provide
good performance by rigidly defined applications built by programmers fluent in the
constraints and conventions of the technology. Add in frequent enhancements, and too
many a database is just a collection of cryptic names, seemingly unrelated and
obscure structures that store data using incomprehensible coding schemes. All factors
that while improving performance, complicate use by untrained people. Lastly, the
data warehouse needs to support high volumes of data gathered over extended periods
of time and are subject to complex queries and need to accommodate formats and
definitions inherited from independently designed package and legacy systems.

Designing the data warehouse data Architecture synergy is the realm of Data
Warehouse Architects. The goal of a data warehouse is to bring data together from a
variety of existing databases to support management and reporting needs. The
generally accepted principle is that data should be stored at its most elemental level
because this provides for the most useful and flexible basis for use in reporting and
information analysis. However, because of different focus on specific requirements,
there can be alternative methods for design and implementing data warehouses. There
are two leading approaches to organizing the data in a data warehouse: the
dimensional approach advocated by Ralph Kimball and the normalized approach
advocated by Bill Inmon. Whilst the dimension approach is very useful in data mart
design, it can result in a rats nest of long term data integration and abstraction
complications when used in a data warehouse.

In the "dimensional" approach, transaction data is partitioned into either a measured

"facts" which are generally numeric data that captures specific values or "dimensions"
which contain the reference information that gives each transaction its context. As an
example, a sales transaction would be broken up into facts such as the number of
products ordered, and the price paid, and dimensions such as date, customer, product,
geographical location and salesperson. The main advantages of a dimensional
approach is that the data warehouse is easy for business staff with limited information
technology experience to understand and use. Also, because the data is pre-joined into
the dimensional form, the data warehouse tends to operate very quickly. The main
disadvantage of the dimensional approach is that it is quite difficult to add or change
later if the company changes the way in which it does business.

The "normalized" approach uses database normalization. In this method, the data in
the data warehouse is stored in third normal form. Tables are then grouped together
by subject areas that reflect the general definition of the data (customer, product,
finance, etc.) The main advantage of this approach is that it is quite straightforward to
add new information into the database — the primary disadvantage of this approach is
that because of the number of tables involved, it can be rather slow to produce
information and reports. Furthermore, since the segregation of facts and dimensions is
not explicit in this type of data model, it is difficult for users to join the required data
elements into meaningful information without a precise understanding of the data

Subject areas are just a method of organizing information and can be defined along
any lines. The traditional approach has subjects defined as the subjects or nouns
within a problem space. For example, in a financial services business, you might have
customers, products and contracts. An alternative approach is to organize around the
business transactions, such as customer enrollment, sales and trades.


There are many advantages to using a data warehouse, some of them are:

• Enhances end-user access to a wide variety of data.

• Decision support system users can obtain specified trend reports, e.g. the item
with the most sales in a particular area/country within the last two years.

A data warehouse can be a significant enabler of commercial business applications,

most notably customer relationship management (CRM).


• Extracting, transforming and loading data consumes a lot of time and

computational resources.
• Data warehousing project scope must be actively managed to deliver a release
of defined content and value.
• Compatibility problems with systems already in place.
• Security could develop into a serious issue, especially if the data warehouse is
web accessible.
• Data Storage design controversy warrants careful consideration and perhaps
prototyping of the data warehouse solution for each project's environments


Data Mining: What is Data Mining?

Generally, data mining (sometimes called data or knowledge discovery) is the process
of analyzing data from different perspectives and summarizing it into useful
information - information that can be used to increase revenue, cuts costs, or both.
Data mining software is one of a number of analytical tools for analyzing data. It
allows users to analyze data from many different dimensions or angles, categorize it,
and summarize the relationships identified. Technically, data mining is the process of
finding correlations or patterns among dozens of fields in large relational databases.
Continuous Innovation
Although data mining is a relatively new term, the technology is not. Companies have
used powerful computers to sift through volumes of supermarket scanner data and
analyze market research reports for years. However, continuous innovations in
computer processing power, disk storage, and statistical software are dramatically
increasing the accuracy of analysis while driving down the cost.
For example, one Midwest grocery chain used the data mining capacity of Oracle
software to analyze local buying patterns. They discovered that when men bought
diapers on Thursdays and Saturdays, they also tended to buy beer. Further analysis
showed that these shoppers typically did their weekly grocery shopping on Saturdays.
On Thursdays, however, they only bought a few items. The retailer concluded that
they purchased the beer to have it available for the upcoming weekend. The grocery
chain could use this newly discovered information in various ways to increase
revenue. For example, they could move the beer display closer to the diaper display.
And, they could make sure beer and diapers were sold at full price on Thursdays.
Data, Information, and Knowledge

Data are any facts, numbers, or text that can be processed by a computer. Today,
organizations are accumulating vast and growing amounts of data in different formats
and different databases. This includes:

• operational or transactional data such as, sales, cost, inventory, payroll, and

• nonoperational data, such as industry sales, forecast data, and macro economic

• meta data - data about the data itself, such as logical database design or data
dictionary definitions


The patterns, associations, or relationships among all this data can provide
information. For example, analysis of retail point of sale transaction data can yield
information on which products are selling and when.


Information can be converted into knowledge about historical patterns and future
trends. For example, summary information on retail supermarket sales can be
analyzed in light of promotional efforts to provide knowledge of consumer buying
behavior. Thus, a manufacturer or retailer could determine which items are most
susceptible to promotional efforts.

Data Warehouses
Dramatic advances in data capture, processing power, data transmission, and storage
capabilities are enabling organizations to integrate their various databases into data
warehouses. Data warehousing is defined as a process of centralized data
management and retrieval. Data warehousing, like data mining, is a relatively new
term although the concept itself has been around for years. Data warehousing
represents an ideal vision of maintaining a central repository of all organizational
data. Centralization of data is needed to maximize user access and analysis. Dramatic
technological advances are making this vision a reality for many companies. And,
equally dramatic advances in data analysis software are allowing users to access this
data freely. The data analysis software is what supports data mining.


What can data mining do?

Data mining is primarily used today by companies with a strong consumer focus -
retail, financial, communication, and marketing organizations. It enables these
companies to determine relationships among "internal" factors such as price, product
positioning, or staff skills, and "external" factors such as economic indicators,
competition, and customer demographics. And, it enables them to determine the
impact on sales, customer satisfaction, and corporate profits. Finally, it enables them
to "drill down" into summary information to view detail transactional data.

With data mining, a retailer could use point-of-sale records of customer purchases to
send targeted promotions based on an individual's purchase history. By mining
demographic data from comment or warranty cards, the retailer could develop
products and promotions to appeal to specific customer segments.

For example, Blockbuster Entertainment mines its video rental history database to
recommend rentals to individual customers. American Express can suggest products
to its cardholders based on analysis of their monthly expenditures.

WalMart is pioneering massive data mining to transform its supplier relationships.

WalMart captures point-of-sale transactions from over 2,900 stores in 6 countries and
continuously transmits this data to its massive 7.5 terabyte Teradata data warehouse.
WalMart allows more than 3,500 suppliers, to access data on their products and
perform data analyses. These suppliers use this data to identify customer buying
patterns at the store display level. They use this information to manage local store
inventory and identify new merchandising opportunities. In 1995, WalMart computers
processed over 1 million complex data queries.

The National Basketball Association (NBA) is exploring a data mining application

that can be used in conjunction with image recordings of basketball games. The
Advanced Scout software analyzes the movements of players to help coaches
orchestrate plays and strategies. For example, an analysis of the play-by-play sheet of
the game played between the New York Knicks and the Cleveland Cavaliers on
January 6, 1995 reveals that when Mark Price played the Guard position, John
Williams attempted four jump shots and made each one! Advanced Scout not only
finds this pattern, but explains that it is interesting because it differs considerably
from the average shooting percentage of 49.30% for the Cavaliers during that game.

By using the NBA universal clock, a coach can automatically bring up the video clips
showing each of the jump shots attempted by Williams with Price on the floor,
without needing to comb through hours of video footage. Those clips show a very
successful pick-and-roll play in which Price draws the Knick's defense and then finds
Williams for an open jump shot.

How does data mining work?

While large-scale information technology has been evolving separate transaction and
analytical systems, data mining provides the link between the two. Data mining
software analyzes relationships and patterns in stored transaction data based on open-
ended user queries. Several types of analytical software are available: statistical,
machine learning, and neural networks. Generally, any of four types of relationships
are sought:

• Classes: Stored data is used to locate data in predetermined groups. For

example, a restaurant chain could mine customer purchase data to determine
when customers visit and what they typically order. This information could be
used to increase traffic by having daily specials.

• Clusters: Data items are grouped according to logical relationships or

consumer preferences. For example, data can be mined to identify market
segments or consumer affinities.

• Associations: Data can be mined to identify associations. The beer-diaper

example is an example of associative mining.

• Sequential patterns: Data is mined to anticipate behavior patterns and trends.

For example, an outdoor equipment retailer could predict the likelihood of a
backpack being purchased based on a consumer's purchase of sleeping bags
and hiking shoes.

Data mining consists of five major elements:

• Extract, transform, and load transaction data onto the data warehouse system.

• Store and manage the data in a multidimensional database system.

• Provide data access to business analysts and information technology


• Analyze the data by application software.

• Present the data in a useful format, such as a graph or table.

Different levels of analysis are available:

• Artificial neural networks: Non-linear predictive models that learn through

training and resemble biological neural networks in structure.

• Genetic algorithms: Optimization techniques that use processes such as

genetic combination, mutation, and natural selection in a design based on the
concepts of natural evolution.

• Decision trees: Tree-shaped structures that represent sets of decisions. These
decisions generate rules for the classification of a dataset. Specific decision
tree methods include Classification and Regression Trees (CART) and Chi
Square Automatic Interaction Detection (CHAID) . CART and CHAID are
decision tree techniques used for classification of a dataset. They provide a set
of rules that you can apply to a new (unclassified) dataset to predict which
records will have a given outcome. CART segments a dataset by creating 2-
way splits while CHAID segments using chi square tests to create multi-way
splits. CART typically requires less data preparation than CHAID.

• Nearest neighbor method: A technique that classifies each record in a dataset

based on a combination of the classes of the k record(s) most similar to it in a
historical dataset (where k 1). Sometimes called the k-nearest neighbor

• Rule induction: The extraction of useful if-then rules from data based on
statistical significance.

• Data visualization: The visual interpretation of complex relationships in

multidimensional data. Graphics tools are used to illustrate data relationships.

Lecture 41 - 45

Research projects to be discussed in the class(one project per student).