management information systems and e-business part 1 definitions and ways of information system...

MANAGEMENT INFORMATION SYSTEMS and e-BUSINESS

Part 1

DEFINITIONS AND WAYS OF INFORMATION SYSTEM DEVELOPMENT

Prof. Witold Chmielarz, PhD ,

Faculty of Management University of Warsaw

Poland in the world

POLAND

Warsaw

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COURSE OBJECTIVES

• Introduction of the main directions of the systems development, a new trends, and a new logical architectures of the systems

• Characteristics of the main management information systems, their components and features

• Presentation of the concepts and practical applications of various types of information systems in the business organizations

• Illustration how management information systems have been helpful in enhancing effectiveness of organizations

• Demonstration the use of IT in designing and implementing MIS

• Analyzing of e-business as one of the modern ideas of MIS

• Presentation of modern MIS applications in specific areas in Poland

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COURSE BRIEF CONTENTS (only part with WCH)

Sessions Coverage References1 DEFINITIONS AND WAYS OF

INFORMATION SYSTEM DEVELOPMENT

Turban E., at al…, Laudon K. C., Laudon J. P, Chmielarz W.

2 CHARACTERISTICS AND FEATURES OF MIS

Turban E., at al…, Laudon K. C., Laudon J. P

3 INTEGRATED ENTERPRISE SYSTEMS

Turban E., at al…, Laudon K. C., Laudon J. P

4 e-COMMERCE AND e-BANKING Laudon K. C., Laudon J. P, Chmielarz W.

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REFERENCES (textbooks):

Main:1. Turban E., at al…: Information Technology for Management.

Transforming Organizations in the Digital Economy, John Wiley and Sons Inc. 6-th ed., 2008,

2. Laudon K. C., Laudon J. P.: Management Information Systems, Pearson Education Inc., Prentice Hall, NY, 9-th ed. 2010.

Additionally:1. Chmielarz W.: Selected Problems of IT Development, Wydawnictwo

Naukowe WZ UW, Warsaw, 2005,2. Bocij P., Chaffey D., Greasley A., Hickie S.: Business Information

Systems, 2-nd ed., Prentice Hall, Harlow, 2003, 3. Turban E., Lee J., King D., McKay J., Viehland D., Cheung C., Lay L.:

Electronic Commerce. A Managerial Perspective, Pearson Education, 4-th ed., 2008

4. Wallace T., M.; Kremzar M., H.: ERP: Making It Happen, The Implementers’ Guide to Success with Enterprise Resource Planning; John Wiley & Sons, Inc., New York, 2001

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...From Aphorismus Book...

...Wisdom is nontransferable. The sage’ knowledge which he try to transfere, sounds always like nonsense... (... Mądrości nie można przekazać. Wiedza, którą próbuje przekazywać mędrzec, brzmi zawsze jak głupota...),

...Study period is the time when you are instructing by somebody you don’t want to know, about something you don’t want to know...(... Okres nauki to czas gdy jesteś pouczany przez kogoś kogo nie chcesz znać, o czymś czego nie chcesz wiedzieć ... )

…Knowledge is powerless unless it prepares you to do the right thing at the right time…(…Wiedza nic nie daje, jeżeli nie przygotowuje cię do podjęcia właściwej decyzji we właściwym czasie…)

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

(Turban E., at all: IT for Management ... 2008)

Subject:

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Some definitions (glossary)…

• Data items – refer to an elementary description of facts and figures relatively important for users, data item – an elementary description of things, events, activities, and transactions, that are recorded, classified, and stored but not organized to convey any specific meaning: can be numeric, alphanumeric, figures, sounds or images

• A database – consists of stored data items organized for retrieval

• Information – is processed, meaningful data… data that have been organized, so they have meaning and value to the recipient

• Data items typically are processed into information by means of an application, represents a more specific use and a higher added value than simple retreieval and summarizing from a database

• Knowledge – data and/or information that have been organized and processed to convey (distribute) understanding, experience, accumulated learning, and expertise (what to do with information)

• Wisdom – the ability to make sensible (rational) decisions and give good advice because of the experience, intuition and knowledge that you have (how to use knowledge, how to do it in rational way)

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• Data items – a student first name, name, grade in a class, the number of hours an employe worked in a certain week, etc.

• Information – a student’s grade point average (GPA), the application transforminf data in information might be a Web-based inventory management system, a univerity online registration, or e-commerce (internet-based buying and selling) system

• Knowledge – GPA of a student applying to Erasmus Students Exchange can be compared with GPA of the other students applying to this sholarship and be over average of all students from faculty (average is only criteria of selection)

• Wisdom – see above case – inspite of level of GPA you know from your experience or partner’s knowledge that in Italy or Spain in most cases courses are in Italian or Spanish, so you first of all send there students speak these languages…


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• System – group of elements integrated with common purpose of achieving an objective (...) by transforming input resources to output resources…

• Information system – group of programs integrated in three areas: programme, logical and technical…, a physical process, that supports an organization in collecting, processing, storing nad analyzing data, and disseminating information to achieve organizational goals.

• Information Technology – the technology component of an information system (a narrow definition), or the collection of the computing systems in an organization (the broad definition)

• Information infrastructure – the physical arrangement of: harware, software, databases, networks, and information management personnel

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

• Model (in decision making) – a simplified representation or abstraction of reality; can be used to performs virtual experiments and analysis

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A computer-based information system is an information system that uses computer and net technology to perform some or all of its intnded tasks.

• The basic components of the system are hardware, software, database(s), telecommunication networks, procedures and people.

• Hardware is a set of devices that accept data and information, process them, and display or raport them.

• Software is a set of programs that enable the hardware to process data.• A database is a collection of related files, tables, relations, and so on that

stores data and the associations among them.• A network is a connecting system (wireline or wireless) that permits

different computers to share resources.• Procedures are the set of instructions about how to combine the above

components in order to process information and generate the desire output.

• People (users or final users, maybe curtomers) are those individuals who work with the information system, interface with it, or use its outputs

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• Information system: – Set of interrelated components

– Collect, process, store, and distribute information

– Support decision making, coordination, and control

• Information vs. data– Data are streams of raw facts

– Information is data shaped into meaningful form


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• Information system: three activities produce information organizations need– Input: Captures raw data from organization or external

environment

– Processing: Converts raw data into meaningful form

– Output: Transfers processed information to people or activities that use it

• Feedback:

Output returned to appropriate members of organization to help evaluate or correct input stage

• Computer/Computer program vs. information system

Computers and software are technical foundation and tools

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Functions of an Information SystemFunctions of an Information System

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

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Information Systems Are More Than ComputersInformation Systems Are More Than Computers

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

Organizational dimension of information systems

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Hierarchy of authority, responsibility:• Senior management• Middle management• Operational management• Knowledge workers• Data workers• Production or service workers

Separation of business functions:• Sales and marketing• Human resources• Finance and accounting• Manufacturing and production

Unique business processes

Unique business culture

Organizational politics

Management dimension of information systems

– Managers set organizational strategy for responding to business challenges,

– In addition, managers must act creatively:• Creation of new products and services• Occasionally recreating the organization

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Technology dimension of information systems

– Computer hardware and software

– Data management technology

– Networking and telecommunications technology

(Networks, the Internet, intranets and extranets, World Wide Web)

– IT infrastructure: provides platform that system is built on

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THE INTEGRATION AND CONVERGENCE THEORY OF INFORMATION SYSTEMS DEVELOPMENT

The main objective of this part of course is to present the idea of the development of MIS consisting in the integration and convergence approach by the analysis of three main paths of development:•increasing complexity of logical systems architecture,

•functional integration of Information Systems, tailored to the current needs of the organization and the user within the organization,

•expansion of spatial network infrastructure.

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• Integration – in the ideological sense – consists in combining functional elements using by means of relations, so as to constitute specific structural components of the whole. Integration is here understood as a process of consolidation and merging of particular different-class characters and forms of interrelated elements in order to create a functional entity, resulting in the usefulness and efficiency which are greater than each of the parts acting separately

• Convergence in the development process – consists in the formation of similar features with regard to construction, function and appearance of various groups of systems functioning under the same environmental conditions, regardless of adopted specific innovative solutions.

YearIntegration

TSP/APD

1950 1960 1970 1980 1990 2000 2010

1

Convergence

YearIntegration

TSP/APD

MIS

1950 1960 1970 1980 1990 2000 2010

1

Convergence

Economic environment

Interior of organizationUser

User interface

Database Management System

BaDatabase

InternetMIS

Available for decision maker:•knowledge,•intuition,•education,•data.

Applications:-accounting and finance,- inventory control,-production management,-Human relations.

YearIntegration

TSP/APD

MIS

DSS

1950 1960 1970 1980 1990 2000 2010

1

Convergence



User interface

Database System Management

Model Base System Management

BaDatabase Model

Base

Internet

Base of Procedures

DSS

Available for decision maker:•knowledge,•Intuition,•education,•data,•models, methods.


YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

1950 1960 1970 1980 1990 2000 2010

1

Convergence



User interface



BaDatabase

Model Base

Internet

Base of procedures

EIS/ESS

Available for decision maker:•knowledge,•Intuition,•education,•data,•models, methods.•prezentation, vizualization, extension.


YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

1950 1960 1970 1980 1990 2000 2010

1

Convergence



User interface


Model BaseSystem Management

BaDatabase Model

Base

Internet

Base of Procedures

BaKnowledge

Base

Knowlede Base System

Management

ES


Available for decision maker:•intuition,•education,•data,•models, methods,•prezentation, vizualization, extension,•knowledge.

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

1

Convergence

Internal integration - just combine different types of systemsConvergence - increasingly sophisticated systems to ever higher level of development



User interface



Model Base

Internet

Base of Procedures

BaKnowledge

Base

Knowledge Base System

Management

Mechanizms Business Analytics

Mechanizms of data wholesale management

BIS

Decison maker has at his disposal more then he needs!!!

Applications:-accounting and finance,- inventory control,-production management,-Human relations.Database

Marts – branch wholesale



User interface



Model Base

Internet

Base of Procedures

BaKnowledge

Base

Knowledge Base System

Management

Mechanizms Business Analytics

Mechanizms of data wholesale management

BIS

Applications:-accounting and finance,- inventory control,-production management,-Human relations.Database

Marts – branch wholesale

Types of decision

• Structured decisions are repetitive and routine (strictly determined), and they involve a definite procedure for handling them so that they do not have to be treated each time as if they were new.

• Unstructured decisions are those in which the decision maker must provide judgment, evaluation, and insight to solve the problem (probablistic, undetermined). Each of these decisions is novel, important, and non routine, and there is no well-understood or agreed-on procedure for making them.

• Many decisions have elements of both types of decisions and are semistructured, where only part of the problem has a clear-cut answer provided by an accepted procedure. In general, structured decisions are more prevalent at lower organizational levels, whereas unstructured problems are more common at higher levels of the firm.

INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS IN A FIRM

STAGES IN DECISION MAKING

• Intelligence consists of discovering, identifying, and understanding the problems occurring in the organization - why a problem exists, where, and what effects it is having on the firm

• Design involves identifying and exploring various solutions to the problem

• Choice consists of choosing among solution alternatives

• Implementation involves making the chosen alternative work and continuing to monitor how well the solution is working

Six elements in business intelligence environment

• Data from the business environment: Businesses must deal with both structured and unstructured data from many different sources, including mobile devices and the Internet. The data need to be integrated and organized so that they can be analyzed and used by human decision makers

• Business intelligence infrastructure: The underlying foundation of business intelligence is a powerful database system that captures all the relevant data to operate the business. The data may be stored in transactional databases or combined and integrated into an enterprise-data warehouse or series of interrelated data marts

• Business analytics toolset: A set of software tools are used to analyze data and produce reports, respond to questions posed by managers, and track the progress of the business using key indicators of performance


• Managerial users and methods: Business intelligence hardware and software are only as intelligent as the human beings who use them.

o Managers impose order on the analysis of data using a variety of managerial methods that define strategic business goals and specify how progress will be measured.

o These include business performance management and balanced scorecard approaches focusing on key performance indicators and industry strategic analyses focusing on changes in the general business environment, with special attention to competitors.

o Without strong senior management over-sight, business analytics can produce a great deal of information, reports, and online screens that focus on the wrong matters and divert attention from the real issues.

o You need to remember that, so far, only humans can ask intelligent questions.


• Delivery platform - MIS, DSS, ESS. The results from business intelligence and analytics are delivered to managers and employees in a variety of ways, depending on what they need to know to perform their jobs. MIS, DSS, and ESS, deliver information and knowledge to different people and levels in the firm—operational employees, middle managers, and senior executives. In the past, these systems could not share data and operated as independent systems. Today, one suite of hardware and software tools in the form of a business intelligence and analytics package is able to integrate all this information and bring it to managers’ desktop or mobile platforms.

• User interface: Business people are no longer tied to their desks and desktops. They often learn quicker from a visual representation of data than from a dry report with columns and rows of information. Today’s business analytics software suites emphasize visual techniques such as dashboards and scorecards. They also are able to deliver reports on Blackberrys, iPhones, and other mobile handhelds as well as on the firm’s Web portal. BA software is adding capabilities to post information on Twitter, Facebook, or internal social media to support decision making in an online group setting rather than in a face-to-face meeting.

Business Intelligence and Analytics for Decision Support

Business Intelligence Users

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

1

2

Convergence

Inventory balance

IC

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

1

2

Convergence

Inventory balance

IC

Production balance

MRP

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

KConvergence

Inventory Balance

IC

Production Balance

MRP

Financial Balance

MRP II

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

Inventory Balance

IC

Production Balans

MRP

Financial Balans

MRP II

Service Balans

ERP

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

Functional integration - more and more utility functionsConvergence - in each, next step newer technology and better adjust to needs of userDiffusion patterns between tracks

CRM

SCM

Inventory Balance

IC

Production Balance

MRP

Financial Balance

MRP II

Service Balans

ERP

ERP II

Logistic Balans, specializations and mutations

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM

eERP

Inventory Balance

IC

Production Balance

MRP

Financial Balance

MRP II

Service Balans

ERP

ERP II

Logistic Balans, specializations and mutations

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM

Private, corporate nets

3

Corporate solutions based on EDI standards, huge organizationsCorporate networking


YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM 3

Commercial nets




Commercial solutions for large and medium-sized companiesOrganizational nets

Commerce nets

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM 3

Internet

Integration - the traditional systems and other networksConvergence - the expansion of the subsequent users, connected with increasing availability and ease of use


Commercial nets



Commercial solutions for large and medium-sized companiesOrganizational nets

Commerce nets

Comprehensive and global solution for all (organizations, customers, society)Social nets

Internet

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM 3

Internet


Commercial nets

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM 3

Internet

Corporate Platform


Commercial nets

Conclusions

• The solution which under the conditions of the development of internet systems started to be applied in lieu of internal integration was external integration through external corporate portals.

• A corporate portal is …a platform which integrates systems and information technology, data, information and knowledge in an organization and its environment in order to provide users with a personalised and convenient access to data, information and knowledge, in accordance with the needs, at any time and in any place, in a secure manner and through a unified web interface ….

• The main objective of a corporate portal are improvements with regard to access to data, information and knowledge and their sources according to user requirements; regardless of time and location of the web interface, and in a secure manner.

• The main feature of corporate platforms is the integration of data from internal resources with external data, their conversion into common and jointly processed formats; integration of heterogeneous applications; integration of communication between particular users and providing them with personalized information and knowledge.

• The emergence of corporate portals is connected with the development of internet network technologies, and the portals operate mainly in an intranet corporate environment. Through this environment – web interface - they are distributed to users, as required information and knowledge.

• The impression is that a corporate platform is both an integration instrument and at the same time a convergence tool - on the level, cooperation of both complementary and parallel systems is possible.

• The author believed that this tendency was a process of intensifying of a previously examined complexity of the logical architecture structure in particular types of the systems, and therefore it does not require further analysis.

• Also, the author did not illustrate the development of particular internet tools in such a great detail as in the article, assuming that they are still developing very intensively.

• Nevertheless, there is a clearly visible - possible thanks to a corporate platform - tendency to connect everything with everything (multi-dimensional integration) in terms of transmissivity of the idea of interaction between various information systems on all presented development paths.

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Thank you very much for your attention!

Witold Chmielarz Questions - [email protected]

MANAGEMENT INFORMATION SYSTEMS

Part 2

CHARACTERISTICS AND FEATURES OF MIS


Oskar Szumski, PhD

Faculty of Management University of Warsaw65

Characteristics and Features of MIS Towards Knowledge Based Systems

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Knowledge in MIS

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LEARNING OBJECTIVES

• Assess the role of knowledge management and knowledge management programs in business

• Describe the types of systems used for enterprise-wide knowledge management and demonstrate how they provide value for organizations

• Describe the major types of knowledge work systems and assess how they provide value for firms

• Evaluate the business benefits of using intelligent techniques for knowledge management

• Analyzing of the concept of knowledge management application

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A brief content:

• Basic definitions

• Intro to Knowledge Management (KM)

• Approaches to KM

• Problems with KM implementation

…Management Information System – refers to a collection of computerized and net technologies whose objective is to support managerial work and especially decision making…

(Turban E., at al: IT for Management ... 2008)

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Some basis definitions…

• System – group of elements integrated with common purpose of achieving an objective (...) by transforming input resources to output resources…

• Information system – group of programs integrated in three areas: programme, logical and technical…

• An application program – a set of computer instructions written in a programming language, the purpose of which is to provide functionality to a user…

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Some basic definitions…

• Decision making – a process of choosing among alternative courses of action for the purpose of attainings a goal or goals:

What should be done?

When?

How?

Where?

By whom?

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Intro to Knowledge Management (KM)

…A process that helps organizations identify, select, organize, disseminate, and transfer important information and expertise that are part of the organization’s memory and that typically reside within the organization in an unstructured manner…

• Creating of knowledge enables effective and efficient problem solving, dynamic learning, strategic planning and decision making

• Focus on identyfing knowledge, explicating it in formal manner and exploiting by reuse,

• For success of organization must be exchangable among persons, and able to grow…

E.Turban et al.: Information Technology for Management;

Knowledge Management (KM)

• Knowledge management: Set of business processes developed in an organization to create, store, transfer, and apply knowledge

• Knowledge management value chain: each stage adds value to raw data and information as they are transformed into usable knowledge:– Knowledge acquisition– Knowledge storage– Knowledge dissemination– Knowledge application

(Laudon, Laudon, Chapt 11)

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Knowledge acquisition• Documenting tacit and explicit knowledge:

– Storing documents, reports, presentations, best practices

– Unstructured documents (e.g., e-mails)

– Developing online expert networks

• Creating knowledge

• Tracking data from TPS and external sources


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Knowledge storage• Databases

• Document management systems

• Role of management:

– Support development of planned knowledge storage systems

– Encourage development of corporate-wide schemas for indexing documents

– Reward employees for taking time to update and store documents properly


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Knowledge dissemination• Portals

• Push e-mail reports

• Search engines

• Collaboration tools

• A deluge (dissemination, too) of information?

– Training programs, informal networks, and shared management experience help managers focus attention on important information


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Knowledge application • To provide return on investment, organizational

knowledge must become systematic part of management decision making and become situated in decision-support systems

– New business practices

– New products and services

– New markets


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The Knowledge Management Value ChainThe Knowledge Management Value Chain

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Knowledge management today involves both information systems activities and a host of enabling management and organizational activities.

New organizational roles and responsibilities

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• Chief knowledge officer executives

• Dedicated staff / knowledge managers

• Communities of practice (COPs)

• Informal social networks of professionals and employees within and outside firm who have similar work-related activities and interests

• Activities include education, online newsletters, sharing experiences and techniques

• Facilitate reuse of knowledge, discussion

• Reduce learning curves of new employees

• Establish paths of carrier

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Relations – data – information – knowledge - wisdom

• Data – are a collection of facts, measurements, and statistics

• Information – is organized or processed data that are timely and accurate (ready for use),

• Knowledge – is information that is contextual (connected with particular conditions), relevant (closely connected with situation) and actionable (supported by cases), shows how to use information and data under current, given, defined situation in effective, acceptable formal (visible knowledge) way,

• Wisdom – abbility to make sensible decisions and good advice because of the experience and knowledge, how to use knowledge and information in reasonable (optimal) way (hidden knowledge, too)

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Wisdom – Knowledge triangle

Wisdom – collection of reasonable knowledge

Knowledge – collection of usable information

Information – collection of processed data

Data – collection of facts

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Charactristics of knowledge

• Extraordinary and increasing results – knowledge is not subject to diminishing results. When it is used, it is not consumed. Its consumers can add to it, thus increasing its value.

• Fragmentation, leakage and need to refresh – knowledge is dynamic, it is information in action. Thus an organization must continually refresh its knowledgebase to maintain it as a source of competitive advantage,

• Uncertain value – it’s difficult to estimate the impact of an investment in knowledge. There too many intengible aspects

• Uncertain value of sharing – it’s difficult to estimate the value of sharing knowledge, or even who will benefit most,

• Rooted in time – the utility and validity of knowledge may change with time.

Transforming information into knowledge

• To transform information into knowledge, firm must expend additional resources to discover patterns, rules, and contexts where knowledge works

• Wisdom: Collective and individual experience of applying knowledge to solve problems - involves where, when, and how to apply knowledge

• Knowing how to do things effectively and efficiently in ways other organizations cannot duplicate is primary source of profit and competitive advantage that cannot be purchased easily by competitors

(Laudon, Laudon, Chapt. 11)

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Introduce the concept of organizational learning (selflearning), which describes the process of gathering, creating, and applying knowledge

85

• Organizational learning

• Process in which organizations learn

• Gain experience through collection of data, measurement, trial and error, and feedback

• Adjust behavior to reflect experience:

• Create new business processes

• Change patterns of management decision making

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Some additional definitions

• Intellectual capital (or intellectusl assets) – the valuable knowledge of employees, evolves with time and experience, which puts connections among new situations and events in context.

• Tacit knowledge – usually in the domain of subjective, cognitive and experimental learning (personal and difficult to formalize). The cumulative store of an experiences, expertise, know-how, trade secrets, skill sets, usually localized in the brain of individual

• Explicit knowledge – deals with more objective, rational, and technical knowledge (date, procedures, software, documents). Codyfied knowledge (documented) in the form can be distributed to others or transformed into process without interpersonal interaction (can leave person – leaky knowledge)

Organizations now recognize the need too integrate explicit and tacit knowledge in formal information systems

(taken from: Laudon, Laudon, Chapt. 11)

Important dimensions of knowledge

– Knowledge is a firm asset• Intangible• Creation of knowledge from data, information, requires organizational

resources• As it is shared, experiences network effects

– Knowledge has different forms• May be explicit (documented) or tacit (residing in minds)• Know-how, craft, skill• How to follow procedure• Knowing why things happen (causality)

(taken from: Laudon, Laudon, Chapt. 11)

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Important dimensions of knowledge

• Knowledge has a location

• Cognitive event

• Both social and individual

• “Sticky” (hard to move), situated (enmeshed in firm’s culture), contextual (works only in certain situations)

Knowledge is situational

• Conditional: Knowing when to apply procedure

• Contextual: Knowing circumstances to use certain tool

(see: Laudon, Laudon & Dass, Chapt. 11)

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Approaches to KM

• Process approach – attempts to codify organizational knowledge through formalized controls, processes and technologies, frequently involves the use of information technologies to enhance the quality and speed of knowledge creation and distribution in the organizations

• Practice approach – assumes that a great deal of organizational knowledge is tacit in nature and that formal controls, processes and technologies are not suitable for transmitting this type of understanding. The focus of this approach is to build the social environments or communities necessary to the sharing of tacit knowledge.

(see: Laudon, Laudon, Chapt. 11)

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Approaches to KM

Best practices – the activities and methods that the most effective organizations use to operate and manage various functions. They include:

1. A good idea that is not yet proven, but makes intuitive sense,2. A good practice, an implemented technique, metodology,

procedure, or process that has improved business results,3. A local best practice, a best approach for all or a large part of the

organization based on analysing hard data. The scope within organization of the best practice is identified; can be used only in a single department or geographical region, or across the organization.

• Hybrid approaches – in reality involve both process and practice approaches.


Three major types of knowledge management systems:

• Enterprise-wide knowledge management systems

• General-purpose firm-wide efforts to collect, store, distribute, and apply digital content and knowledge

• Knowledge work systems (KWS)

• Specialized systems built for engineers, scientists, other knowledge workers charged with discovering and creating new knowledge

• Intelligent techniques

• Diverse group of techniques such as data mining used for various goals: discovering knowledge, distilling knowledge, discovering optimal solutions

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Major Types of Knowledge Management SystemsMajor Types of Knowledge Management Systems

There are three major categories of knowledge management systems, and each can be broken down further into more specialized types of knowledge management systems.

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Three major types of knowledge in enterprise

• Structured documents

• Reports, presentations

• Formal rules

• Semistructured documents

• E-mails, videos

• Unstructured, tacit knowledge

80% of an organization’s business content is semistructured or unstructured

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Enterprise-wide content management systems

• Help capture, store, retrieve, distribute, preserve

• Documents, reports, best practices

• Semistructured knowledge (e-mails)

• Bring in external sources

• News feeds, research

• Tools for communication and collaboration

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An Enterprise Content Management SystemAn Enterprise Content Management System

An enterprise content management system has capabilities for classifying, organizing, and managing structured and semistructured knowledge and making it available throughout the enterprise

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Knowledge network systems

• Provide online directory of corporate experts in well-defined knowledge domains

• Use communication technologies to make it easy for employees to find appropriate expert in a company

• May systematize solutions developed by experts and store them in knowledge database

• Best-practices

• Frequently asked questions (FAQ) repository

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An Enterprise Knowledge Network SystemAn Enterprise Knowledge Network System

A knowledge network maintains a database of firm experts, as well as accepted solutions to known problems, and then facilitates the communication between employees looking for knowledge and experts who have that knowledge. Solutions created in this communication are then added to a database of solutions in the form of FAQs, best practices, or other documents.

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Major knowledge management system vendors include powerful portal and collaboration technologies:

• Portal technologies: Access to external information

• News feeds, research

• Access to internal knowledge resources

• Collaboration tools

• E-mail

• Discussion groups

• Blogs

• Wikis

• Social bookmarking

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Learning management systems

• Provide tools for management, delivery, tracking, and assessment of various types of employee learning and training

• Support multiple modes of learning - CD-ROM, Web-based classes, online forums, live instruction, etc.

• Automates selection and administration of courses

• Assembles and delivers learning content

• Measures learning effectiveness

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Knowledge work systems• Systems for knowledge workers to help create new knowledge and

ensure that knowledge is properly integrated into business

Knowledge workers • Researchers, designers, architects, scientists, and engineers who create

knowledge and information for the organization

• Three key roles:• Keeping organization current in knowledge

• Serving as internal consultants regarding their areas of expertise

• Acting as change agents, evaluating, initiating, and promoting change projects

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Requirements of knowledge work systems

• Substantial computing power for graphics, complex calculations

• Powerful graphics, and analytical tools

• Communications and document management capabilities

• Access to external databases

• User-friendly interfaces

• Optimized for tasks to be performed (design engineering, financial analysis)

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Requirements of Knowledge Work SystemsRequirements of Knowledge Work Systems

Knowledge work systems require strong links to external knowledge bases in addition to specialized hardware and software.

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Examples of knowledge work systems• CAD (computer-aided design): Automates creation and revision of

engineering or architectural designs, using computers and sophisticated graphics software

• Virtual reality systems: Software and special hardware to simulate real-life environments

• E.g. 3-D medical modeling for surgeons

• VRML: Specifications for interactive, 3D modeling over Internet

• Investment workstations: Streamline investment process and consolidate internal, external data for brokers, traders, portfolio managers

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• Intelligent techniques: Used to capture individual and collective knowledge and to extend knowledge base

• To capture tacit knowledge: Expert systems, case-based reasoning, fuzzy logic

• Knowledge discovery: Neural networks and data mining

• Generating solutions to complex problems: Genetic algorithms

• Automating tasks: Intelligent agents

• Artificial intelligence (AI) technology: computer-based systems that emulate human behavior

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Management Information Systems characteristics and features

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Transactional Systems Processing (TSP)

Definition:• …Transaction Processing Systems (TSP) - perform the frequent

routine external and internal transactions that serve the operational level of organisation…

• …An information system that processes an organization’s basic business transactions such as purchasing, billing and payroll…

• Previously based on batch processing – where processes inputs at fixed intervals as a file and operates on it all at once; interactive processing operates on a transaction as soon as it occurs

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• Data processing – manipulation or transformation numbers and letters for the purpose of increasing their usefulness :

• data gathering, • data manipulation: classifying, sorting, selecting etc).

• TSP, D(data) PS or A(analytic)IS – the first single simple systems made mainly for gathering and processing data not for decision making, operating separately in the frames of the firm; in the beginning often without common database


• System tended to grow independently, and not according to some grand plan.

• Each functional area tended to develop systems in an isolation from other functional areas.

• Accounting, finance, manufacturing, human resources, and marketing all developed their own systems and data files.

• Each application, of course, required its own files and its own computer program to operate.

• For example, the human resources functional area might have a personnel master file, a payroll file, a medical insurance file, a pension file and so forth until tens, perhaps hundreds, of files and programs existed.

• In the company as a whole, this process led to multiple master file created, maintained, and operated by separate divisions or departments.

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• These were undoubtedly the first attempts of creating a tool which indirectly could be used to support business management.

• The basic advantage of such a tool was the speed of performing simple, standard large-scale operations.

• The basic problem which occurred then was the low level of technological development, which caused the fact that processing, before it could take place, entailed a number of complicated steps and procedures connected with the imperfection of the existing hardware and software.

• Additionally, this process was accompanied by considerable costs. The lack of reliability and failure rate reached in total 80% of the total working time of such a machine.

• Designing and processing of the program which operated on the data which were entered in the computer’s memory data was very complex.

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• The limitations were numerous: the problem connected with entering the programme and the data to be processed by the

computer, processing of the data and saving the results, distribution of the results among the engaged individuals etc. (processing speed, memory

capacity, problems with design and construction of software, etc.).

• Each of the constructed systems was separate, which sometimes resulted in entering the same data within an organization in a multiple way and frequently in different formats.

• Other difficulties were: using unreliable input media with the long-term processing and separating the user from processing the data on a computer which he could only prepare.

• The systems were effective in the case of mass numerical calculations whose findings were interpreted „manually”. Their usefulness in supporting management was reduced to speeding up numerical calculations.

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Transaction processing systems

– Perform and record daily routine transactions necessary to conduct business (examples: sales order entry, payroll, shipping)

– Allow managers to monitor status of operations and relations with external environment

– Serve operational levels

– Serve predefined, structured goals and decision making

Transactional Systems Processing (TSP) - summarizing

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Transactional Systems Processing (TSP) - contemporary definition and interpretation as a part of ERP

• Definition: a Transactional Processing system (TPS) supports the monitoring, collection, storage, processing, and dissemination of the organization’s basic business transactions.

• It also provides the input data for other information systems. Sometimes several TPSs exist in one company.

• TPSs are considered critical to the success of the organization since they support core operations, such as purchasing of materials, billing customers, preparing a payroll and shipping goods to customers.

Examples: in retail stores, data flows from POS (point-of-sale) terminals to a database where they are aggregated.

When a sale is completed, an information transaction reduces the level of inventory on hand, and the collected revenue from the sale increases the company’s cash position.

Now this is very similar now to a part of MIS category

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A Payroll TPSA Payroll TPS

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

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How Management Information Systems Obtain Their Data How Management Information Systems Obtain Their Data from the Organization’s TPSfrom the Organization’s TPS

In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports.

Management Information Systems

• Management Information Systems from the very beginning of their existence were designed for record keeping of past and current routine information for planning, organizing and controlling operations in functional areas of a business’s activities.

• Management Information Systems are defined by R. M. Stair as “... an organized collection of people, processing procedures, databases, and applications used to provide standardized information for managers and decision makers ...”

• According to E.Turban "... Management Information System is a formal, computer system, created in order to ensure a selection and integration of distributed information from various sources to provide timely data needed for decision making in management. They are the most effective in routine, structured systems, where there are predictable types of decisions ...”

• These systems have had – so far – the greatest influence on the formation of management information systems.

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The basic logical architecture structure of MIS consisted of:

• end-user with interface - the collection of programmes, usually of an operation system, responsible for communication with a user, which imposes certain standards of perception and use of other software,

• databases with the database management system – collection of data stored according to certain organizational principles, interrelated, linked by certain defined dependencies, stored in a strictly defined way in the structures corresponding to a certain assumed data model.

• the software which helps to define, construct, manipulate and share database for applications and users is called a database management system.

• an additional element of the software may be a query language facilitating the communication with a database in terms of accepting queries, its formalization and making its result available to the decision-maker,

• applications – subsystems, application software consisting of a collection of instructions, whose task is to provide a user with a defined functionality (financial and accounting subsystem, warehouse subsystem, production control subsystem, etc.).

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The main elements of MIS – some definitions

• A database (DB) – is a collectionof files serving as a data resource for computer based information systems (MIS),

• A batabase management system (DBMS) is a software program (or group of programs) that managesand provides access to a database

• Data warehouse – is a repository of historical data (millions of records), subject oriented and organized, integrated from various sources, that can easily be accessed and manipulated for decision support for example by: data mining – process of searching for unknown information or relationships in large databases using tools as neural computing or case-based reasoning (so, sometimes only mechanizms of data mining are treated as kind of intelligence – see products of SAS Institute, nothing more)

• An application program – a set of computer instructions written in a programming language, the purpose of which is to provide functionality to a user…

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• This simple construction of logical architecture has found its application in tens of thousands of systems operating on the market, and it became the basis for building more complex systems, both in terms of adding new elements and handling a number of new features

• The user who is making a decision – a manager – aided by means of systems of such kind has:

professional knowledge, qualifications and skills, intuition of an economist access to gathered, structured, specific data obtained from the

documents which were used in the course of conducting business activity.


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

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Next step of MIS development - Integrated Systems – where may be knowledge inside them…

Basic characteristics :• functional complexity – i.e. the inclusion of its whole range of functions

and processes going on in the organization (that does not disturb the selling of one part of the system in practice)

• structural compound – from one side a complex functional stimulation (the size of the system would be enough!), from the other a joining of various types of system as a whole one.

• considerable ease of use – all new technical gadgets are quickly added to existing systems or new versions are created which differ by, for example a more attractive user interface (“Windows-style” interfaces)

• common usage – all companies want to survive - minimize costs. If management information system is used in the correct way, the substantial effects cause an increase of technological interest, and with this comes an increase in common usage of such systems (it is the kind of the highest intelligence)

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Integrated Information Management Systems

Following conditions must be satisfied:

• common information handling for the whole organization - the information is collected only once, and sent to every processes to use it,

• unique collection system, transforming and information sending,

• unique media collection and information handling,

• common tools and system development procedures,

• unique user dialogue procedures.

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Beginning…

In 1964 – Inventory Control System – the first information system with integrated functions of:

• purchase, • storage,• distribution of commodities; in next years firstly created mainly for inwentory management in

warehouses and for serial industrial production, particulary in electro-machinery branch

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And integrated system now – ERP - functional diagram (SAP Sources)

Only by „intelligence” usage of this system you can obtain proper results for your company?

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– Serve middle management

– Provide reports on firm’s current performance, based on data from TPS

– Provide answers to routine questions with predefined procedure for answering them

– Typically have little analytic capability

Management Information Systems - summarizing

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Decision Support Systems

• …Decision Support Systems couple the intellectual resources of individuals with the capabilities of the computer to improve the quality of decisions…

• …It is a computer based support system for management decision makers who deal with semistructural problems…

• …It is a comptuer based information system that combines models and data in an attempt to solve semistructured problems with extensive user involvment…

Turban E. and R. Spraque

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• The basic definition of the decision support systems describes it as …information systems based upon computer and communication infrastructure supporting the activities of people involved in the decision-making process…

• The support is understood as the help provided to the decision-maker in arriving at a decision, not taking a decision instead of him or replacing him in the decision-making process.

• The main difference in relation to the management information systems is in the fact that thanks to DSS-class systems the decision-maker has at its disposal tools for developing a decision, apart from intuition, knowledge, skills and information.

• The tools usually take the form of programmes (software packages) consisting of mathematical, statistical and econometric models (or their combinations), focusing on the issues related to corporate management. It means that apart from the deterministic conditions in which the decisions were taken on the basis of verified data (or their combination) from the database.

• The managers can use the systems to make decisions in probabilistic situations with incomplete, random, sometimes partly erroneous or conflicting data.


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Model base – containing routine, standard and specialised models used for decision-making in an enterprise. From a mathematical point of view, there may appear models based on linear or non-linear dependencies, simulation, optimization models and the ones based on game theory or resulting from good management practices. From an organizational point of view models are often divided into in-built (imposed on a user) and constructed by the user from the complete components (subsystems and procedures (rules)), limited only by nomenclature of the tool supporting this process,

Management system of model database – the software containing all tools which are necessary to handle and manipulate ready models, maintain the model base and their modified versions, create new models from elements and construct them according to system principles, integrate the models into one entity or combine new models with already existing ones, mechanisms coordinating the demand for processed models with the database systems, parameters and external data, to coordinate and integrate with the devices further expanding the possibilities of using the model base. Communication with the model base is performed by means of an interactive language of the model base ((specifying enquiries and requests of the end user), and the models are maintained in appropriate directories.

Decision Support Systems - new components

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Decision Support Systems - new components

Procedure base (solver) – programme or software package used to solve particularly complex mathematical problems arising from the constructed models (linear, non-linear, multi-criteria programming, fuzzy systems, etc.). Addressing a problem is either permanently assigned to a tested, standard model being used or – after possible consultations (usually an option) with a user, adapted to a brand new model which is created by means of mechanisms of model base management,

Database and model parameters – the database, which can contain data which is necessary to run and use a model, derived from historical and current data recorded in the database (model data: parameters and coefficients), external data downloaded and entered “manually” from economic environment (sometimes together with a converter into the format of data used in the model), normalization standards, etc.).

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1. Data Management – includes the database, which contains relevant data for the situation and is managed by software called database management system (DBMS)

2. Management system of model database – includes financial, statistical, management science or other models that provide the system’s analytical capabilities and an appropriate software management

3. Communication Subsystem - the user can communicate with and command the DSS through this subsystem. It provides the user interface

4. Procedure management of procedure base. This optional subsystem can support any of the other subsystem, mainly Model Management

(See: Laudon, Laudon, Chapt. 12)

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Decision Support Systems - all components

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Data Management Subsystem (Database+ Management System)

1.DSS database (the same as in MIS structure)2.Database management system (see MIS)3.Query facility

The Database – collection of interrelated data organized in such a way that it corresponds to the needs and structure of an organization and can be used by more than one person for more than one application.

Database Management System – is a software program to establish, update and use a model base; to screen each request for information and determine that the person making the request is indeed an autorised user. Administrator can obtain reports about that activity of users. An effective DBMS can provide support for many managerial activities, general navigation among records, support for a diverse set of data relationships, and report generation are typical examples.

Query facility – provides the basis for access to data. It accepts request for data, determines how these request can be filled, formulates the detailed request, returns the results to user

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Management system of model database

1. Model base2. ModelBase management system3. Model language4. Model directory5. Model execution, integration and command

Model base – contains routine, standard and special statistical, financial, managerial and other models that provide the analysis capabilities in the DSS. The ability to invoke, run, change, combine and inspect models. The models in the Model base can be divided into four main blocks: strategic, tactical, operational and basic (model buiding blocks and subroutines)

Model base management – contains all tools for model management: modeling commands – creation, maintenance-update, database interface, modeling language

Model language - special set of commands which can make possible to conctruct the model ( next step natural language?)

Model directory – catalog of all models in the system, whenever used

Model execution, integration and command – rules of data management, dialog management and knowledge management

(Compare with: Laudon, Laudon & Dass, Chapt. 12)

All of them are elements of:

BI or KM systems

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• such architecture allowed for the first time to develop, not the data to make a decision, but, (in a model-based decision-making process) the suggestions of a decision which would be best from the point of view of an assumed criterion or a collection of possible decisions user options.

• under the circumstances, we should focus not on the technological solutions which were developed at the beginning of the period, but rather on the creation of an alternative for a decision-maker – a decision developed on the basis of the available (or selected) data versus a decision, which was suggested by the computer on the basis of the applied model problem solution.

• emerging opportunities of examining the effects of making various decisions, as well as the projection (forecasting) the future, or in a spatial layout are also important in this case.


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Features of DSS

• Support for decisions makers mainly in semistructured and unstructured situations

• Support is provided for various managerial levels

• Support is provided to individuals and groups, for several independent or sequential decisions, to all phases of the decision making process

• Supports a variety of decision-makers processes and styles

• DSS is adaptive over time

• DSS should be easy to use (userfrendliness, flexibility, strong graphic capabilities)

Features of DSS

• DSS attempts to improve the effectiveness of decision making - accuracy, timeliness, quality), then its efficiency - cost, including the charges for computer time

• The decision maker has control over all steps the decisin-making process in solving the problem

• DSS leads to learning, which leads to new demands and the refinement of the system, which leads to additional learning (continuos process)

• DSS is relatively easy to construct (with user assistance)

• DSS usually utilizes models (standards, custom-made)

• Advanced DSS are equiped with the knowledge component – enables the efficient and effective solution of very difficult problems

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The Major Benefits of DSS

1.Abbility to support the solution of complex problem2.Fast response to unexpected situations that result in changed conditions. A DSS

enables a thorough, quantitative analysis in a very short time. Even frequent changes in a scenario can be evaluated objectively in a timely manner

3.Ability to try several different strategies under different configurations4.New insights and learning. The user can be exposed to new insights through the

composition of the model and an extensive sensitivity „what-if” analysis. Training inexperiencedmanagers and other employees as well

5.Facilitated communication. Data collection and model construction experiments are being executed with active users’ participation

6.Improved management control and performance. DSS can increase management control over expenditures and improve performance of the organization

7.Cost savings. Routine applications of a DSS may result in cost reduction or reducing the cost of wrong decisions

8.Objective decisions – more consistent and objective than decisions made intuitively9.Improving managerial effectiveness, allowing managers to perform a task in less

time and less effort

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MIS and DSS

MIS• The main impact on structured tasks, where standard operating

procedures, decision rules and information flows can be predefined• Tha main payoff – improving efficiency by reducing costs, turaround

time, and so on.• The relevance for managers’ decisions making – indirect – for example by

providing reports and access to data

DSS• The main impact on decisions in which there is sufficient structure for

computer and analytic aids to be of value but where managers’ judgement is essential

• The payoff – extending the rangeand capability of computerized managers’decision processes to help them improve their effectiveness,

• The relevance for managers is the creation of a SUPPORTIVE TOOL, under their own control, that does not attempt to automatic the decision process, predefine objectives, or impose solutions

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Information Systems for Senior Management EIS and ESS

Definition:

Information Systems for Managers - provide senior managers with a system to assist them in taking strategic and tactical decisions.

Their purposeis to analyse, compare and highlight trends to help govern the strategic direction of a company

There are commonly integrated with operational systems, giving managers the facility to „drill down” to find out further information on a problem

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Information Systems for Senior Managers

Two categories:• Executive Information Systems (EIS) – is a computer-based system

that serves the information needs of top executives. Rapid access to timely information and direct access to management reports. Very user-friendly, supported by graphics, and provides exceptions reporting and drill-down capabilities (break down data for details: daily report corporate rates can be drilled down to find the daily sales in a region, or by product, or by salesperson.

• Executive Support System (ESS) – is a comprehensive support system that goes beyond EIS to include communications, office automation, analysis support and intelligence issues resolving.

There were somewere between a Final User and the other part of a DSS –additional tools for better decision making process – intelligent access to model base!

(Compare with: Laudon, Laudon, Chapt. 12)

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– Support senior management

– Address nonroutine decisions requiring judgment, evaluation, and insight

– Incorporate data about external events (e.g. new tax laws or competitors) as well as summarized information from internal MIS and DSS

– Example: ESS that provides minute-to-minute view of firm’s financial performance as measured by working capital, accounts receivable, accounts payable, cash flow, and inventory

Executive Support Systems

Executive Information Systems

• In fact, the new elements introduced by EIS systems were only the expansion of the user interface or database management system in order to offer more possibilities to organize and select data (preferably without the knowledge of the database structure) and graphic visualization of the obtained results.

• Graphic visualization e.g. in the form of a structural or dynamic chart meant that a decision-maker at a first glance was able to evaluate the structure of the analysed phenomenon at a particular stage of its development.

• Additionally, efforts were made – perhaps for the first time in the history of the IT system development – to ensure the inflow of external data in order to allow comparisons with the situation of other companies in a given sector in the country or abroad.

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Executive Support Systems

• ESS systems, which are a kind of a mirror reflection of EIS systems (some researchers considered them to be the next stage of the development of MIS) allowed for an easier manipulation of the results obtained by means of model processing, which was sometimes reduced to a possible transfer of the results of the processing into a spreadsheet.

• Sometimes, however, the designers created their own software based mainly in the user’s interface.

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Characteristics

Quality of information:

• Flexible

• Produces correct information, timely informaton, relevant information, complete information, validated information.

User interface:

• Includes sophisticated graphic user interface

• Allows secure and confidental access to information

• Includes a user friendly interface

• It’s a short response time

• It’s accessible from many places

• Minimizes keyboard use

• Provides quick retrieval of desired information

• It’s tailored to management styles of individual executives

• Contains self-help menu

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Technical Capability

• Access to aggregate information

• Extensive use of external data

• Written interpretation

• Highlights problem indicators

• Ad hoc analysis

• Information presented in hierarchical form

• Incorporates graphics and text in the same display

• Shows trends, ratios and deviations

• Provides access to historical and the most current data

• Organized around critical success factors

• Provides often forecasting capability

• Produces information at variuos levels of details

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Benefits

• Facilitates accesss to information

• Allows the user be more productive

• Increases the quality of decision making

• Provides a competetive adventage

• Saves time for the user

• Increases communication quality and capacity

• Provides better control in the organization

• Allows the anticipation of problems/opportunities

• Allows planning

• Allows finding the cause of a problem

• Meets the needs od executives

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Model of an Executive Support SystemModel of an Executive Support System

This system pools data from diverse internal and external sources and makes them available to executives in easy-to-use form.

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Expert Systems

Definition:

Expert systems – is a computer system that applies reasoning methodologies or knowledge in a specific domain to render advice or recommendations – much like a human expert

Two generations:

• Supported by mechanisms of DSS (from early 80.)

• Supported by knowledge base and knowledge management (from the end of 80. – beginning of Business Information Systems)

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• Definition: W.A. Freyenfeld described the expert system as ...a system which contains specialised knowledge of a particular area of human activity organized in a way which made it possible to enter into a dialogue (with a user) concerning this field, on the basis of which the system can offer advice or suggestions, and explain the reasoning, which is at the core of the problem...

• The first ES systems (designed already in the seventies) did not contain anything new with regard to their architecture – they were based on the construction of the conditional jump (if you… –…then) or unconditional jump (go to …) which exists in many programming languages.

• Nevertheless, the first, not very sophisticated, systems which helped to find solutions of health problems (e.g. MYCIN) were formed almost entirely based on this principle.

• They were related to a specific industry or a problem, and, due to the so-formed functionality, its application was very limited.

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• We may observe that the second generation of expert systems, which had its foundation in the ideas of the so–called systems of artificial intelligence, has creatively developed a logical architecture construction of the previous systems.

• Additionally, the designers distinguished (artificially, externally in relation to the corporate structures) econometric, statistical, forecasting models etc. and they distincted models based on the latest, at the time, management achievements (Business Process Reengineering - BPR) – models of best practices of corporate management, analyses and optimization in a colloquial sense, functions and processes taking place in an enterprise, in the existing or modified organization structure of an enterprise.

• There appeared new structural elements

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Some usable definitions…

• Knowledge base – a collection of facts, rules, and procedures, related to a specific problem, organized in one (the same) place

• Knowledge discovery in databases – the process of extracting knowledge from volumes of data in databases (e.g. in data warehouse; includes data-mining

• Knowledge Management System – a system that organizes, enhances and expedites intra- and inter-firm knowledge management; centered around a corporate base or depository

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Modern Expert Systems – structure and components

Components:

• Knowledge acquisition subsystem

• Knowledge Base

• Inference Engine

• User Interface

• Explanation justifier

• Knowledge Refining (Improving) Subsystem

Compare with: Laudon, Laudon & Dass, Chapt. 11, 12)

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Modern Expert systems – structure and components

• Knowledge acquisition subsystem – accumulation, transfer and transformation (conversion) of problem solving expertise from some knowledge source to a computer program for constructing or expanding the knowledge base. Sources: human experts, textbooks, databases, special research reports and pictures.

• Knowledge Base – contains knowledge necessary for understanding, formulate and solving problem. Consists of:

facts - such as the problem situation and theory of the problem area and

special rules that direct the use of knowledge to solve specific problems in a particular domain,

procedures – for using combined facts (or related) in frameworks of rules

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Moodern Expert Systems – structure and components

Inference Engine – brain of the ES, control structure or maybe the ruler interpreter; a computer program that provides a methodology for reasoning about information in the knowledge base and for formulating conclusions.

It has three major elements:• an interpreter – (rule interpreter) – which executes chosen items, by

applying the corresponding knowledge rules base,

• a scheduler – which maintains control over the agenda. It estimates the effects of applying inference rules in light of item priorities or other criteria,

• a consistency enforcer – which attempts to maintain a consistent representation of the emerging solution.

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Modern Expert Systems – structure and components

User Interface – expert system contain a language processor for friendly, problem-oriented communication between the user and the computer. Could be carried out in natural language or supplemented by menus or graphics

Explanation Subsystem (Justifier) – can trace responsibility for conclusions:

• Why was a certain question asked by the expert system?

• How was a certain conclusion reached?

• Why was a certain alternative rejected?

• What is a plan to reach the solution?

Knowledge Refining (Improving) System - can analyse their performance, learn from it and improve it for future consultations

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

Intelligent interface system

Knowledge base system

management

Management of problem solving and conclusion

forming system

High level query language Access through the use of natural language, pictures etc.

User

Access to software level

Knowledge base

Rule base

Data base + Data base management

system

Model base + model base

management system

Intelligent interface system + network

service system

Mechanism of intelligent access

Logic of communication language

Mechanism object data base

Relational mechanism of

component management

Adaptation and learning mechanism

Structure of the highest level of integration

Application software level

Operating system and tools

software level

Hardware level

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• Capture tacit knowledge in very specific and limited domain of human expertise

• Capture knowledge of skilled employees as set of rules in software system that can be used by others in organization

• Typically perform limited tasks that may take a few minutes or hours, e.g.:

• Diagnosing malfunctioning machine

• Determining whether to grant credit for loan

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Expert systems

Rules in an Expert SystemRules in an Expert System (or BI) (or BI)

An expert system contains a number of rules to be followed. The rules are interconnected; the number of outcomes is known in advance and is limited; there are multiple paths to the same outcome; and the system can consider multiple rules at a single time. The rules illustrated are for simple credit-granting expert systems.

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• Knowledge base: Set of hundreds or thousands of rules

• Inference engine: Strategy used to search knowledge base• Forward chaining: Inference engine begins with information entered

by user and searches knowledge base to arrive at conclusion

• Backward chaining: Begins with hypothesis and asks user questions until hypothesis is confirmed or disproved

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How expert systems work

Inference Engines in Expert SystemsInference Engines in Expert Systems

An inference engine works by searching through the rules and “firing” those rules that are triggered by facts gathered and entered by the user. A collection of rules is similar to a series of nested IF statements in a traditional software system; however the magnitude of the statements and degree of nesting are much greater in an expert system

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• Countrywide Funding Corporation in Pasadena, California, uses expert system to improve decisions about granting loans

• Con-Way Transportation built expert system to automate and optimize planning of overnight shipment routes for nationwide freight-trucking business

• Most expert systems deal with problems of classification

• Have relatively few alternative outcomes

• Possible outcomes are known in advance • Many expert systems require large, lengthy, and expensive development

and maintenance efforts

• Hiring or training more experts may be less expensive

Could an expert system be used to diagnose a medical condition? What might be the drawbacks to using an expert system for medical diagnosis? Is it possible that a functioning expert system can be programmed to make some bad decisions very rapidly?

159

Successful expert systems

160

Expert Systems Areas (1)

• Interpretetion systems – infer about situation from observation: speech understanding, image analysis, signal interpretation and many types of intelligence analysis

• Prediction systems – include weather forecasting, demographic predictions, economic forecasting, traffic predictions, crop estimates, military, marketing or financial forecasting

• Diagnosytic systems – include medical, electronic, mechanical and software diagnosis

• Design systems – develop configurations of objects that satisfy the constraints of the design problem: circuit layout, building design, plant layout

• Planning systems – deal with short- and long-term planning in areas: project management, routing, communication, product development, military applications and financial planning.

• Monitoring systems – compare the observations of system behaviour with standards

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Expert Systems Areas (2)

• Debugging systems - for create specifications or recommendations for correcting a diagnosed problem

• Control systems – adaptively govern the overall behaviour of a system: repeatedly interpret the current situation, predict the future, diagnose the causes of anticipated problems, formulate a remedial plan and monitor its execution to ensure success.

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Benefits of Expert Systems

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

Managerial Advanteges of ES

• From the point of view of a decision-maker, expert systems provide him or her with a new tool for decision-making:

apart from the structured data from a database, model solutions based on the model base

there appears a third possibility: suggested solutions built on best practices of management.

• In each of these three cases the managers also use their expertise, skills and intuition in making business decisions.

• This way, he or she has better chances to make a decision-making process easier, and the final decision will provide the organization with the greatest possible benefits and it will protect the enterprise from losses.

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164

Artificial Intelligence Systems

„. AIS are like YETI, nobody, never has seen it, but everybody has heard about them ...”

…Artificial Intelligence Systems – would be called intelligent; is the study of how to make computers do things at which, at the momment, people are better; subfield of computer science concerned with symbolic reasoning and problem solving…

Three objectives of AIS:• Make machines smarter (primary goal),• Understand what intelligence is (that’s Nobel laureate purpose),• Make machines more useful (the company purpose).

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Artificial Intelligence Systems

…Artificial Intelligence - capability of a device, such as a computer, to perform functions or tasks that would be regarded as intelligent, if they were observed in humans…

Meanings of intelligent behaviour for IS:• learn or understand from experience• make sense out of ambigous or contradictory messages• respond quickly and successfully to a new situation• use reason in solving problems• deal with perplexing (uneasy) situations• understand and infer in ordinary, rational ways• acquire and apply knowledge, • recognize the relative importance of diffrerent elements in a

situation

(Turban at al. Compare with: Laudon, Laudon, Chapt. 12)

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166

AIS – some benefits

• Pattern recognition for character, speech and visual recognition

• Systems that learn are more natural interfaces to the real world than systems that must be programmed

• Hihg fault tolerance

• Generalization – in work with noisy, incomplet or previously unsen input – generates reasonable response

• Adaptivity – learns in new environment.

In our XXI century AIS were divided into:

• BIS – Business Information Systems,

• APS – Automation of Production Systems (robots included)

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167

Information Technology in KM

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


168

Information Technology in KM

AI methods used in KM systems may to do the following:

• Assist in and enhance searching knowledge• Help establish knowledge profiles• Help determine the relative importance of knowledge• Identify patterns of data• Forecast future results using existing knowledge• Provide advice directly from knowledge by using ES


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Knowledge Discovery in Databases (KDD)

• KDD is a process used to search for an extract useful information from volumes of documents and data.

• It includes tasks known as knowledge extraction, data archeology, data exploration, data pattern processing, and so on.

• All of these activities are conducted automatically and allow quick discovery, even by nonprogrammers.

• Data often are deeply buried within very large databases, data warehouses, text documents, or knowledge repositories, all of which may contain data, information, and knowledge gathered by many years

• Data mining – the process of searching for previously unknown information or relationships in large databases.

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Business Intelligence Systems (BIS)

BI is …an analytical information system built on the basis of data warehouse together with data collection mechanisms, using different analytical tools, in particular tools for multidimensional analysis and data mining… The definition indicates the directions of changes, which occurred since the emergence of DSS or ES systems.

BIS is an umbrella term that combines architectures, tools, databases, applications, and methodologies for example: •data warehouse (with its „source” data), •business analytics (a collection of tools for manipulationg, mining, and analyzing the external data in data warehouse),•business performance management (for monitoring and analysis of performance),•user (intelligent) interface

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Business Users

Accesss

ManipulationResults

Components of Business Intelligence Systems

Data Sources

Technical staffBuild the data warehouse

OrganizingSummarizingStandarizing

Data warehouse

Managers Executives Business PerformanceManagement (BPM)

Strategies

Data warehouse environment

Business Analytics Environment

Performance and strategy

User interface

Browser, portal

Future component

Intelligent Systems

• Descriptions of past experiences of human specialists, represented as cases, stored in knowledge base

• System searches for stored cases with problem characteristics similar to new one, finds closest fit, and applies solutions of old case to new case

• Successful and unsuccessful applications are grouped with case

• Stores organizational intelligence: Knowledge base is continuously expanded and refined by users

• CBR found in• Medical diagnostic systems

• Customer support

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Case-based reasoning (CBR) in BI

How Case-Based Reasoning WorksHow Case-Based Reasoning Works

Case-based reasoning represents knowledge as a database of past cases and their solutions.

The system uses a six-step process to generate solutions to new problems encountered by the user.

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Data Warehousing (see: Data Base in MIS)

• Data flow from operational systems (CRM, ERP etc.) to a data warehouse (DW) – which is a special database, or repository of data, that has been prepared to support decision-making applications, ranging from simple reporting and quering to complex optimization

• The DW is constructed with methodologies, mainly metadata or data marts (branch databases) which are databases for departments (e.g marketing) or specific functions

• Originally included only a historical data that were organized and summarized for end-users (for easily view or manipulate data)

• Today some data warehouses include current date (by net) for real time decision support (collected in so called Data Marts (branch DB or Micro DB)

Development of Database Mechanisms

• A clear extension of a database, connected with the multitude and variety of the data processed in the systems, towards creating a data warehouse.

• Basically, data warehouse is an expanded corporate database with the mechanisms of data extraction from heterogeneous (including external) data sources and the solutions for their processing into a common database, which would be suitable for analysts and users making business decisions, supported by the domain or industry database (mart) and mechanisms of cooperation with analytical tools.

• The main tasks of the database, apart from the standard reporting and defining reports and ad-hoc queries from the user, are: statistical analyses, interactive analytical processing, data mining as well as – to a limited extent - business modelling.

• So – as the above shows – there occurred a qualitative change at the level of the main source of information in the system.

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176

Business Analytics (se:e Models Base in DSS)

• There are many software tools for users to create on-demand reports and queries and analyze data. (common name OLAP online analytical processing)

• Users could analyse different dimensions of data and trends. Business users easily identify performance trends by using trend analysis and graphic tools There are three groups categories of tools:

Reporting and queries – we have to do with all types of queries, discovery of information,multidimensional vew,drilldown to details and so on

Advanced Analytics – include many statistical, finacial, mathematical and other models used in analyzing data and information

Data, Text and Web Mining – data mining is a process of searching for unknown or nonobvious relationship or information in large databases using intelligent tools (neural computing or advanced statistical methods) on quantitative data, text, or web data.

Development of Model Base Mechanism

• When we compare the present system with the previous ones we observe another qualitative change with regard to the support model compared to the previous classes of systems.

• The so-called Business Analytics are all kinds of tools and analytical applications used for the broadly defined corporate performance management.

• Among the tools and applications used for performance management, we may distinguish:

universal analytical tools, the tools used for the analysis of spatial data stored in the spatial information

systems database analytic applications designed for specific areas of business management:

financial management and strategy management, customer relationship management, human resources management, supply chain management

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178

Business Performance Management (interpretation and advices)

The final component of the BI process is based on the balanced scorecard methodology, which is a framework for defining, implementing and managing and enterprise’s business strategy by linking objectives with factual measures

User interface: Dashboard and Other Information Broadcasting Tools

Dashboards (like in car) organize and present information in the way that is easy to read. They present graphs, charts, and tables that show actual performance vs. desired level of metrices at the first glance (digital cockpits, corporate portals, visualizations tools).

The role of knowledge today in the U.S. economy

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• Sales of enterprise content management software for knowledge management expected to grow 15 percent annually through 2012

• Information Economy• 55% U.S. labor force: knowledge and information workers• 60% U.S. GDP from knowledge and information sectors

• Substantial part of a firm’s stock market value is related to intangible assets: knowledge, brands, reputations, and unique business processes

• Knowledge-based projects can produce extraordinary rate of interest

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The Benefits of BIS

• Time savings (60%)• Single version of the truth (59%)• Improve strategies and plans (57%)• Improved tactical decisions (56%)• More efficient process (55%)• Cost savings ((37%)• Improved customers and partners relationships (36%)

(Eckerson)

• Faster, more accurate reporting (81%)• Improved decision making (78%)• Improved customer service (36%)• Increased revenue (49%)

(Thompson)

U.S. Enterprise Knowledge ManagementU.S. Enterprise Knowledge Management s software oftware rrevenues, 2005-2012evenues, 2005-2012

Enterprise knowledge management software includes sales of content management and portal licenses, which have been growing at a rate of 15% annually, making it among the fastest-growing software applications

(taken from Laudon&Laudon, Chapter 11)

The growth of sales of knowledge management software in the U.S. along with sales predictions through 2012

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Case study: Application of i-CASE Tools in Ursus FactoryCase study: Application of i-CASE Tools in Ursus FactoryIINTELLIGENT-NTELLIGENT-CASECASE (Computer (Computer Aided Systems Engineering) Aided Systems Engineering)

TOOLSTOOLS FOR FOR ELIMINATION OF BARRIERS TO THE ELIMINATION OF BARRIERS TO THE SYSTEM SYSTEM IMPLEMENTATIONIMPLEMENTATION

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Purpose of presentation:

The main purpose of presentation is analysis and identification of the possibilities of overcoming barriers to the implementation of integrated systems with the use of specialised software supporting the implementation process (I-CASE class)

Brief contents:•identification of the basic implementation problems•discussion the possible steps to overcoming these barriers with the use of I-CASE tools and knowledge contained in reference models •introduction the first concept of a knowledge management system supporting implementation process

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Delays in the process of implementation

• Empirical research shows that there is a simple relationship between the complexity and innovativeness of a project and the feasibility of its implementation.

• The more innovative and complex a project is, the more likely it is that its implementation will be delayed or even discontinued. In the case of integrated systems, this rule applies now to as many as 70% - 80% of the projects.

15%

11%

6%

1%

0%

0%

83%

81%

75%

61%

28%

14%

2%

6%

12%

18%

24%

21%

0%

2%

7%

20%

48%

65%

0% 20% 40% 60% 80% 100%

Very small, standard project

Small, standard project

Medium, complicated

Complex

Very complex, innovative

Based on modern technology Discontinued

Delayed

Timely

Early

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Year Success coefficient Partial failure* Total failure Failures together

1996 16% 53% 31% 84%

1998 27% 33% 40% 73%

2000 26% 46% 28% 74%

2002 28% 49% 23% 72%

2004 34% 51% 15% 66%

2006 29% 53% 18% 71%

2008 35% 46% 19% 65%

2010 32% 50% 18% 68%

Source: J. Johnson, CHAOS Rising, Standish Group, Materiały konferencyjne II-giej Krajowej Konferencji Jakości Systemów Informatycznych, Computerworld, czerwiec 2005, s. 11; Standish Group, The Standish Group Report 2007, West Yarmouth, Massachusetts, 2008 (intro version). *higher budget, or longer time, or more narrow scope of implementation

Average scale of effectiveness of management information system implementation 1996-2008

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The procedure in order to overcome barriers and threats to the system implementation: :

• Identify the areas where such barriers appear, and the reasons why they appear

• Define the methods of removing these barriers

• Identify the barriers which can be eliminated or at least significantly reduced using the methods of knowledge management contained in the intelligent tools

• Identify the tools and methods used to assist the designer and implementator in this respect

• Create a concept of automation of the process of preventing barriers to integrated systems implementation

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Organisational barriers Role of I-CASE tools in solving them

1. Problems with the correct assessment of a company’s condition Preliminary training of end-users in CASE methodology helps them understand the consultants’ expectations as to the scope and quality of the required data

2. Problems with the correct analysis of the needs In-depth training of end-users in CASE methodology is recommended. Subsequently, the main procedures describing the elementary business processes at the client’s company should be prepared by the client in cooperation with the consultants. Ideally, the client should develop such procedures using its own resources (as much as possible) with as little assistance from the consultants as possible. In this way, end-users are forced to get to know the tool well and, first and foremost, study the existing and planned procedures in depth. This approach has the following advantages: involvement of the client in the implementation from the very beginning, understanding of the main ideas and assumptions of the implementation – a common platform of understanding, making the client partly responsible for the implementation and reduction of involvement of the consultants

(on the base of my own research of implementation of IFS in 12 locations and branches in Poland)

188

3. Problems with preparation of a reliable implementation schedule (plan)

CASE is used indirectly – the use of this tool for problems 1 and 2 has resulted in obtaining good quality „as is” and „to be” analyses and ensured compliance with the methodology

4. Problems with defining the necessary conditions of efficient implementation

5. Problems with application of implementation methodology

6. Problems with correct preparation of documentation

Problems with preparation of documentation – the application of CASE has measurable advantages – the whole processes are automatically documented as they are developed. All changes to the processes introduced during the implementation are also documented. Moreover, the tools of certain vendors allow automatic configuration of the system for end-users. As a result, a considerable part of the documentation is automated.

7. Problems with users and their selection


189

8. Problems with consultants and their selection

The use of CASE allows significant reduction of the time needed for implementation and the time of work of the consultants. As a result, the existing resources (the consultants) are utilised better

9. Problems with training

Problems with training. In this case, the use of CASE tools may be the best solution. On the basis of the previously developed business processes (item 2), the training needs of the client are defined, and the end-user training is focused on the aforementioned processes only. In this case, it is sufficient to study the implementation plan and determine when end-users should be trained in the particular processes. Training is based on previously prepared (item 2) models of business processes. This approach allows elimination of unnecessary elements from training, thus increasing the absorption of the remaining material. As a result, training becomes more effective and can be shorter.

10. Problems with project execution


190

Psychological barriers Role of I-CASE tools in solving them

11. Problems with reaching understanding between the consultants and end-users

Problems with understanding – end-users and other employees of the client involved in the implementation, including the management (items 1 and 2), obtain knowledge about the CASE tool used. Subsequently, a ready-made (predefined) solution is presented and discussed. In this way, the existing and modified business models containing all basic processes functioning at a given company become a platform of understanding

12. A lack of understanding of the implementation needs

Presentation of processes subject to changes with the use of CASE helps the employees understand the objectives and needs of the implementation

13. Hostile attitude of employees

If the implementation process becomes faster and more efficient, the results are achieved earlier, which has an encouraging effect and increases faith in success.

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Financial and technological barriers Role of I-CASE tools in solving them

14. A lack of financial means

15 . Pseudo-savings

16. Excessive customisation – tailoring of the system to the client’s needs

Excessive customisation – presentation of the existing and planned business processes allows end-users to understand their nature and find the optimum solution, which increases the chances for avoiding unnecessary and costly customisations

17. A lack of security

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Some conclussions

The analysis presented above shows that there are several important factors which allow elimination of problems occurring during system implementation:

• the main one is the use of CASE tools, which is useful in 10 out of 17 cases.

• the second important element is the application of the remaining part of implementation methodology (which is often integrated with a CASE tool).

• the third factor concerns the HR issues to be considered during the implementation.

• the fourth one is finance factor

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Transformation data into knowledge process

• Data accumulation in database

• Next by preliminary processing, it is stored in data warehouses

• The data undergoes transformation to prepare it for a detailed analysis

• Analysis is performed with the use of automatic search tools

• A comparison of data found with models (of behaviour, reactions) stored in intelligent systems

• The ultimate outcome of such comparisons is an assessment of usefulness of generalised information for management purposes and accumulation of such information, along with data, in the knowledge base

Table of reasons of barriers occurence

Table of identified barriers

Transformation matrix

Blackboard of methodsof prevention or

reduction of the barriers

Decisionmaking

I-CASE

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Architecture of system- concept

• Interactive questioning mechanizm. User language

• Data collection. Problems described by attributes and functions

• Data categorisation (which are new one)

• Comparing with Database collection (adding new)

• Problem and proper solving method connection

• Automatic solving problem or switch to proper I-CASE tool (when we have no ready solution)

• Modyfying system or making new part of it

• Solutions Base – methods collection

Questioner

IdentyfierDataBase

Solver

Selector

Solutions Base

Evaluator

User

I-CASE

Stop

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Summary of the case

It’s still work in progress

The first part:

• identification of basic limitations of integrated system implementation,

• identification reasons of the problems,

• identification methods of their solving is over

The second part:

The conception is in the state of construction.

Development of this concept:

• will lead to construction of a tool supporting the decision-making process for the end-user

• allowing automatic selection of a method minimising the limitations of the integrated systems implementation process.

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MANAGEMENT INFORMATION SYSTEMS Part 3

INTEGRATED ENTERPRISE SYSTEMS


Oskar Szumski, PhD


LEARNING OBJECTIVES

• Evaluate how enterprise systems help businesses achieve operational excellence.

• Describe how supply chain management systems coordinate planning, production, and logistics with suppliers.

• Explain how customers relationship management systems help firms achieve customer intimacy.

• Identify the challenges posed by enterprise applications.

• Describe how enterprise applications are used in platforms for new cross-functional services.

YearIntegration

TSP/APD

MIS

DSS

EIS/ESS

ES

BIS

1950 1960 1970 1980 1990 2000 2010

IC

MRP

MRP II

1

2

Convergence

ERP

ERP II

CRM

SCM 3

Internet

Corporate Platform


Commercial nets

TRENDS IN MANAGEMENT INFORMATION SYSTEMS DEVELOPMENT AND NEW CLASSIFICATION

201

Computerized Tools of MIS

• Transaction Processing Systems (TPS) 1965• Management Information Systems (MIS) 1970• Decision Support Systems (DSS) 1975• Expert Systems (ES) 1980• Executive Information Systems &Executive Support

Systems – 1980+• Artificial Neural Networks 1985 (?) (ES II generation,

Knowledge Based IS, Business Intelligence Systems)• Integrated Enterprise Information Systems 1990• Transformed into Digital Economy Systems 2000+

202

The Integration in the Development of MIS

The relationship between the basic IS can be presented as:· perceiving them through a perspective of separate IS,· alternating meaningful and alter,· tendency to evolution and adaptation as regards reality,· interaction and coordination between systems as regards specific

applications. We can observe the important role of the integrated systems which

support office work and production, and also – now only sometimes - a complete lack of network systems here. Nonetheless, the already drawn conclusion that the main direction of development of most systems is their complex integration in direction of management support system.

203

The Benefits Resulting from Linking – MIS & ES

In this case Expert Systems supply:supervision and review of the process of registration, retrieval and execution of information processes,simplification of a correct base management for operators,optimization of questions and search paths as well as the amount of transfer data,intelligent-interfaces-like operation in commercial deposition structured databases.

In such a kind of the architecture management information system (MIS) - provides information for ES as well as simplifies core data manipulation.

204

Integration: MIS & ES

Fig.1. Combinaton Architecture Expert System and Management Information System (Intelligent

Data Base)

User Interface

Expert System

Rules Base

Conckusions Mechanism

Data Gathering

Data Models

Data Base and Data

Base Management

System

Reports

Screens

Data Base Transactions

Data Base Applications

Expert System

205

Integration ES & DSS

Cooperation gives the following effects:• possibility of logical explanation of undertaken decisions and results

collected,• faster accomplishment of operations, when the acquired results of the

DSS are input data for ES,• proper identification of the reverse situation,• an increase in possibility of choice for the user – using a system of two

types of compound databases as regards the required needs of the logical decision process,

• generation of variant solutions (DSS) and linking to them alternative functions, which should be undertaken for their retrieval.

There are three possibilities:• Expert System as independent component of the Decision Support System• Expert System expanding the decision making process in the Decision

Support System • Expert System unified with the Decision Support System

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Fig.3. Expert System as Independent Component of Decision Support System

User

User Interface

Data Base

Model Base

Data Base Management

System

Model Base Management

System

Expert System

Here ES is quite a separate element of the combined system and the final user can use it only under particular circumstances – only even it is quite impossible to solve a particular problem operating on the database or model base.

No direct connections between them.

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Fig. 4. Expert System Expanding Decision Making Process in Decision Support System

User

User Interface

Data Base Model Base


System


System

Expert System

The system has links not only with management systems but - directly - with date and model bases, too. It means that the user has in fact three independent possibilities: to work with database, with the model base and with the ES.

ES has no background, so the model and database in this situation acts as an additional support for its characteristics.

208


Fig. 5. Expert System Unified with Decision Support System

User

Conclusion Mechanism

Expert System Intelligent

Supervisory Programme

Data Base

Model Base


System


System

Knowledge Base

System Management systemem

User Interface

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

209

Integration EIS & DSS

The basic method of integrating systems, which inform management and DSS is using them with the recent information generated by EIS as input information.

In more complicated cases we expect to see a loop of the reverse compound through a special intelligent interface which will allow for the creation of questions to DSS, and in the opposite direction it will send interpretations and recommendations obtained from DSS.

In short we can split this process into two parts:

• After introductory treatment in EIS data will be used as input data to DSS,

• EIS is used for further interpretations of solutions achieved with the help of DSS.

210

Integration EIS & DSS

Responses

Reccomedations

Fig. 6. Connections Architecture between Executive Information System and Decision Support

System

User

User Interface

Data Base

Model Base


System


System

Executive Information

System

Environment

Querries

External Information

Reccomendations for User

211

Integration ES & EIS

• It seems that these two systems are seldom (only sometimes) linked in practice

• EIS can return with questions to the ES in the hope of solving particular, specialist problems which they have and changes of obtaining appropriate solutions.

• EIS can also refer to the knowledge base or procedures base of ES in situations when their user of interface is equipped with communication mechanism, which allows them such a function.

• Now and again ES acts as a regular provider of reports (with a substantial grade) generated on the basis of data sent from EIS.

212

Integration ES & EIS

Odpowiedzi

Rekomendacje

Fig. 7. Connection Architecture between Executive Information System and Expert System

User

User Interface (ES Class)

Data Base

Knowledge Base


System

Knowledge Base

Management System


System

Environment

Information

Interpretations

External Informations

Recommendations for User

213

Integration EIS & MIS

It is the oldest and most natural system of linking two IS. It makes full use of all the database mechanism and at the same time only extracts information, which is needed by the management in a given moment. In this way, there arises an extra method independent of the user interface on a management level.

Its basic characteristics:

• possible ongoing observation of events in the company and its surroundings (EIS - as an intelligent interface to the database system),

• reverse - memory of the interpretation of the EIS results in the database.

214

Integration EIS & MIS

Fig. 8. Executive Information System Architecture Connected with Management Information System

User

User Interface

Data Base


System


System

215

Integration Between Systems of the Same Type

This kind of linking applies mainly to:• ES - information exchange between systems from various

categories or branches or • DSS - strengthening of the functions of humble (small, weak)

systems through specialized transformation systems

216

Integration Within Unified Enterprise Systems

Therefore the basic characteristics of such systems are:• functional complexity – i.e. the inclusion of its whole range of functions and

processes going on in the organization (that does not disturb the selling of one part of the system in practice)

• structural compound – from one side a complex functional stimulation (the size of the system would be enough!), from the other a joining of various types of system as a whole one, finally making use of various technological integration.

• considerable ease of use – all new technical gadgets are quickly added to existing systems or new versions are created which differ by, for example a more attractive user interface. A common imposed idea about solving office problems with Windows put big pressure on systems creators, in the direction of building “Windows-style” interfaces - i.e. such that ensured ease of use for users who are accustomed to it.

• common usage – all companies who want to survive on the ever narrowing more competitive market look for salvage in cost minimization. Such salvage is provided by the management and production support computer system. If it is used in the correct way, the substantial effects cause an increase of technological interest, and with this comes an increase in common usage of such systems.

217

Integrated Management Information Systems

Benefits:• More productive than forming a whole system (faster in construction and

correction),• Eliminates completely manual handling of information,• Owning a larger functionality than the simple sum of the applications functions

(synergy).Scenarios: • Integration of already existing applications,• Building a new applications integrated with existing ones,Typical problems: • Cooperation needs a common language,• Organizational problems: there are various levels/platforms:- hardware,- operation system- networks• Organizations have various structures and development strategies and therefore

functional applications,• During application connection a complicated structure arises as regards the

application2application connection

218

Integrated Enterprise Systems

Following conditions must be satisfied:

• common information handling for the whole organization, without a dispensable surplus, which denotes, that the information about every thing is collected only once, ideally from the source, and sent to every processes which is ready to use it,

• unique collection system, transforming and information sending,

• unique media collection and information handling,

• common tools and system development procedures,

• unique user dialogue procedures.

219

Integrated Enterprise Systems Development

• 1957 in the USA - American Production & lnventory Control Society (APICS) was established - for maintaining standards of computers application in production’ organizations management

• In late 50. APICS made assesments for the first standard MRP (Material Requirements Planning). This standard let us compute accurate quantity of row materials (resources) adequately for flexible demand on commodities (assortment of products, articles) in time.The main goal of MRP:

• Inventory reduction (in warehouses and interoperational inventories),• Accurate defining supply time of row materials and semi-finished articles supply

• Precise ddetermining of production costs,• Better usage of technical (production) infrastructure,• Faster reaction under environmental changes, • Control of individual stages of production.

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

220

• 1989 APICS create new standard MRP II (Manufacturing Resource Planning commonly used in all great integrated information systems

• Standard MRP II was extended (in relation with the previous one) about elements connected with sale (retail and wholesale) and functions supported strategic production management

• In 90. – all functions and processes were included in standard MRP II

• Now it takes into account all spheres of management of the firm connected with preparation of production, production planning and management and sale or distribution production goods

• Besides of row materials - in MRP II there were human relations, financial flows, auxiliary materials etc.


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• Mid-90 standard ERP (Enterprise Resource Planning – not approved) - Main purpose – complete integration of all levels of management of the company

• ERP included all proceses of production and distribution, which integrating various areas of firm activity, implementing critical – for success - information flows and let direct react for market changes

• Information updating - in real time and information for decision making process is accesable in that momment

• Additionally – procedures for simulationg variuos operations with possible analysis of their results (financial included).


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ERP areas:• Customer service – database about clients, orders processing,

orders service, EDI – transfer of e-documents, internet access, • Production – wholesale servis, production costs calculating,

purchasing materials rows, establishing time-table of production, forecasting of capabilities, calculating of critical level of inventories, process production control etc.,

• Finance – accounting, accounting documents flow control, preparing reports according to customer needs, etc.,

• Logistic chain itegration - connection with next subsystems CRM (Customer Relationship Management), SCM (Supply Chain Management), VRM (Vendor Relationship Manegement)

Integrated Systems Development

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System evolution direction – total complexityInternet area

Inventory Control

MRP

MRP II

ERP

ERP II

1960 1970 1980 1990 2000

• Built around thousands of predefined business processes that reflect best practices

• Finance/accounting: General ledger, accounts payable, etc.

• Human resources: Personnel administration, payroll, etc.

• Manufacturing/production: Purchasing, shipping, etc.

• Sales/marketing: Order processing, billing, sales planning, etc.

• To implement, firms:

• Select functions of system they wish to use

• Map business processes to software processes

• Use software’s configuration tables for customizing

Enterprise Integrated Systems

• Increase operational efficiency

• Provide firmwide information to support decision making

• Enable rapid responses to customer requests for information or products

• Include analytical tools to evaluate overall organizational performance

Business Value of Integrated Enterprise Systems

Enterprise systems feature a set of integrated software modules and a central database that enables data to be shared by many different business processes and functional areas throughout the enterprise

How Enterprise How Enterprise Integrated Integrated Systems WorkSystems Work

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ERP areas:• Customer service – database about clients, orders processing,

orders service, EDI – transfer of e-documents, internet access, • Production – wholesale servis, production costs calculating,

purchasing materials rows, establishing time-table of production, forecasting of capabilities, calculating of critical level of inventories, process production control etc. ustalanie.,

• Finance – accounting, accounting documents flow control, preparing reports according to customer needs,etc.

• Logistic chain itegration - connection with next subsystems CRM (Customer Relationship Management), SCM (Supply Chain Management), VRM (Vendor Relationship Manegement)


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Evolution of ERP Systems

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Structure of ERP Systems

230

Modules overview of ERP Systems

231

ERP Diagram

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Market share 2010 according to Gartner Dataquest

No. Vendor Revenue(million $)

Market share(%)

1. SAP 4726 28.7

2. Oracle Applications 1674 10.2

3. The Sage Group 1221 7.4

4. Microsoft Dynamics 616 3.7

5. SSA Global Technologies 464 2.8

6. Lawson Software 391 2.4

7. Epicor 384 2.33

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ERP Advantages and Disadvantages

Benefits:• ERP automate business processes and enable process changes, what brings

a lot benefits in operational activities such like: cost reduction, cycle time reduction, productivity improvement, quality improvement, customer service improvement,

• with a centralized database and build in data analysis capabilities, the system is helping in managerial activities for example: better resource management, improves decision making and planning, improves performance,

• ERP systems with their large-scale business involvement and internal and external integration capabilities can assist in achieving strategic benefits such as: support business growth, build business innovations, build cost leadership, generate product differentiation (including customization), build external linkages (customers and suppliers), enabling e-commerce,

• ERP systems has integrated a standard application architecture, which provides an infrastructure that can build business flexibility for current and future changes, IT cost reduction, increased IT infrastructure capability,

• the integrated information processing capabilities of ERP can support organizational changes, facilitate business learning, build common vision, change employee behavior, increase employee moral and satisfaction.

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• Personnel turnover; companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP.

• Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed.

• Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.

• ERP systems can be very expensive especially for multinational companies. • ERP vendors can charge sums of money for annual license renewal that is

unrelated to the size of the company using the ERP or its profitability. • Technical support personnel often give replies to callers that are

inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards.

• ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.

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• Systems can be difficult to use. • Systems are too restrictive and do not allow much flexibility in

implementation and usage. • The system can suffer from the "weakest link" problem—an inefficiency

in one department or at one of the partners may affect other participants. • Many of the integrated links need high accuracy in other applications to

work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications.

• Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).

• The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.

• Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

• There are frequent compatibility problems with the various legacy systems of the partners.

• The system may be over-engineered relative to the actual needs of the customer.

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ERP Life Cycle

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Trends of ERP development

ERP initiatives are most common:• Upgrade. In 2008, a meaningful percentage of companies were going through major and

minor upgrades of their ERP environment.• Rationalize and standardize. Many diversified companies that have grown by acquisition

now face a significant challenge in that they have multiple ERP vendors and installations running. To improve process consistency and reduce internal support costs, many companies have embarked on a long-term strategy to standardize on a single-instance/single-vendor ERP strategy.

• Multitier (multileyer). The multitier ERP strategy seems to run counter to the notion of ERP standardization but is a viable strategy for companies with a number of smaller subsidiaries.

• Integrate. Improving integration among applications is the leading application strategy priority among enterprise companies, representing a critical priority among 33% of companies. Integration of applications is moving from a traditional batch, flat-file mode to virtually real-time, message-based integration using SOA technologies.

• Expand. ERP systems have been historically hard to use and are typically deployed to a limited set of core users who enter and retrieve data from the systems on a daily basis. Alternative user interfaces - including Web-based self-service, Adobe forms, Microsoft Office, and other technologies - are more readily available now to roll out certain ERP capabilities to a broader set of less frequent users across the enterprise. Newer role-based user experience designs as well as vastly improved BI capabilities are becoming more evident, making these systems more accessible and approachable.

• Replace. Replacement becomes a necessity at some point, due to the technology obsolescence of older legacy systems and high levels of customization that compromise the upgrade path. ERP systems, however, typically have a useful life of 15 to 20 years or more when proactively maintained.

The supply chain

• Network of organizations and processes for:

• Procuring raw materials

• Transforming them into products

• Distributing the products

• Upstream supply chain:

• Firm’s suppliers, suppliers’ suppliers, processes for managing relationships with them

• Downstream supply chain:

• Organizations and processes responsible for delivering products to customers

Supply Chain Management Systems

Nike’s Supply ChainNike’s Supply Chain

This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.


• Information and supply chain management• Inefficiencies cut into a company’s operating costs

• Can waste up to 25% of operating expenses• Just-in-time strategy:

• Components arrive as they are needed

• Finished goods shipped after leaving assembly line• Safety stock

• Buffer for lack of flexibility in supply chain• Bullwhip effect

• Information about product demand gets distorted as it passes from one entity to next across supply chain


• Supply chain management systems• Supply chain planning systems

• Model existing supply chain

• Demand planning

• Optimize sourcing, manufacturing plans

• Establish inventory levels

• Identifying transportation modes• Supply chain execution systems

• Manage flow of products through distribution centers and

warehouses


• Global supply chains and the Internet

• Before Internet, supply chain coordination hampered by difficulties of using disparate internal supply chain systems

• Enterprise systems supply some integration of internal supply chain processes but not designed to deal with external supply chain processes

• Intranets and Extranets

• Intranets: To improve coordination among internal supply chain processes

• Extranets: To coordinate supply chain processes shared with their business partners


Intranets and Extranets for Supply Chain ManagementIntranets and Extranets for Supply Chain Management

• Intranets integrate information from isolated business processes within the firm to help manage its internal supply chain.

• Access to these private intranets can also be extended to authorized suppliers, distributors, logistics services, and, sometimes, to retail customers to improve coordination of external supply chain processes.

• Global supply chain issues

• Global supply chains typically span greater geographic distances and time differences

• More complex pricing issues (local taxes, transportation, etc.)

• Foreign government regulations

• Internet helps companies manage many aspects of global supply chains

• Sourcing, transportation, communications, international finance


• Match supply to demand

• Reduce inventory levels

• Improve delivery service

• Speed product time to market

• Use assets more effectively

• Reduced supply chain costs

• Increased sales

Business Value of Supply Chain Management SystemsBusiness Value of Supply Chain Management Systems

The Future Internet-Drive Supply ChainThe Future Internet-Drive Supply Chain

The future Internet-driven supply chain operates like a digital logistics nervous system. It provides multidirectional communication among firms, networks of firms, and e-marketplaces so that entire networks of supply chain partners can immediately adjust inventories, orders, and capacities.

• What is customer relationship management?• Knowing the customer

• In large businesses, too many customers and too many ways customers interact with firm

• Customer relationship management (CRM) systems

• Capture and integrate customer data from all over the organization

• Consolidate and analyze customer data

• Distribute customer information to various systems and customer touch points across enterprise

• Provide single enterprise view of customers

Customer Relationship Management Systems

Customer Relationship Management (CRM)Customer Relationship Management (CRM)

CRM systems examine customers from a multifaceted perspective.

These systems use a set of integrated applications to address all aspects of the customer relationship, including customer service, sales, and marketing.

• CRM software packages

• More comprehensive packages have modules for:

• Partner relationship management (PRM)

• Employee relationship management (ERM)

• Most packages have modules for

• Sales force automation (SFA): Sales prospect and contact information, and sales quote generation capabilities; etc.

• Customer service: Assigning and managing customer service requests; Web-based self-service capabilities; etc.

• Marketing: Capturing prospect and customer data, scheduling and tracking direct-marketing mailings or e-mail; etc.


How CRM Systems Support MarketingHow CRM Systems Support Marketing

Customer relationship management software provides a single point for users to manage and evaluate marketing campaigns across multiple channels, including e-mail, direct mail, telephone, the Web, and wireless messages.

CRM Software CapabilitiesCRM Software Capabilities

The major CRM software products support business processes in sales, service, and marketing, integrating customer information from many different sources. Included are support for both the operational and analytical aspects of CRM.

• Operational CRM:

• Customer-facing applications such as sales force automation, call center and customer service support, and marketing automation

• Analytical CRM:

• Analyze customer data output from operational CRM applications

• Based on data warehouses populated by operational CRM systems and customer touch points

• Customer lifetime value (CLTV)


Analytical CRM Data WarehouseAnalytical CRM Data Warehouse

Analytical CRM uses a customer data warehouse and tools to analyze customer data collected from the firm’s customer touch points and from other sources.

• Business value of customer relationship management• Increased customer satisfaction

• Reduced direct-marketing costs

• More effective marketing

• Lower costs for customer acquisition/retention

• Increased sales revenue

• Reduced churn rate

• Churn rate:

• Number of customers who stop using or purchasing products or services from a company.

• Indicator of growth or decline of firm’s customer base


• Enterprise application challenges

• Highly expensive to purchase and implement enterprise applications – total cost may be 4 to 5 times the price of software

• Requires fundamental changes

• Technology changes

• Business processes changes

• Organizational changes

• Incurs switching costs, dependence on software vendors

• Requires data standardization, management, cleansing

Enterprise Applications: New Opportunities and Challenges

• Next generation enterprise applications• Enterprise solutions / suites:

• Replacing stand-alone enterprise, CRM, SCM systems

• Make these applications more flexible, Web-enabled, integrated with other systems

• Open-source and on-demand applications• SaaS, Salesforce.com

• Service platform: Integrates multiple applications to deliver a seamless experience for all parties

• Order-to-cash process

• Portals:

• Increasingly, new services delivered through portals

Enterprise Applications: New Opportunities and Challenges

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ERP example – IFS Applications

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

Additional functionalities

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

Related systems

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

(CAD/CAM)

IFS App Component Chart

Example – IFS App for automotive industry

Example – IFS App for aviation

Example – IFS App for Defence

Example – IFS App for telecommunications

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MANAGEMENT INFORMATION SYSTEMS Part 4

e-COMMERCE AND e-BANKING


Oskar Szumski, PhD


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e-Commerce Definitions

• ...To include only business transactions that deal with customers and suppliers, and it is often described in terms of the Internet, implying that there are no other communications alternatives ...

(McLeod,...2001)

• ...The sharing of business information, maintainin business relationships, and conducting business transactions by means of telecommunications networks …

(Zwass, 1998)

• ...E-commerce – exchange the information across electronic networks, at any stage in the supply chain, whether within an organization, between businesses (B2B), between businesses and consumers (B2C), or between the public and private sector, whether paid or unpaid...

(UK government),

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• E – Enterprise - the most fundamental element of the E-Commerce is E- Enterprise

• The most frequently it is be described as an institutional unit possessing ability to exchange goods – capital, information, products and services, in an electronic manner

• In practice, it can be the source (producer), interacting part of trade chain, as well as the organizer (online auctions for example) of transactions taking place in the Internet.

• E – Marketplace is an online marketplace where buyers and sellers meet to exchange products, services, or information

Electronic markets can be supplemented by intra-organizational (intranets) or inter-organizational (extranets) information systems

• E - Transactions can be best defined as the ability of consumers to purchase products and services in the e-marketplace using Internet technologies and infrastructure.

The Internet is rapidly becoming the medium through which a large share of communications and commerce takes place.

Online transitions are the new means of conducting business, which are taking over the traditional ones.

Despite the recent dot.com bubble burst, online transactions have become one of the main ways to do business, to buy goods and services.

They are an important mean of communication for governmental institutions.

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e-Commerce from Perspectives:

• Communication perspective – EC is delivery of information, product/services, or payments over telephone lines, computer networks, or any other electronic measns,

• Business process perspective – EC is the application of technology toward the automation of business transactional and work flow,

• Service perspective – EC – is a tool that addresses the desire of firms, consumers, and management to cut service costs while improving the quality of goods and increasing the speed of service delivery,

• An online perspective – the buying and selling of products and information online.

(Kalakota and Winston, 1997)

Electronic Commerce and the Internet (Laudons…)

• E-commerce

• Use of the Internet and Web to transact business

• Digitally enabled transactions

• History of e-commerce

• Began in 1991 and grew exponentially; still growing at an annual rate of 16 percent

• Rapid growth led to market bubble 1999

• While many companies failed, many survived with soaring revenues 2002

• E-commerce today the fastest growing form of retail trade in U.S., Europe, Asia

Retail e-commerce revenues have grown exponentially since about 1991 and have only recently “slowed” to a very rapid 16% annual increase, which is projected to remain the same after 2010 - even until 2015

The Growth of E-CommerceThe Growth of E-Commerce

Eight unique features of e-commerce technology:

1. Ubiquity - Internet/Web technology available everywhere: work, home, etc., and anytime

2. Global reach - the technology reaches across national boundaries, around Earth

3. Universal standards - one set of technology standards: Internet standards

4. Richness - supports video, audio, and text messages (multi-)

Electronic Commerce and the Internet

Eight unique features (cont.)

5. Interactivity - the technology works through interaction with the user

6. Information density - vast increases in information density—the total amount and quality of information available to all market participants

7. Personalization/Customization - technology permits modification of messages, goods

8. Social technology - the technology promotes user content generation and social networking

Digital markets reduce

• Information asymmetry

• Search costs

• Transaction costs

• Menu costs

Digital markets enable

• Price discrimination

• Dynamic pricing

• Disintermediation

Key concepts in e-commerce

The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer.

The Benefits of Disintermediation to the ConsumerThe Benefits of Disintermediation to the Consumer

Digital goods

• Goods that can be delivered over a digital network -e.g., music tracks, video, software, newspapers, books

• Cost of producing first unit almost entire cost of product: marginal cost of producing 2nd unit is about zero

• Costs of delivery over the Internet very low

• Marketing costs remain the same; pricing highly variable

• Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.)

Key concepts in e-commerce

Internet business models

• Pure-play models - internet is primary mode of operation

• Clicks-and-mortar models (a type of business model that includes both online and offline operations, which typically include a website and a physical store. A click-and-mortar company can offer customers the benefits of fast, online transactions or traditional, face to face service=clicks&brick - see: Clicks&Bricks - offline and online operations, but Bricks&Mortar – only offline operations)

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Social Networks

• Online meeting place

• Social shopping sites

• Can provide ways for corporate clients to target customers through banner ads and pop-up ads

Online marketplace:

• Provides a digital environment where buyers and sellers can meet, search for products, display products, and establish prices for those products

• Content provider

• Providing digital content, such as digital news, music, photos, or video, over the Web

• Online syndicators: Aggregate content from multiple sources, package for distribution, and resell to third-party Web sites

• Service provider

• Provides Web 2.0 applications such as photo sharing and interactive maps, and services such as data storage

• Portal

• “Supersite” that provides comprehensive entry point for huge array of resources and services on the Internet

• Virtual storefront:

• Sells physical products directly to consumers or to individual businesses

• Information broker:

• Provides product, pricing, and availability information to individuals and businesses

• Transaction broker:

• Saves users money and time by processing online sales transactions and generating a fee for each transaction

Types of Electronic CommerceTypes of Electronic Commerce

• Business-to-consumer (B2C)

• Business-to-business (B2B)

• Consumer-to-consumer (C2C)

• Mobile commerce (m-commerce)

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Types of e-Transactions:

• Business-to-Customer (B2C) – includes retail transactions of products, services or information from business to individual shoppers. The typical example is a shopper at Amazon.com or Merlin.com.pl

• Business-to-business (B2B) – trade contacts based not only on search for new customers and target markets, but also the search for:

– partners to invest jointly, – building optimized supply chain, – trade information, – building cooperational nets, and – acquiring know-how.

This type of transaction is commonly supported by traditional means of communication such as phone calls, meetings and faxes. Today, over 85% of EC volume is B2B.

Cunningham, M. S. (2001). How to Build a Profitable E-Commerce Strategy. Cambridge: Perseus Pub.

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Types of e-transactions:

• Customer-to-customer (C2C) – in this type of transaction, customers sell directly to other customers.

A great example of customer-to-customer is an online auction, like Ebay.com or Allegro.pl, that faciliate trade among individual customers.

• Mobile Commerce (M-Commerce) – transactions and activities conducted entirely or partially in a wireless environment.

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What else? (types of e-transactions):

• Customer-to-business (C2B) – this category includes individual customers who use the Internet to sell goods to organizations, as well as individuals who seek sellers to make bids on their products or services.

Priceline.com, an online travel agency, where customers define price that they want to pay, is a typical example of C2B.

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What else? (types of e-transactions):

• E-learning – training or education is provided online. Green Industries Institute which will be analyzed in is an example of e-learning.

• E-Goverment – happens when governmental entity buys or provides information, service or product to individual citizens (G2C) or to businesses (G2B).

Full information and database of tax forms on Internal Revenue Services (IRS) web site is an example of both G2C and G2B.

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IOS and e-Market Features

• Customer relationship is determined in advance with anticipation it will be an ongoing relationship based on multiple transactions

• IOS may be built around private or publicly accesible networks

• Advance arrangements result in agreements on the nature and format of business documents that will be exchanged and payments

• Advance arrangements are made so both parties know which communication networks will be integral to the system

• Joint guildelines and expectations of each party are formulated so each knows how the systemis to be used and when transactions will be submited and received by each business partner

• Two types of relationships may exist: Customer/seller linkage is established in

time of transactions and may be for one transaction only (just purchase),

Customer/seller purchase agreement is establish for a defined period (a subscribtion transaction)

• Electronic markets are built around publicly accesible networks

• Sellers determine, in conjunction with the market maker which business transactions they will provide

• Customers and sellers independently determine which communication networks they will use in participating in the electronic market. The network used may vary from transaction to transaction,

• No joint guideliness are drawn in advance

THE BASE OF B2B THE BASE OF B2C and the others

• Interactive marketing and personalization

• Web sites are bountiful source of details about customer behavior, preferences, buying patterns used to tailor promotions, products, services, and pricing

• Clickstream tracking tools: Collect data on customer activities at Web sites

• Used to create personalized Web pages

• Collaborative filtering: Compares customer data to other customers to make product recommendations

• Blogs

• Personal web pages that contain series of chronological entries by author and links to related Web pages

• Has increasing influence in politics, news

• Corporate blogs: New channels for reaching customers, introducing new products and services

• Blog analysis by marketers

• Customer self-service

• Web sites and e-mail to answer customer questions or to provide customers with product information

• Reduces need for human customer-support expert

B2B e-commerce: New efficiencies and relationships

• Electronic data interchange (EDI)

• Computer-to-computer exchange of standard transactions such as invoices, purchase orders

• Major industries have EDI standards that define structure and information fields of electronic documents for that industry

• More companies increasingly moving away from private networks to Internet for linking to other firms

• E.g., Procurement: Businesses can now use Internet to locate most low-cost supplier, search online catalogs of supplier products, negotiate with suppliers, place orders, etc.

Companies use EDI to automate transactions for B2B e-commerce and continuous inventory replenishment. Suppliers can automatically send data about shipments to purchasing firms.

The purchasing firms can use EDI to provide production and inventory requirements and payment data to suppliers.

Electronic Data Interchange (EDI)Electronic Data Interchange (EDI)

Private industrial networks (private exchanges)

• Large firm using extranet to link to its suppliers, distributors and other key business partners

• Owned by buyer

• Permits sharing of:

• Product design and development

• Marketing

• Production scheduling and inventory management

• Unstructured communication (graphics and e-mail)

A private industrial network, also known as a private exchange, links a firm to its suppliers, distributors, and other key business partners for efficient supply chain management and other collaborative commerce activities.

A Private Industrial NetworkA Private Industrial Network

Net marketplaces (e-hubs)

• Single market for many buyers and sellers

• Industry-owned or owned by independent intermediary

• Generate revenue from transaction fees, other services

• Use prices established through negotiation, auction, RFQs, or fixed prices

• May focus on direct or indirect goods

• May support long-term contract purchasing or short-term spot purchasing

• May serve vertical or horizontal marketplaces

Net marketplaces are online marketplaces where multiple buyers can purchase from multiple sellers.

A Net MarketplaceA Net Marketplace

• Exchanges• Independently owned third-party Net marketplaces

• Connect thousands of suppliers and buyers for spot purchasing

• Typically provide vertical markets for direct goods for single industry (food, electronics)

• Proliferated during early years of e-commerce; many have failed

• Competitive bidding drove prices down and did not offer long-term relationships with buyers or services to make lowering prices worthwhile

M-Commerce

• M-commerce services and applications

• Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily growing

• Location-based services

• Banking and financial services

• Wireless Advertising

• Games and entertainment

M-commerce sales represent a small fraction of total e-commerce sales, but that percentage is steadily growing.

Global M-commerce Revenue 2000-2012Global M-commerce Revenue 2000-2012

• Limitations in mobile’s access of Web information

• Data limitations

• Small display screens

• Wireless portals (mobile portals)

• Feature content and services optimized for mobile devices to steer users to information they are most likely to need

M-Commerce

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e-Banking

e-Banking - form of bank services to facilitate access to customers’s account with computer or the other electronic devices and connections

(Council of e-Banking)

e-Banking - complex of information systems for maintenance:- home and office banking- tele-banking- credit cards- automatic teller machines ATM- virtual transactions.

(Janc, Kotlinski)

e- Banking - electronic net and information bank systems usage for client’s convenience in tradictional and modern payment systems.

The ultimate purpose is creation bank-accounting system without the paper

(Chmielarz)

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e-Banking

• Electronic banking (cyberbanking) – includes various banking activities conducted from home, business, or on the road, instead of at physical bank location.

• E-banking – has capabilities ranging from paying bills to securing a loan electronically

• It started with the use of propriety software and private networks but was not particularly popular until the emergence of the Internet

• Allows customers to access their accounts and execute orders through a simple-to-use Web site

• It is inexpensive alternative to branch banking and a chance to enlist remote customers

(Turban)

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Some of the advanteges of e-banking:

• Get current account balances at any time – you can easily check the status of your checking, savings, and money market accounts

• Obtain charge and credit card statements – you can even set up your account to pay off cards automatically every month

• Pay bills – electronic payments from your accounts are normally credited the same day or the next. The cost of paying bills electronically may well be less than the postage involved in sending out a large number of payments each month

• Download account transactions – it’s easy to import them directly with the money transfer system

• Transfer money between accounts • Balance your accounts • Send e-mail to your bank• A new meaning for „banker’s hours” – in any time, any place• Handle your finances when traveling• Additional services – for example free phone banking

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Internet-banking: part of e-Banking services realized only by Internet

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

e-Banking

Internet Banking

VirtualBanking

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

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Electronic banking based on communication channels of distribution can be divided as follows:

•Online banking (through viewer of web pages),

•Dedicated computer banking (by specialist providing software installed locally on a computer),

•Telephone banking (verbal communication and IVR),

•Portable banking (communication using WAP technologies, SMS),

•Terminal banking (cash machines, self-service stands, POS),

•Television banking (access by digital television);

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• Most important and most developing electronic banking communication channel is online banking (internet banking)

• Its success is gained from Internet development all over the world. • One of its main criteria is servicing bank accounts through World

Wide Web browsers

• It is not necessary to install specific software as in PC banking

Online banking (Internet banking)

Dedicated computer banking (PC banking)

• Communication is set up between bank servers and dedicated software installed on customer’s PC over modem line, ISDN, LAN etc.

• Customer connected to bank system downloads data and execute operations on his own PC

• Generated operations are being sent to bank server. PC banking cannot be know as internet banking even if user is connected to bank server via internet broadband connection.

• In technical literature there are lots of terms describing PC banking: home banking, office banking and electronic corporate banking.

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• Another kind of communication channel is telephone banking, which uses voice communication to act bank operations.

• There are two main brands of this communication. Call center as two way voice communication and IVR (Interactive Voice Response) as one way voice communication.

• Stationary and cell phones can be used for telephone banking, but also it can be replaced by internet telephony

Telephone banking

Portable banking

• Portable banking differs from another communication channels with special non-voice technologies prepared for all kind of communicators, cell phones, PDA etc.

• Its practical usage is customized now to SMS, WAP technology and applications preinstalled on portable devices as Java

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• Terminal banking channel (self-banking) is used on terminals provided by banks in public areas

• It is used for cash withdraws, checking account balance and executing account operations (bank transfers)

• Other and more functional terminals are multimedia kiosks. It gives ability to use many communication channels as internet banking (access to WWW), telephone banking (free IVR and call center phone) with possibility to cash withdraw

• It can be said that multimedia kiosk combines three of communication channels, but main factor placing it to terminal banking channel is that multimedia kiosks are offered in fixed localizations

• For the simplest terminal banking channel we classify electronic points of sale (POS)

• POS services purchase transactions in shops, trade markets which have card readers

• Its functionality is limited to authorize payments

Terminal banking channel

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The types of models of electronic banking are next important criterion of identification:

• multi-channel model (using the network of bank units and electronic channels),

• model of the virtual bank (not-using the net of bank units),

• model of the financial bank-supermarket (aggregation of financial services in the Internet)

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• Multi-channel model (Bricks & Clicks) it is model of the offering all channels of distribution. Most important feature is that this model supports all kinds of distribution channels.

• Model of the virtual bank (Clicks only) relies on basing activity of the bank exclusively on electronic banking. Therefore the most important feature favouring the virtual banking is resignation from bank departments. In this model, Internet and cash machines are main channels of distribution.

• Definitely a model of the financial bank-supermarket is different. This model consists taking the adviser and the financial intermediary in the Internet. In this model its brand and the transaction online service are basic capital of the bank - often determined as “front end”. Bank is using outsourcing.

TERM DESCRIPTION

e-banking Bank activity, supporting remote services to customers by electronic channels of communication.

i-banking, Web-banking, Net-banking, WWW-banking

Synonyms of Internet banking

Virtual banking, web-only banking, Internet-only banking, pure play banking

Model of virtual banking; Main channel of communication is Internet. Bank doesn’t offer departments as channels of communication.

Bricks & Mortar,Bricks & ClicksClicks only

Three modes of using Internet in banking

On-line banking All operations are real time executed.

Mobile bankingm-bankingWireless bankingWAP banking

Portable banking using non-voice technologies

PC-bankingHome bankingOffice bankingElectronic corporate banking

Client-Bank communication with usage of dedicated software installed on client’s Personal Computer

Remote banking Same as electronic banking

Self banking Terminal banking – customer can execute all operations on terminal in public place

TV-banking Access to bank accounts via digital TV318

ELECTRONIC BANKING

SET OF TECHNICAL

CENTRESUNIQUE BANK SERVICE

BANK ACTIVITY ACTED IN

SPECIFIC FORM

MAIN PURPOSE

Isolation from distribution

channelsIsolation from bank services

Isolation from whole bank

activity

PROMINENT ASPECT

Technical way of functioning of

electronic banking

Customer–bank relations and way

of services perception

Functionality of electronic

banking on market

ROLE OF ASPECT

Technical workableCustomer-bank relation under

banking law

Efficient utilization of electronic

channels of distribution

ENVIRONMENTAL AIM

IT, technicians, electronic

banking users

Bank staff, marketing experts,

lawyersBank institutions, theoretics

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Phases of information systems in banks development – some stages

• Archaic phase, where the communication is based one by one on the mail, telegraph, telephone - from the second-half of the XIX century to the second-half of the XX century,

• Preliminary phase of communication computer-support - 1956-1964,• Early phase of the electronic data processing systems based on batch

processing - 1965-1969,• Phase of the intense development of Management Information Systems -

1970-1977,• Productive phase of systems as: Decision Support Systems, Expert Systems,

Executive Information Systems, video-data - 1978-1985,• Phase of technological changes - 1986-90,• Phase of application integration on the basis of computer techniques and the

telecommunications on the basis of the modem communication - 1990-1995, • Phase of remote systems - electronic banking - from 1992,• Phase of global systems - online and virtual banking - from 1996; to now

• Archaic phase came down for using telegraphic techniques to equalize among-regional and market price differences and enhancing coordinating possibilities between structures of the bank. The most important innovations of this period are:

• telegraph – 1846,

• the transatlantic cable – 1866,

• permanent connection of Great Britain with India and Australia - 1870-1871,

• telegraphic connections within settlements among banks since 1918,

• telephone communication for inter-bank settlements,

• transatlantic New York – London telephone technology – 1927. Main merit of investigated innovations was significant acceleration of transmitting

announcements, reducing the time from days, weeks or months till minutes. Although they generated essential bases for implementing other innovations in this

field, those services were relatively very expensive and acted in limited channels of traffic capacities (transatlantic cable till 1956 could support maximum 20 simultaneous conversations).

Long-term progress in this field was possible only thanks to the permanent development of computer technologies, which till the middle of fifties were used only in science and military.

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• Preliminary phase of the bank computer system development was already based on computer techniques. Actually it was based on the automation of manual activities than on the automation of bank operations but it was constrained with the lack of software and computer equipment.

• As an example is ERMA system (Electronic Recording Machine-Accounting), applied in 1956 in the Bank of America.

• The system was used to the automatic recording, summing up, sorting, verification and entering cheques on the base of data led by readers, services of all transactions, client accounts, and making balance printouts.

• Applying the system extorted the change in organization of the customer service - every customer received the new number of the account.

• In 1960 a first effort was taken to computerize credit card services, two years later bank implemented the payroll and payments of bills.

• It was just individual applications, adapted exactly for the type of the computer preinstalled software. In 1964 was started the first cash machine.

• The success of these applications turned attention to need of the standardization both the equipment and programs.

• It enabled portability of the bank software to different banks, what of course reduced individual costs of creation and extended the market to banks not as rich as the Bank of America.

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• The early phase of electronic processing was already based on known standards of programming languages like: Algol, Basic, Cobol, Fortran and Unix operating systems. It enabled the service of routine, mass operations about the defined structure. Gathered data could be processed once, than it required the data change given for processing in the program. It included within its range scope of the statistic calculation, standard personnel pay prints, handlings of calculations and handlings of accounts. With time the software was broadened with applications managing harvests of data and enabling their automatic parameterization programs. This phase was characterized by the following features:

• supported by big, expensive, slow computers (e.g. IBM 360/65) about the failure frequency up to the 60% of the working time, functioning centrally at isolated computer centers. it’s increasing computational possibilities enabled banks to process the great volumes of transactions based on paper documents,

• cheaper software programming became standard but was still long-term and troublesome,

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• the scope of systems concerned mainly the chosen automation procedures of bank departments, embracing processing in the batch mode of front office and back office as like as handling the fragments of customers accounts. it involved faster, more accurate and more correct service of entering, lowering costs of the back office services,

• continuation of cash-machine system development (since 1967 in Great Britain, France, Switzerland, Sweden; end of the period the first implementations in Japan),

• at the end of this period (1968) arising the first systems of interbank settlements (Bankers’ Clearing System), using the technology of the electronic date interchange, determining basics for one of the most important tools in home banking,

• a telephone service was disseminated.

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• Phase of intense development of banking management information systems (MIS) started from 70’s.

• The increasing complexity of bank problems and the huge functionality extorted the change in bank data technology.

• Sequential computer sessions are being replaced by more effective in terms of the access and using database technologies from hierarchical and network, to relational databases with the software managing them as Base Date Management Systems - DBMS.

• Universally a way of the communication with the computer is also changing - in place of tapes and paper cards loaded in into additional devices connected to the central unit, appearing the computer monitors, being direct devices (user to customer contact) of the operator with the computer system.

• It is making the peculiar communications revolution - introduction to all operations going towards to independent the customer relation with the bank.

• The telephone communication is constantly being developed in bank functioning and electronic data transfer systems - in 1973 in Belgium started an organization which starts the international interbank communication system Swift - Society for Worldwide Interbank Financial Telecommunication. It is today the one of the most popular systems of the international interbank communication system.

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This phase had the following attributes:

•creating - for the first time - applications which are automating work in the entire department, based on financial-accounting systems standards; the complete automation of calculations, individual systems, the duplication of chosen data in the area of the unit,

•assuring basic, standardized, technical equipment of the computer centre; basic architecture that contained central unit of the big computer and external memory device as: magnetic tape device, fixed discs, readers of tapes and perforated cards replaced next with monitors, printers,

•completion of centralized batch systems with the first regular systems,

•limited capacity and performance of devices.

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• At the end of 70's, as a result of information system development that supports managing, types of bank organizational structures are changing and next changes are coming in the way of driving strategy.

• Systems equipped with the base of models Decision Support Systems allows to calculate variants of development and pointing best solution.

• Expert Systems allow analyzing the situation and giving the further strategy.

• Executive Information Systems gives the most essential information from databases and systems about management information and introduce it in the legible form to senior staff.

• New kinds of systems are applicable on the level of department (credit activity), head office (analysis of the risk) and specific activities of the central banks.

• Its further development within Management Information Systems will result in the next developmental phase.

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The productive phase of computer bank systems, apart from the modernization of previous phase effects, shows such features as:

•data processing is being treated as the production providing: bank accounts, bills, savings, carrying on the full synthetic and analytical bookkeeping, leading all back-end operations, leading to permanently implement analytical, prognostic and supporting decisions systems of bank modules,

•applications still orientated to products,

•very difficult maintenance of all systems,

•beginning of spreading the cash-machines with decreasing of bank posts,

•data is being registered by the final user - bank clerk and the customer

•preliminary works started, concerning planning the strategy of bank activity development.

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• This period offered abilities to using information videotext systems, which a few years later made the undoubted creative model for many services offered by systems by online banking. The videotext can communicate by two-way connection from and to the user. It is sending pages to the user in the digital form, which mainly is being shown on the TV screen or on user terminal.

• Only one videotext service, before Internet, closed with the full success. It was French Minitel, inaugurated in 1982 by PTT (Poste, Telephone et Telecommunications).

• Success has been achieved by offering free of charge system terminals to future users. • The system offered similar services like a few years later Internet: direct (free of charge)

telephone services, retail orders (e-commerce in the future), purchase of train and plane tickets, information services, access to databases and sending announcements.

• It was used at first the most to sending private announcements and seeing through erotic pages.

• Payments were being realized with the credit card (e-commerce, tourist services), other payments for using the system were paid by a telephone bill depending on pages seen through.

• For many years Minitel competed with the Internet. In the end of 90’s France Telecom estimated the system for 9 millions of terminals and 250 millions of monthly connections.

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• The phase of technological changes emerged the strong bases of traditional systems. It influenced to all aspects of the internal functionality of the bank and more and more strongly to its contacts with customers.

• Applications was modeled on windows user-friendly environment, hitting also to banks and in next years making unwritten standard of the communication with user which was more and more conscious of own abilities and possibilities of computer systems in this business.

• Amongst telecommunications solutions cash machines are being unwound constantly - e.g. between 1984-1989 ATM number (Automatic Teller Machine) in Great Britain grew by the 100% to over 12 thousands.

• Numbers of bank departments were systematically decreasing. In the next year in there were more cash machines than bank departments in Great Britain.

• Together with the development of cash machines, credit and payment cards are becoming increasingly common.

• Cards are increasing their range as a matter of fact at that time to be global. At the same time possibilities of payments realization are increasing by large number of terminals.

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• Phase of application integration is characterized by a change in general philosophy and systematic of forming banking computer systems.

• The first matter of integrated systems ideology was applying the ERP services, adapted to the cooperation with the online environment.

• It was period of rise electronic systems, interbank settlements, credit cards service systems and finally other forms of remote access to bank services.

• The ideology of integrated systems was based on cooperating, based on the shared database, using shared data in the entire system based on financial assessments and shared platform.

• It started an invaluable phenomenon of the consolidations and bank merges within bank infrastructure (shared standards).

• The special role played the ERP customer relations systems - Customer Relationship Management - CRM. “Customer relationship management is a corporate level strategy, focusing on creating and maintaining relationships with customers. Several commercial CRM software packages are available which vary in their approach to CRM. However, CRM is not a technology itself, but rather a holistic approach to an organization’s philosophy, placing the emphasis firmly on the customer”.

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e-Banking phase

• Phase of remote systems and phase of global systems - concept of banking computer system related with electronic banking. Development of modern banking technology can be divided in three stages.

• First stage until 1995 concerns electronic computer systems only with just a little similarity to electronic banking – based on paper, telegraph and telephone communication. Most of customer services were handled in departments. Banks didn’t conquer with technology, it were costs, brand knowledge and level of bank staff working in bank departments.

• Second stage is the start and instant growth of electronic banking – mainly forced by Internet development. Banks started to invest in modern technologies, providing latest services for customer. Computers started to exclude people from customer service. Banks started Information Technology combat by the most modern technologies and customer facilitates.

• Tird stage as Virtual Banking – virtual banking technology will be main drive of banking services allowing customers to modify bank offer in each way. Customer will be Chief Executive Officer of his bank account with design, offer, service, etc.

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ELECTRONIC SYSTEMS ELECTRONIC BANKING VIRTUAL BANKING

Archaic phase

Phase of remote systems

Phase of virtual

systems

Preliminary phase

Electronic data processing systems

phase

Intense development of MIS phase

Phase of global systems

Productive phase

Phase of technological changes

Phase of application integration

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• Phase of remote systems.

• Customer, realizing the contact with the bank through could work offline, and then connecting with a modem could send information to the bank system.

• Main merit of such banking was that user didn’t have to visit bank office in the case of the most frequent operations.

• It saved time and money for the user. Additionally user got the ability of data integration coming from the bank with the own financial accounting system to manage own finances more precisely.

• It also fastened access to account information with high transaction security.

• On the other side low quality of transmission (generating errors), especially where the stationary network was underdeveloped, high costs of services, need to install the different software in case of contacts with lots of banks caused that customers easily switched to the Internet based contact.

• Parallel to telebanking for first time is developing an idea of electronic money known as data stored on computer’s hard disk.

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• Phase of global systems was based on using websites to carry banking transactions. Unlike the previous conception - in the Internet banking, customer possesses both the own hardware and software. It is based on Windows system and online viewer.

• Essential software allowing managing website is on bank server.

Lot of authors,,, presents four main stages of implementation and development of Internet banking:

• information,

• interactive,

• functional,

• strategic.

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• Information stage – marketing and promotion is dated for 1995-1997

• Its attributes are: one website, address information, economical information (bank condition, service fees), organizational information (structure, departments), way of contact with bank (phone, fax, call centre, e-mail, on-line forms, SMS, WAP), places of bank contact and its structure (departments, info-kiosks, cash-machines), information about bank and finance area with info about areas indicators (exchange rates, stock information) and examples of service application and comparison services to customers.

• Information stage gives temporary advantage on market (until other banks will join the market), customer visibility, information for present customers, low costs of marketing (using existing paper documentation) and influence on policy of small and mid- companies.

• Each structure has also its disadvantages. For information stage these cons are: one way of communication (bank to customer only), information services only and web portal limitations (portals with basic services). All these factors don’t give proper customer’s feedback for bank.

• Via this services bank can only manage information through bank websites, Internet bank portals with information about market and first financial portals.

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Interactive stage – two way communications is dated for 1998-1999

•Banks started to offer multimedia websites, tools supporting customer (search engines, rates calculators, electronic documents), online services (on-line basic account operations, on-line document forms, financial analysis for customers, advertisements) and start up of Internet funds services. There were also recruitment advertisements.

•New way of communication created lot of virtues as: image pick-up, new way of gaining new customers and keeping present customers, new functionality of web services, e-documentation mentioned above and financial aspect - decreasing staff in bank departments. On the other side such approach gave marketing information only as waiting for customers (pick-up service – banks couldn’t be informed still about customer feedback), low security system.

•Despite couple inconveniences of this stage, customers were getting used to communicate with bank through Internet tools. Banks were creating security standards of Internet transactions and the main value - growth with customers.

•In this approach banks was growing own customers which were looking at these changes - likely or not, but changes were started and growing generation of potential customers saw modern technologies entering bank sector. It caused next step since 2000 – full range of provided transactions and services.

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Functional stage – full range of provided transactions and services dated for 2000-2002

•Functional stage provided secured websites with ability to run all financial services, online money transfers and service on direct debits, deposit accounts, bank loans, support of cellular network (WAP) and beginning of real virtual banking.

•The most advancing issues were: the reduction of service costs, keeping present and approach for new customers by high competitive rates and credits, service of e-trading, constant reduction of bank staff.

•Banks was able to see changes in more customer oriented way.

•The most difficult area to manage was barrier of basic computer knowledge and Internet access, low quality of mobile bank communication.

•With technical area most common disadvantages were problems with base systems integrity and very high costs of implementing.

•Although new set of services has been forced into banking.

•Vide bank services offer via Internet, high complexity of banking systems, high security standards and what was most interesting for customers - new forms of payments as electronic transfer.

•Functional stage made banks more customer-oriented, allowed to leave bank queues. Customers could create new definition like time-saving.

•Seeing all changes banks started to set it strategy on Internet services.

•That’s why since 2003 we are aware of Internet as tool which forms bank strategy.

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Strategic stage – Internet as tool which form bank strategy started 2003

•Modern attitude made multimedia bank portals integrated with bank core systems. Systems have ability to analyze supplies and demands, banks could offer electronic forms of payments with advanced sale of new services. It was 100% of virtual banking. There was also possibility to spread banking services through communicators – mobility banking.

•With this approach banks related lot of advantages: scope of services was related to “traditional” bank services, possibility to individualize each customer, potentially - ability to gain high revenue, full integration of bank systems, bank is perceived as modern and progressive and visible growth of bank Internet users.

•Like as functional stage there was a barrier of high computer and Internet knowledge. On-line services caused problems with CRM systems which provide customer profiling and possible of “leaking” customer data became real.

•Those bank services can be used for bank competition - high advanced stage of system is unavailable for other banks in short term, digital communication development – ability to implement new services (video conference, Internet telephony), spreading portable terminals and highest security of electronic bank systems became as standard.

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E-Cash and e-Payments

• The terms electronic cash, e-cash, or e-money refer to electronic payment schemes that enable consumers to store and redeem financial value.

• They operate via stored electronic units of value.

• Paid for in advance by conventional money and representing equivalent units in real currency, these funds can be transferred between vendors and individuals using compatible electronic systems, in some cases without resort to banks or other financial intermediaries.

• E-cash (or-money) comes in two basic forms: smart card e-cash and computer e-cash.

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E-Cash and e-Payments

• E-cash is most often downloaded from its respective system through special terminals:

o specially equipped ATM machines, o computers, or o cell-phones) onto smart cards.

Such cards are called stored-value smart cards.

• E-cash can also be downloaded to personal computer hard disks via a modem. The “money” remains stored until the user spends it. In the case of smart cards, the “money” is spent by transacting it with another individual, in vending machines, turnstiles, toll collecting devices, or retailers’ terminals.

• In the case of computer e-cash, the “money” is spent over the Internet. Each e-cash transaction reduces the amount of stored “money” (value).

341

Smart cards / stored value cards

• A smart card consists of a specifically designed integrated circuit chip embedded in a plastic card.

• The chip contains either a set of contacts that physically connects with an electronic reader or an aerial for contact less operation.

• Because they contain one or more electronic chips or integrated circuits that can store and protect information, smart cards are also called chip cards or integrated circuit cards.

• If, in addition to integrated circuits, a smart card contains a microprocessor chip, it can calculate addition and subtraction of value.

• The capabilities of their embedded chips are what make smart cards “smart.”

• Many so-called smart cards are, in fact, only memory cards because their chips do not contain a microprocessor.

• Memory cards can store data and value, but they cannot perform complex calculations.

• If they are used to store value, as, for example, is the case with telephone cards, they can deduct value only from the total available as the card is used.

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Some examples of smart cards

• In the late 1990s, three stored-value e-cash systems suited to the smart card form - Visa Cash, Mondex, and Proton –were prominent in international markets.

• Visa International, the world’s largest credit card company, introduced Visa Cash, its version of smart card e-cash, in 1995. The card is intended to be used for small purchases such as a cup of coffee, a newspaper, a pay phone call, cinema tickets, or public transportation. Visa Cash cards store units of prepayment and come in two main types-disposable and reload-able.

• In July 1996, 17 major world financial institutions founded Mondex International; among the founders were its original developer, National Westminster Bank, Midland Bank, Hong Kong & Shanghai Banking Corp., Wells Fargo, AT&T, and 10 major banks in Australia and New Zealand. The following November, MasterCard International acquired a majority stake in Mondex and since then has licensed the program worldwide on a regional basis

• Proton, a third major smart card e-cash scheme, is a rechargeable electronic purse developed by Banksys, a Belgian Electronic Funds Transfer network operator, and is marketed by Belgian banks. Proton is similar to Visa Cash in that its value is denominated in units of prepayment; it is likewise intended to be used for low-value purchases from shops or from vending machines.

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Computer E-cash

• Computer e-cash, as noted above, entails the issuance of electronic units or electronic value that can be used for payment in place of currency.

• Often also called e-money, computer e-cash made its appearance, primarily in the United States, in about 1995, and is used in virtual transactions over the Internet.

• Computer e-cash exists solely in cyberspace; in contrast with currency or smart cards, it does not exist in tangible form.

• When using computer e-cash, the customer buys value from an authorized provider, as he would with a smart card.

• Computer e-cash value, however, is then stored either in the customer’s home computer or in a safe online repository.

• When the funds are spent, the e-cash value is credited to a retailer’s e-cash account that must later be transferred to the retailer’s regular bank account.

• Computer e-cash is marketed as an alternative to credit cards for normal Internet transactions.

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Computer e-Cash examples

• Cyber Cash, which was founded in 1994 in the United States, began offering Cyber Coin services in September 1996.

• Cyber Cash, Inc. touts Cyber Coin as the Internet equivalent of pocket change because payments can be made in increments as small as $.25.

• The upper limit of value is set at $10. Cyber Coin features units of repayment, as is the case with Visa Cash, and operates via software installed in a personal computer.

• The payment service uses the existing banking network system and does not require the opening of a new account at a specific bank.

• Because payment by Cyber Coin involves the transfer of funds between established bank accounts, such payments can generally be traced without great difficulty. In 1997, in addition to offering Cyber Coin and its credit card service, Cyber Cash, Inc. initiated an electronic check system called Pay Now Service.

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Computer e-Cash examples

• Digi-Cash, Inc. was founded in 1989 in the Netherlands. • In 1994 Digi-Cash announced e-Cash, a software-based payments system that allows users to

send electronic payments from any personal computer to any other personal computer or work station using any computer network, including the Internet.

• To use e-Cash, a customer opens a special bank account with a bank that issues it. • E-Cash differs from Cyber Coin in that e-Cash is electronic value itself and not units of

prepayment.• E-Cash is similar to Mondex in that it can be circulated outside existing banking networks.• In contrast with Mondex, however, once e-Cash is issued, the amount of expended value

cannot be divided into smaller denominations, a feature that discourages continuous transfer. • In order to prevent multiple use of electronic value, each value amount of e-Cash is given

an encoded serial number (blind signature). • When an amount of electronic value is brought to a bank, the serial number is checked. • Only when the number has not been previously used can the value be accepted by the bank.

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Internet banking – benefits for banks

• The main benefits to banks are cost savings, reaching new segments of the population, efficiency, enhancement of the bank’s reputation and better customer service and satisfaction.

• The more transactions can be converted online, the more money will be saved.

• The cost of an electronic transaction is dramatically less when done online compare to at branch.

• That online banking strengthens the relationship between the service provider and the customer, because it brings banking services directly to a customer’s home or office, or in the mobile phone.

• This creates customer loyalty. Online services are a must for banks that have to compete with a growing number of services from other financial institutions, investment concerns and insurance companies.

• Internet banking customers:o are more satisfied with their bank, o have higher switching barriers, o provide more positive word of-mouth, o have higher repurchase intentions, o have a lower price sensitivity, o have a lower propensity to exit and higher propensity to complain.

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Benefits for customers• Internet banking offers also new value to customers. It makes available to customers a

full range of services including some services not offered at branches.

• The greatest benefit of Internet banking is that it is cheap or even free to customers.

• However, price seemed to be one factor militating against Internet banking

• Two important factors in the price debate are on the one hand geographical differences and on the other hand disparities between the costs of e.g. Internet connections and telephone call pricing.

• Electronic banking in general is not tied to time or place.

• It has also been argued that electronic banks are more likely to change in response to customers’ demands.

• Internet banking has the advantage that the customer avoids traveling to and from a bank branch.

• In this way, internet banking saves time and money, provides convenience and accessibility, and has a positive impact on customer satisfaction.

• Customers can manage their banking affairs when they want, and they can enjoy more privacy while interacting with their bank.

• It has been claimed that Internet banking offers the customer more benefits at lower costs

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349

ChannelCost of one transaction US$

Traditional bank branch 1,07

Phone banking 0,54

ATM0,27

Electronic banking 0,015

Internet banking 0,01

Bank’s cost transactions via different channels of distribution

(Booz, Allen & Hamilton (banking sector - USA))

Types of electronic payment systems:

• Digital wallet

• Stores credit card and owner identification information and enters the shopper’s name, credit card number, and shipping information automatically when invoked to complete a purchase

• Accumulated balance digital payment systems

• Used for micropayments ($10 or less)

• Accumulating debit balance that is paid periodically on credit card or telephone bills

Electronic Commerce Payment Systems


• Stored value payment systems

• Enable online payments based on value stored in online digital account

• May be merchant platforms or peer-to-peer (PayPal)

• Digital checking

• Extend functionality of existing checking accounts to be used for online payments

• Electronic billing presentment and payment systems

• Paying monthly bills through electronic fund transfers or credit cards

Digital payments systems for m-commerce:

• Three types of mobile payment systems in use in Japan

• Stored value system charged by credit cards or bank accounts

• Mobile debit cards

• Mobile credit cards


Examples of Electronic Payment Systems for e-Commerce, once more

Electronic banking security requirements

Requirement Typical considerations

Security at the user side

Physical access control to the machineUser authentication and authorization

Security during transport of data

ConfidentialityData integrity

Security at the merchant side

Secure storage of user informationUser’s privacy protectionAuthentication of parties involved

354Source: Furnell, S.M. & Karweni, T. 1999. Security implications of electronic commerce: A survey of consumers and business. Internet Research:

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The Internet - a real sales channel?

Yes, for it represents a really competitive edge:– Opportunity to market products and services without any

middleman or intermediary, so with higher margins– Adapted to non-perishable goods, but less to perishable ones– The sectors that have benefited from e-commerce (from

DirectPanel, 2007): cultural products (CD’s, DVD’s) 75% (penetration rate) computer products 58% tourism 57% clothing 53% electrical appliances 39%

356

The Internet a pre-sales channel?

– Real estates agents soon realised the interest of websites to advertise their offers. The purchase cannot be done online, but helps a lot.

– Counselling matters, for prices may be high.

– e-Commerce spreads as confidence in the purchasing process is built.

– New economic models are developed, which also marginally benefits traditional sales channels

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The Benefits of EC (to Organizations)

• Expands the marketplace to national and international markets. With minimal capital outlay, a company can easily and quickly locate more customars, the best suppliers and business partners worldwide,

• Decreases the costs of creating, processing, distributing, storing and retriving paper-based information (administrative costs to 85%, electronic payments are 95% cheaper and so on),

• Allows reduced inventories and overhead by facilitationg current („pull”) type supply management. In the system process starts from customer orders and uses just-in-time manufacturing

• This processing enables expensive customization of the products and services which provides competitive advantage to its implementers.

• Diminishing telecommunication cost (internet much cheaper than commerce nets

• Improved image, improved customer service, newfound business partners, simplified processes, increased productivity, eliminating paper, expending access to information, reduced transportation costs, increased flexibility.

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The Benefits of EC (to Consumers)

• Enables customers to shop or do other transactions 24 hours a day, all yer around, from almost any location,

• Provides customers with more choices, they can select from many vendors and from mare products,

• Frequently provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparison,

• In some cases, especially with digitized products, EC allows quick delivery,

• Makes it possible to participate in virtual auctions,

• Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiensces,

• Facilitates competition, which results in substantial discounts

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The Benefits of EC (to Society)

• Enables more individuals to work at home and to do less traveling for shopping, resulting in less traffic on the roads and lower air pollution,

• Allows some merchandise to be sold at lower prices, so less affluent people can buy more and increase their standard of living,

• Enables people in Third World countries and rural areas to enjoy product and services that othervise are not available for them,

This includes opportunities to learn professions and earn college degrees.

• EC facilitates delivery of public services – health care, education, distribution of government social services (cost reduction, improved quality)

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The Limitations of EC - Technical

• There is a lack of system security, reliability, and some communications protocols,

• The software development tools are still evolving and changing rapidly,

• It’s difficult to integrate the Internet and EC software with some existing applications and databases,

• Vendors may need special Web servers and other insfastructures, in additions to the network servers,

• Some EC software might not fit with some hardware or may be incompatible with some operating systems or other components

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The Limits of EC – Non-Technical

• Costs and justifications – in house it may be very high, and mistake due to lack of experience may result in delays (34, 8%),

• Lack of trust and user resistance – customers do not trust an unknown faceless seller, paperless transactions and electronic money (4,4%).Other limiting factors:

• Many legal issues are as yet unresolved, and government regulations and standards are not refined enough for many circumstances,

• EC, as a discipline, is still evolving and changing rapidly. Many people are looking for more stable area before they enter into it,

• There are not enough support services (clearance centers for EC transactions, tax centers etc.),

• In most applicationss there are not yet enough sellers and buyers for profitable EC operations,

• EC could result in a breakdown of human relations,• Access to the Internet is still expensive and/or inconvenient for many potential

customers.

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The Limits of New Technologies

• A certain feeling of intrusion and defiance.• New channels of communication appeared thanks to

new technologies, which has resulted in a new relationship with customers.

• From the customer’s point of view:– Lack of familiarity with new technologies– The web has sometimes become the only way of accessing and

giving information. What about the people who are not connected?

• Changing consumption habits and modes takes time.• Some reluctances may be explainable, other ones

illogical

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• Sociological limits - fears:– Fear of paying online is the number one hindrance

to the development of online commerce (this trend is being reversed).

– In 2006, more than 90% of the people interviewed considered online payments potentially unsafe. 38% mentioned the fear not to have any interlocutor in case of a problem.

– The opportunity to be able to buy anything, anywhere, offsets the fear of paying online.

– Another fear among webusers: the fear of seeing one’s banking data hacked.

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Sociological limits - fears:

• Fear of viruses or infringement on privacy

• Fear of receiving executable files which would disrupt the computer’s functions

• Fear of worms, likely to paralyse your computer

• Fear of Trojan horses likely to bypass your computer’s security systems and allow it to be penetratedFear of tracking: collecting information on a webuser with or without his/her being aware of it

• Fear of spyware

• Multiplication of online questionnaireHacking of personal data

Impact of the internet on competitive forces and industry structure

Competitive force Impact of the internetSubstitute products or

servicesEnables new substitutes to emerge with new approaches

to meeting needs and performing functions

Customers’ bargaining power Availability of global price and product information shifts bargaining power to customers

Suppliers’ bargaining power Procurement over the Internet tends to raise bargaining power over suppliers; suppliers can also benefit from reduced barriers to entry and from the elimination of distributors and other intermediaries standing between them and their users

Threat of new entrants The Internet reduces barriers to entry, such as the need for a sales force, access to channels, and physical assets; it provides a technology for driving business processes that makes other things easier to do

Positioning and rivalry among existing competitors

Widens the geographic market, increasing the number of competitors, and reducing differences among competitors; makes it more difficult to sustain operational advantages; puts pressure to compete on price

Internet Users in the World by Region, 2012

366 www.internetworldstats.com/stats.htm

Internet Penetration Rates (users per capita citizens) by Region, 2012

367

Students using internet for posting messages to social media sites or instant messaging (%)

368http://epp.eurostat.ec.europa.eu/tgm/graph.do?tab=graph&plugin=1&pcode=tin00084&language=en&toolbox=data

e- Business and e-ServicesPart 5

Telecommunications, the Internet and Wireless Technology

Prof. Witold Chmielarz, PhD


LEARNING OBJECTIVES

• What are the principal components of telecommunications networks and key networking technologies?

• What are the main telecommunications transmission media and types of networks?

• How do the Internet and Internet technology work and how do they support communication and e-business?

• What are the principal technologies and standards for wireless networking, communication, and Internet access?

• Why are radio frequency identification (RFID) and wireless sensor networks valuable for business?

Corporate network infrastructure

Key digital networking technologies

• Client/Server Computing

• Packet Switching

• TCP/IP and Connectivity

Communications networks

• Local area network (LAN)

• Metropolitan area network (MAN)

• Wide area network (WAN)

Physical transmission media

• Twisted wire

• Coaxial cable

• Fiber optics and optical networks

• Wireless transmission media (microwave, cellular, Wi-Fi)

THE GLOBAL INTERNET

• The Internet has become the world’s most extensive, public communication system that now rivals the global telephone system in reach and range.

• It’s also the world’s largest implementation of client/server computing and internetworking, linking millions of individual networks all over the world.

Internet – how does it work?

• An Internet service provider (ISP) is a commercial organization with a permanent connection to the Internet that sells temporary connections to retail subscribers

• Internet Protocol (IP) address• Domain Name System (DNS) converts domain names to IP

addresses• Internet policies are established by a number of professional

organizations and government bodies, including the Internet Architecture Board (IAB), which helps define the overall structure of the Internet; the Internet Corporation for Assigned Names and Numbers (ICANN), which assigns IP addresses; and the World Wide Web Consortium (W3C), which sets Hypertext Markup Language and other programming standards for the Web

Major internet servicesCAPABILITY FUNCTIONS SUPPORTED

E-mail Person-to-person messaging; document sharing

Chatting and instant messaging Interactive conversations

Newsgroups Discussion groups on electronic bulletin boards

Telnet Logging on to one computer system and doing work on another

File Transfer Protocol (FTP) Transferring files from computer to computer

World Wide Web Retrieving, formatting, and displaying information (including text,audio, graphics, and video) using hypertext links

Internet communication tools

• Voice over IP (VoIP)

• A virtual private network (VPN) is a secure, encrypted, private network that has been configured within a public network to take advantage of the economies of scale and management facilities of large networks, such as the Internet

The Web - components

• Hypertext Markup Language (HTML)

• Web Servers

• Search Engines

• Web 2.0

• Web 3.0 - The Future Web?

Wireless computer networks and internet access

• Bluetooth

• Wi-Fi and Wireless Internet Access

• WiMax (Worldwide Interoperability for Microwave Access)

Bluetooth personal area networks (PAN)

An 802.11 wireless LAN

Radio-frequency identification (RFID)

• RFID is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags or transponders. The technology requires some extent of cooperation of an RFID reader and an RFID tag.

• An RFID tag is an object that can be applied to or incorporated into a product, animal, or person for the purpose of identification and tracking using radio waves. Some tags can be read from several meters away and beyond the line of sight of the reader.

RFID tag

• Most RFID tags contain at least two parts. One is an integrated circuit for storing and processing information, modulating and demodulating a radio-frequency (RF) signal, and other specialized functions. The second is an antenna for receiving and transmitting the signal.

• Size of tags: from 0,05 mm × 0,05 mm• Working distance: from 0,1m to 10m

Types of RFID tags

• RFID tags come in three general varieties:– passive (tags require no internal power source,

they are only active when a reader is nearby to power them by wireless illumination),

– active (tags require a power source, usually a small battery),

– beacon (tags transmit autonomously with a certain blink pattern and do not respond to interrogation)

Communication

• To communicate, tags respond to queries generating signals that must not create interference with the readers, as arriving signals can be very weak and must be differentiated. Besides backscattering, load modulation techniques can be used to manipulate the reader's field. Typically, backscatter is used in the far field, whereas load modulation applies in the nearfield, within a few wavelengths from the reader.

RFID technology in practice

RFID reader sends a radio signal

Tag sends data to the RFID transmitter

signal transfer

API (Application Programming Interface)

Database layer Application Layer (eg. ERP)

RFID: tag-reader-computer

RFID Reference Model

• Created in 2007 by CE RFID (Coordinating European Efforts for Promoting the European RFID Value Chain)

• It covers to areas:– Mainly Object Tagging– Tagging with Reference or Potential Reference

to Individuals

RFID Reference Model

RFID - Mainly object tagging

RFID - Tagging with reference to individuals

Wireless sensor networks (WSNs)

• WSN - Interconnected wireless devices that are embedded into the physical environment to provide measurements of many points over large spaces.

• These devices have built-in processing, storage, and radio frequency sensors and antennas. They are linked into an interconnected network that routes the data they capture to a computer for analysis.

e- Business and e-ServicesPart 6

Security Issues in e-Business Systems

Prof. Witold Chmielarz, PhD


LEARNING OBJECTIVES

• Explain why information systems are vulnerable to destruction, error, and abuse.

• Assess the business value of security and control.

• Identify the components of an organizational framework for security and control.

• Evaluate the most important tools and technologies for safeguarding information resources.

System Vulnerability and Abuse

• Security:

• Policies, procedures and technical measures used to prevent unauthorized access, alteration, theft, or physical damage to information systems

• Controls:

• Methods, policies, and organizational procedures that ensure safety of organization’s assets; accuracy and reliability of its accounting records; and operational adherence to management standards

• Why systems are vulnerable

• Hardware problems• Breakdowns, configuration errors, damage from improper use

or crime

• Software problems• Programming errors, installation errors, unauthorized changes)

• Disasters• Power failures, flood, fires, etc.

• Use of networks and computers outside of firm’s control • E.g., with domestic or offshore outsourcing vendors

System Vulnerability and Abuse

Contemporary Security Challenges and VulnerabilitiesContemporary Security Challenges and Vulnerabilities

The architecture of a Web-based application typically includes a Web client, a server, and corporate information systems linked to databases. Each of these components presents security challenges and vulnerabilities. Floods, fires, power failures, and other electrical problems can cause disruptions at any point in the network.

• Internet vulnerabilities

• Network open to anyone

• Size of Internet means abuses can have wide impact

• Use of fixed Internet addresses with permanent connections to Internet eases identification by hackers

• E-mail attachments

• E-mail used for transmitting trade secrets

• IM messages lack security, can be easily intercepted

• Wireless security challenges• Radio frequency bands easy to scan• SSIDs (service set identifiers)

• Identify access points• Broadcast multiple times

• War driving

• Eavesdroppers drive by buildings and try to intercept network traffic

• When hacker gains access to SSID, has access to network’s resources

• WEP (Wired Equivalent Privacy)

• Security standard for 802.11• Basic specification uses shared password for both users

and access point• Users often fail to use security features

Wi-Fi Security ChallengesWi-Fi Security Challenges

Many Wi-Fi networks can be penetrated easily by intruders using sniffer programs to obtain an address to access the resources of a network without authorization.

• Malicious software (malware)

• Viruses: Rogue software program that attaches itself to other software programs or data files in order to be executed

• Worms: Independent computer programs that copy themselves from one computer to other computers over a network

• Trojan horses: Software program that appears to be benign but then does something other than expected

• Spyware: Small programs install themselves surreptitiously on computers to monitor user Web surfing activity and serve up advertising

• Key loggers: Record every keystroke on computer to steal serial numbers, passwords, launch Internet attacks

• Hackers and computer crime

• Hackers vs. crackers

• Activities include

• System intrusion

• Theft of goods and information

• System damage

• Cybervandalism

• Intentional disruption, defacement, destruction of Web site or corporate information system

• Spoofing• Misrepresenting oneself by using fake e-mail addresses or

masquerading as someone else

• Redirecting Web link to address different from intended one, with site masquerading as intended destination

• Sniffer: Eavesdropping program that monitors information traveling over network

• Denial-of-service attacks (DoS): Flooding server with thousands of false requests to crash the network

• Distributed denial-of-service attacks (DDoS): Use of numerous computers to launch a DoS

• Botnets: Networks of “zombie” PCs infiltrated by bot malware

• Computer crime

• Defined as “any violations of criminal law that involve a knowledge of computer technology for their perpetration, investigation, or prosecution”

• Computer may be target of crime, e.g.:

• Breaching confidentiality of protected computerized data

• Accessing a computer system without authority

• Computer may be instrument of crime, e.g.:

• Theft of trade secrets

• Using e-mail for threats or harassment

• Identity theft: Theft of personal Information (social security id, driver’s license or credit card numbers) to impersonate someone else

• Phishing: Setting up fake Web sites or sending e-mail messages that look like legitimate businesses to ask users for confidential personal data.

• Evil twins: Wireless networks that pretend to offer trustworthy Wi-Fi connections to the Internet

• Pharming: Redirects users to a bogus Web page, even when individual types correct Web page address into his or her browser

• Click fraud

• Individual or computer program clicks online ad without any intention of learning more or making a purchase

• Global threats - Cyberterrorism and cyberwarfare

• Concern that Internet vulnerabilities and other networks make digital networks easy targets for digital attacks by terrorists, foreign intelligence services, or other groups

• Internal threats – Employees

• Security threats often originate inside an organization

• Inside knowledge

• Sloppy security procedures

• User lack of knowledge

• Social engineering:

• Tricking employees into revealing their passwords by pretending to be legitimate members of the company in need of information

• Software vulnerability

• Commercial software contains flaws that create security vulnerabilities

• Hidden bugs (program code defects)

• Zero defects cannot be achieved because complete testing is not possible with large programs

• Flaws can open networks to intruders

• Patches

• Vendors release small pieces of software to repair flaws

• However, amount of software in use can mean exploits created faster than patches be released and implemented

• Lack of security, control can lead to

• Loss of revenue• Failed computer systems can lead to significant or total loss

of business function

• Lowered market value: • Information assets can have tremendous value

• A security breach may cut into firm’s market value almost immediately

• Legal liability

• Lowered employee productivity

• Higher operational costs

• Legal and regulatory requirements for electronic records management

• Firms face new legal obligations for the retention and storage of electronic records as well as for privacy protection

• HIPAA: Medical security and privacy rules and procedures

• Gramm-Leach-Bliley Act: Requires financial institutions to ensure the security and confidentiality of customer data

• Sarbanes-Oxley Act: Imposes responsibility on companies and their management to safeguard the accuracy and integrity of financial information that is used internally and released externally

• Electronic evidence

• Evidence for white collar crimes often found in digital form

• Data stored on computer devices, e-mail, instant messages, e-commerce transactions

• Proper control of data can save time, money when responding to legal discovery request

• Computer forensics: • Scientific collection, examination, authentication, preservation, and

analysis of data from computer storage media for use as evidence in court of law

• Includes recovery of ambient and hidden data

• Information systems controls • General controls

• Govern design, security, and use of computer programs and data throughout organization’s IT infrastructure

• Combination of hardware, software, and manual procedures to create overall control environment

• Types of general controls• Software controls

• Hardware controls

• Computer operations controls

• Data security controls

• Implementation controls

• Administrative controls

• Application controls

• Specific controls unique to each computerized application, such as payroll or order processing

• Include both automated and manual procedures

• Ensure that only authorized data are completely and accurately processed by that application

• Types of application controls:

• Input controls

• Processing controls

• Output controls

• Risk assessment• Determines level of risk to firm if specific activity or process is not

properly controlled

• Types of threat• Probability of occurrence during year• Potential losses, value of threat• Expected annual loss

EXPOSURE PROBABILITY LOSS RANGE (AVERAGE) EXPECTED ANNUAL LOSS

Power failure 30% $5K - $200K ($102,500) $30,750

Embezzlement 5% $1K - $50K ($25,500) $1,275

User error 98% $200 - $40K ($20,100) $19,698

• Security policy

• Ranks information risks, identifies acceptable security goals, and identifies mechanisms for achieving these goals

• Drives other policies

• Acceptable use policy (AUP): Defines acceptable uses of firm’s information resources and computing equipment

• Authorization policies: Determine differing levels of user access to information assets

• Authorization management systems

• Allow each user access only to those portions of system that person is permitted to enter, based on information established by set of access rules, profile

Security Profiles for a Personnel SystemSecurity Profiles for a Personnel System

These two examples represent two security profiles or data security patterns that might be found in a personnel system. Depending on the security profile, a user would have certain restrictions on access to various systems, locations, or data in an organization.

• Disaster recovery planning: Devises plans for restoration of disrupted services

• Business continuity planning: Focuses on restoring business operations after disaster

• Both types of plans needed to identify firm’s most critical systems and business processes

• Business impact analysis to determine impact of an outage

• Management must determine

• Maximum time systems can be down

• Which systems must be restored first

• MIS audit

• Examines firm’s overall security environment as well as controls governing individual information systems

• Reviews technologies, procedures, documentation, training, and personnel

• May even simulate disaster to test response of technology, IS staff, other employees

• Lists and ranks all control weaknesses and estimates probability of their occurrence

• Assesses financial and organizational impact of each threat

Sample Auditor’s List of Control WeaknessesSample Auditor’s List of Control Weaknesses

This chart is a sample page from a list of control weaknesses that an auditor might find in a loan system in a local commercial bank. This form helps auditors record and evaluate control weaknesses and shows the results of discussing those weaknesses with management, as well as any corrective actions taken by management.

Technologies and Tools for Security

• Access control: Policies and procedures to prevent improper access to systems by unauthorized insiders and outsiders

• Authorization

• Authentication

• Password systems

• Tokens

• Smart cards

• Biometric authentication

• Firewall: Hardware and/or software to prevent unauthorized access to private networks• Screening technologies

• Packet filtering

• Stateful inspection

• Network address translation (NAT)

• Application proxy filtering

• Intrusion detection systems: Monitor vulnerable points on networks to detect and deter intruders• Examines events as they are happening to discover attacks in

progress

• Scans network to find patterns indicative of attacks


A Corporate FirewallA Corporate Firewall

The firewall is placed between the firm’s private network and the public Internet or another distrusted network to protect against unauthorized traffic.

• Antivirus and antispyware software:• Checks computers for presence of malware and can often eliminate

it as well

• Require continual updating

• Unified threat management (UTM)• Comprehensive security management products

• Tools include

• Firewalls

• Intrusion detection

• VPNs

• Web content filtering

• Antispam software

• Securing wireless networks

• WEP security can be improved:

• Activating it

• Assigning unique name to network’s SSID

• Using it with VPN technology

• Wi-Fi Alliance finalized WAP2 specification, replacing WEP with stronger standards

• Continually changing keys

• Encrypted authentication system with central server


• Encryption:

• Transforming text or data into cipher text that cannot be read by unintended recipients

• Two methods for encrypting network traffic

• Secure Sockets Layer (SSL) and successor Transport Layer Security (TLS)

• Secure Hypertext Transfer Protocol (S-HTTP)

• Two methods of encryption

• Symmetric key encryption

• Public key encryption


Public Key EncryptionPublic Key Encryption

A public key encryption system can be viewed as a series of public and private keys that lock data when they are transmitted and unlock the data when they are received. The sender locates the recipient’s public key in a directory and uses it to encrypt a message. The message is sent in encrypted form over the Internet or a private network. When the encrypted message arrives, the recipient uses his or her private key to decrypt the data and read the message.

• Digital certificate: • Data file used to establish the identity of users and electronic

assets for protection of online transactions

• Uses a trusted third party, certification authority (CA), to validate a user’s identity

• CA verifies user’s identity, stores information in CA server, which generates encrypted digital certificate containing owner ID information and copy of owner’s public key

• Public key infrastructure (PKI)• Use of public key cryptography working with certificate authority

• Widely used in e-commerce


Digital CertificatesDigital Certificates

Digital certificates help establish the identity of people or electronic assets. They protect online transactions by providing secure, encrypted, online communication.

• Ensuring system availability

• Online transaction processing requires 100% availability, no downtime

• Fault-tolerant computer systems

• For continuous availability

• Contain redundant hardware, software, and power supply components to provide continuous, uninterrupted service

• High-availability computing

• Helps recover quickly from crash

• Minimizes, does not eliminate downtime


• Recovery-oriented computing

• Designing systems that recover quickly with capabilities to help operators pinpoint and correct of faults in multi-component systems

• Controlling network traffic

• Deep packet inspection (DPI)

• Security outsourcing

• Managed security service providers (MSSPs)

• Ensuring software quality

• Software Metrics: Objective assessments of system in form of quantified measurements

• Number of transactions

• Online response time

• Payroll checks printed per hour

• Known bugs per hundred lines of code

• Testing: Early and regular testing

• Walkthrough: Review of specification or design document by small group of qualified people

• Debugging: Process by which errors are eliminated


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