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  7. Business Information Systems (D0H27A)

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Samenvatting Business Information systems

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  • Course
  • Business Information Systems (D0H27A)
  • Institution
  • Katholieke Universiteit Leuven (KU Leuven)

Complete summary of Business Information Systems, excluding chapter 4, as almost all of these are practical applications (UML, SQL, Excel). Complete summary of Business Information Systems, excluding chapter 4, as these are almost only practical applications (UML, SQL, Excel).

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Document information

  • December 21, 2023
  • 86
  • 2023/2024
  • Summary

Subjects

  • bis
  • business engineer
  • 2nd bachelor
  • academic year 23 24
  • business information systems

Written for

  • Katholieke Universiteit Leuven (KU Leuven)
  • Bachelor Handelsingenieur
  • Business Information Systems (D0H27A)
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Business information systems
Chapter 1: information systems, strategy & governance
1.1) What is an IS?
Why do we need IT?
- Technologies/processes are becoming more sophisticated
- IT must join business  to phase in new digital technologies
- Examples:
o Analytics (Amazon, Netflix)
o Internet of things (Telematics, Moocall)
o Drones (insurance, forest maintenance, package delivery)

Data/information/knowledge
 Data: raw observed facts of events (symbols, letters, numbers, …)
 Information: processed data, useful for decision making process
o Answers to what, where, …  context
 Knowledge: combining data and information  perform tasks

Metadata
= data about data
 XML = extensible markup language
o Tag based language to describe metadata
o User can define own tag
o Easy to share information between companies/people

System
= a set of elements. These elements are related to each other and, possibly, to elements from
the universe of discourse and are joined for a specific purpose.

 Elements: physical objects, energetic/biological units, …
 Relations: distance and time, physical/logical/cause-effect relations
 Purposes: ex. Delivery of services, production of finished goods, obtaining profits, …
 Example: traffic system:
o Elements: road infrastructure, vehicles, signs, …
o Relations: distance between cities, speed allowed, …
o Purposes optimizing traffic flow, maximizing safety, …

Business information system
= set of related components to collect, search, process, store and distribute information
 support coordination of decision-making process within organization




1

,  Business IT alignment
o Using BIS to realize business objectives, ex. Profit, shareholder value, …
o Integrating IT into strategy, mission and company’s goals

Types of business information systems




1) Strategic information systems:
o Processes: unstructured, less ambiguous, occasionally
o Decisions: concerning long term, rather incidental, much uncertainty
o Users: C-level executives (CEO, CFO, CIO, …)
o Required information: hard to determine, strongly dependent on individuals,
highly less structured
o Examples: ESS & data warehousing

 ESS = executive support system
o Communication/calculations at strategic level
o Input: external/internal aggregated data
o Processing: graphical, simulation, interactive
o Output, projections, answers to queries
o Users: top-level managers, board of directors

2) Tactical information systems:
o Processes: less routinely
o Decisions: mid-term, less often, more uncertainties/risks

2

, o Users: middle management
o Required information: operational level + data warehouse, less easy to
determine, dependent on individual and moment, need for external
information increases
o Examples: MIS & DSS

 MIS = management information systems
o Input: transaction records, data warehouse
o Processing: routine reporting, low-level analysis
o Output: summary, exception reports
o Users: middle managers

 DSS = decision support system
Management level: data analysis for decision making
o Input: data, low-volume and data warehouses, analytic models
o Process: interactive, simulation
o Output: special reports, decision analysis, answers to specific queries
o Users: middle and executive managers
o Example: credit scoring
 decides to accept a credit for a customer based on
 Customer characteristics
 Loan characteristics
 Macro-economy

3) Operational information systems:
o Processes: well structured, routinely
o Decisions: short term, occur frequently, little uncertainties
o Users: clerks, cashiers, sales assistants, …
o Required information: easy to determine, independent of individual
o Examples: OLTP & ERP

 OLTP = online transaction processing systems
o Point of sale (POS) system, ex. Supermarket
o Order entry system, ex. Amazon
o Financial transaction system, ex. PayPal

 ERP = enterprise resource planning systems
o Single information system for organization wide coordination/integration
business processes
o Vendors: Oracle, SAP, Odoo, …

Additional types of IS
 OAS = office automation systems
o Text processing, voicemail, e-mail, scheduling systems, …
 KWS = knowledge work systems
o Specialized for scientists, engineers, … to obtain new knowledge

3

, o Computer-aided design (CAD), VR systems, stability calculations, …

1.2) Strategy

Porter’s five forces theory
 Profitability different across industries
 Variability cannot be attributed only to internal competition
 Additional factors relate to positioning firms in their external competitive
environment

1) Threat of new entrants
 Entry barrier, ex. Capital costs, knowledge, customer expectations, …
 Porter: lower entry barrier: profitability decreases

2) Bargaining power of suppliers
 Few suppliers  higher prices, maybe lower quality, strict delivery schedules
 Example: milk farmer (few) <-> supermarket (many)
 Porter: higher bargaining power of suppliers: profitability decreases

3) Bargaining power of buyers
 Few buyers  higher price sensitivity
 Example: Apple: 40% return on iPhones (very high), many customers, status symbol
 Porter: higher bargaining power of buyers: profitability decreases

4) Threat of substitute products or services
 More alternative products  higher threat
 Porter: higher threat of substitute products/services: profitability decreases

5) Rivalry among existing competitors
 More competitors (oligopoly)  higher price competition
 Porter: higher rivalry among existing competitors: profitability decreases

Common business strategies




4

,  Advantages
o Applicable to any company in any industry
o Detailed explanations for firm/industry profitability
o Reasoning behind firm’s strategic position based off its external environment
o
 Disadvantages
o Limited use for determining future strategy
o Few concrete guidelines on how to implement

Value chain model
- Allows to better understand impact of IT on strategy
- Focus first: internal functioning, then: value chain of suppliers/customers
- Understand how IT can contribute to competitive advantage

 Primary activities
1) Inbound logistics:
o Bring in raw resources (raw material control, receiving process)
o How IT creates competitive advantages
 Automated warehousing system
 Automated quality control
 Automated packing and loading of trucks
2) Operations:
o Making the product of service (manufacturing, maintenance)
o How IT creates competitive advantages
 Computer-controlled machining systems
 Operational efficiency
3) Outbound logistics:
o Deliver the product or service (finished goods, order handling)
o How IT creates competitive advantages
 Automated shipment scheduling system
 Online point-of-sale
4) Marketing and sales
o Market product/service (customer management, order taking, promotion, …)
o How IT creates competitive advantages
 Computerized ordering systems
 Targeted marketing
5) Customer service
o Provide customer support (warranty, maintenance, education, upgrades)
o How IT creates competitive advantages
 CRM = customer relationship management systems

 Support activities: competitive advantages
1) Administrative coordination and support systems
o Decision support system, collaborative workflow systems
2) Human resource management

5

, o Workflow planning systems, employee benefit intranet, HR analytics

3) Product and technology development (R&D)
o Computer aided design systems
4) Procurement
o E-commerce web portal for suppliers, reverse auctions

Conclusion: alignment between business and IT is an absolute necessity

Strategic alignment model
Henderson & Venkatraman (1993)

- External (strategy level)
o Business strategy <-> ICT strategy
- Internal (operational level)
o Operational infrastructure & processes <-> ICT infrastructure & processes

 Strategic fit (internal – external)
o Business strategy addresses both internal and external domains
 Internal: administrative structure + design business processes
 External: business environment, how to differentiate from competitors
o Fix internal-external domain is critical  maximizing economic performance

o ICT strategy should also address both internal and external domains
 Internal: how should IT infrastructure be managed & configured
 External: how is the firm positioned in the I marketplace
 IT should not be seen as a support function not essential for business

 Functional integration (business – ICT)
o Strategic integration: integrate IT strategy and business strategy
 Impact of IT strategy on business?
 Impact of business strategy on IT?
o Operational integration: organizational/IS infrastructure and processes
 Internal coherence between requirements and expectations what IS
can deliver
o Potential problems:
 Top manager (CEO, CIO, CDO, …): ill-informed, reluctant to be involved
 End user: reluctant/impatient to use IT
 IT professional: lacks a strategic view

1) Strategic execution:
= Business strategy  operational infrastr. & processes ICT infrastr. & processes
(airline companies)
2) Technology transformation:
= Business strategy  ICT strategy  ICT infrastructure & processes (Walmart)
3) Competitive potential:
= ICT strategy  business strategy  operational infrastr. & processes (Google)
6

, 4) Service level:
= ICT strategy  ICT infrastr. & processes  oper. infrastr. & processes (Microsoft)

1.3) Governance
“The collection of mechanisms, processes and relations used by various parties to control
and to operate a corporation”

 regulate risk, reduce opportunity for corruption, maintain legal and ethical standards
 assign responsibilities to different stakeholders
- Board of directors
- Managers
- Employees
- Shareholders, …
 complication: principal agent problem:
Conflicting interests between shareholders (principal) and management (agent)

Sarbanes-Oxley Act (2002) (SOX)
- Protect shareholders and public from accounting errors/fraud
- Improve accuracy of corporate revelation

 US federal law setting new standards of publicity traded companies
o Top management: must individually certify accuracy of financial information
o Fraudulent activities: severe penalties
o Increased independence for external auditors (controls organization)
 Regulates audit firms that audit companies that must comply with SOX

 Section 404: assessment of internal control
o All financial information can be tracked to its origin (lineage)
o Management responsible for
 Maintaining sufficient internal control
 Structure and procedures for financial reporting

 Internal control
= process, by entity’s board of directors, management, and other personnel,
designed to provide assurance regarding achievements of objectives relating to:
o Effectiveness and efficiency of operations
o Reliability of financial reporting
o Compliance with applicable laws and regulations

COSO internal control – integrated framework
 Committee of sponsoring organizations of the Treadway Commission
o IMA, AAA, AICPA, IIA, FEI
 Most important internal control framework for obtaining SOX compliance




7

,  COSO 2013




o Most commonly used framework for demonstrating SOX compliance
 Not IT specific
 IS/IT governance frameworks: COBIT
o Big business for consulting firms

 IS governance
= organizational capacity exercised by board of directors (primary responsibility),
executive management and IT management, to control formulation/implementation
of IT strategy, and ensure alignment of business and IT

 IS governance mechanisms
o Structures (CIO, IT steering committee)
o Processes (portfolio management, SLA)
o Relational mechanisms (job rotation, co-location, cross-training)

COBIT
= business framework for governance and management of enterprise IT
o Set of tools, ensures IT is working effectively, generates value
o Common language to communicate goals to all stakeholders
o Integrates industry standards and good practices in:
 Strategic alignment of IT with business goals
 Value delivery services and new projects
 Risk, resource and performance management
o Most widely accepted standard for demonstrating SOX compliance for IT-
centered organizations

- Developed by ISACA (= information systems audit and control association) in 1996
o International, professional association for IT governance and audit
o Not scientifically grounded

- COBIT 5 (2012) and COBIT 2019 (latest version)
- Used by more than 60% of firms
8

,  Top 4 benefits of COBIT according to ISACA
1) IT integrations
2) Improved risk management
3) Discovery of gaps in security
4) Creating a framework that provides more visibility to the board of directors

 Governance principles
1) Provide stakeholder value
2) Holistic approach
3) Dynamic governance system
4) Governance distinct from management
5) Tailored to enterprise needs
6) End-to-end governance system

 Governance objectives:
o EDM = evaluate, direct and monitor
 Management objectives:
o APO = align, plan and organize
o BAI = build, acquire and implement
o DSS = deliver, service and support
o MEA = monitor, evaluate and assess

 RACI chart (responsible, accountable, consulted, informed)
= represents roles and responsibilities of people involved in a project




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