4.4 Communication Networks and the Business Value

4.4.1. Business value of telecommunication networks

Telecommunications has become an important factor of an organization’s success and is
considered a strategic resource. Telecommunication infrastructure enhances connectivity.
For example with the cellular network sales personnel can be in constant touch with the
customers and the managers. Telecommunications not only support voice communication
but also supports data communication. For example with increased telecommunication
infrastructure more users will get connect to the Internet and the organizations will get
involved in e business.



4.4.2. Business value of the Internet

The business value of the Internet is evident from the numerous web sites that are
engaged in e-business and e-commerce. Ref. 2 identifies 6 major business values, which
companies engaged in e-business and e-commerce strive for. They are,

(1) Generate new revenue from online sales
(2) Reduce transaction costs through online sales and customer support
(3) Attract new customers via web marketing and advertising and online sales
(4) Increase the loyalty of existing customers via improved web customer service and
support
(5) Develop new Web-based markets and distribution channels for existing products
(6) Develop new information-based products accessible on the web.



4.4.3. Business value of Intranets

Intranets have become an essential ingredient of day to day work in organizations. By
providing an Internet-like environment inside an organization, they enable better
communication and information sharing. Management becomes easier and the
responsiveness of the business processes improves as a result.
Intranet applications can be organized as follow.

(a) Communications & collaboration
Intranets help send and receive e mails and communicate through voice mails. They
further enable virtual meetings and group discussions through e mail and video
conferencing.

(b) Web Publishing
Things like company newsletters, project plans and technical drawings can be published
as attractive web pages having multimedia content. These can be stored in a server which
could be accessed through any computer on the intranet. This has become an efficient and
a cost effective alternative to share information in an organization.

(c) Business Operations and Management
Ann intranet can be used to support business activities such as order processing, inventory
control and sales management.



4.4.4. Business value of extranets

When connecting to external parties, an organization has two options. Either it could use
a dedicated private link or it could use a virtual private network. A Virtual Private
Network (VPN) is a set of secure links over a public network such as the Internet. A
firewall is a computer which stands between a company’s intranet and the extranet and
does data filtering. For example a firewall may encrypt data and ask for passwords to
access a company’s intranet. A firewall can be used to implement a VPN.

Extranets link an organization with its suppliers. This reduces delivery time and
consequently the storage costs.By enabling online collaboration with customers, extranets
enable interactive and customer focused product development and marketing. The
company can increase its competitive advantage by introducing new types of products
that have information value to the customer. For example consider software having online
product support over the Internet. They also enable faster decision making by enabling
faster communication with the business partners of the company.

4.3 Role of networks in organizations

Networks are used for many different activities in an organization. Many companies use
the internet to sell goods and services to customers. For example, if you want to book a
hotel room you may do it online through the hotel website. In banking, you may transfer
money between accounts using the Internet.

As the above examples show, networks try to facilitate communication between two or
more parties. Communication means the exchange of information between two or more
parties. It is an important business activity because it helps customers to be in touch with
an organization, employees to share ideas and the organization as a whole to
communicate with other organizations.



In organizations, people communicate not only verbally, but perhaps also using some
sort of electric means. The most common example of using some sort of electric means
to communicate is the use of the telephone network also called the telecommunications
network to get calls. For example telecommunications help a manager at the head office
in Colombo to speak with a divisional manager in Galle.



In a computer network two or more computers communicate through some link. An
example for the use of a computer network is an information system of a supermarket
where transaction details entered at the checkouts are summarised and presented to the
management over a communication link.



Communication can be synchronous or asynchronous. In synchronous communication the
receiver gets the message at the same time it is sent whereas in asynchronous
communication the receiver gets the message later. Ordinary telephone calls are examples
of synchronous communication. Another example is video conferencing where all the
parties involved hear and see each other at the same time. Video conferencing is used
nowadays to hold business meetings from distant locations. An example for asynchronous
communication is e mail.

Communication is an important aspect of an information system. For example consider a
transaction processing system of a modern supermarket. The computers at the checkouts
may need to connect to a database to maintain backups of the transactions. On the other
hand transaction details may need to be summarised and presented to a manager who is at
the head office in Colombo over a management information system.

Communication networks avoid the need to be in the same place and some times the same
time for communication to happen. For example an e mail message you sent to your
favourite booshop in Colombo this morning reserving a book may have been read only
this evening.

There are computers called database servers which are used to store data because they are
designed to do data management. By storing shared data in a database server, computers
can have access to the data at the same time through a network. Further, there are
program versions called network versions which can be stored in a server and shared by
the computers of a network. This avoids duplicating programs in each machine.





Another use of a network is to share peripheral devices such as laser printers which are
expensive. In this case the network operating system manages the use of the shared
peripheral device. For example a network operating system will not allow a printer to be
used by a computer in the network if it is used by another computer in the network at the
same time.



Networks link computers together. As a result networks provide a means to communicate
between machines. For example we use networks when we send e-mails and download
information from the web.



A network can be used to send backups of data from a computer in the network to a
database server which is attached to the network. The software which manages and
coordinates a network called the network operating system usually backup data time to
time.

4.2 The Competitive Advantage and Strategic Information Systems

Organizations compete based on their value chains, the series of processes that create
products and services that external customers pay for. Competitive advantage occurs
when a firm’s value chain generate superior product and service features, quality,
availability, low cost or other things customers care about. Competitive advantage comes
from many sources. Some companies have a natural competitive advantage. Others
must create competitive advantage through superior product design, marketing,
customer service or distribution channel. A major role of information systems
applications in business was to provide effective support of a company’s strategies for
gaining competitive advantage. This strategic role of information systems, which creates
strategic information system, involves using information technology to develop products,
services and capabilities that give company major advantages to compete in the global
market.

4.2.1 Competitive Forces and Strategies

A company can survive and succeed in the long run only if it successfully develops
strategies to gain advantage in the global market over the competitive forces that
shape the structure of competition in its industry and market. Any business that wants to
survive and succeed must develop and implement strategies to effectively counter the
following five completive forces.

1. The challenge of competitors within its industry.
2. The threat of new entrants into an industry and its market.
3. The threat posed by substitute products, which might capture market share.
4. The bargaining power of customers.
5. The bargaining power of suppliers.

Whether and how a firm can use information systems competitively depends on the
firm’s strategy. Although competitive situations vary widely, most companies adopt some
combination of the following five strategies to cope with the above threats of competitive
forces.

1. Cost leadership strategy: Produce products and/or services at the lowest cost in
the industry. A firm achieves cost leadership in its industry by thrifty buying practices,
efficient business processes, forcing up the prices paid by competitors, and helping
customers or suppliers reduce their costs.

2. Product differentiation strategy provides more value to its products and services
than competitors’ or eliminates or reduces the competitor’s differentiation
advantages.

3. Innovation strategy: Introduce new products and services, put new features in
existing products and services, or develop new ways to produce them. Innovation is
similar to differentiation except that the impact is much more dramatic. Differentiation
“tweaks” existing products and services to offer the customer something special and
different. Innovation implies something so new and different that it changes the
nature of the industry.

4. Growth strategy: Increase market share, acquire more customers, or sell more
products. Such a strategy strengthens a company and increases profitability in the
long run. Web-based selling can facilitate growth by creating new marketing
channels, such as electronic auctions.

5. Alliance strategy: Work with business partners in partnerships, alliances, joint
ventures, or virtual companies. This strategy creates synergy, allows companies to
concentrate on their core business, and provides opportunities for growth. Alliances
are particularly popular in electronic commerce ventures.

4.2.2 Use of IT to Support Competitive Strategies

A company’s business strategy has crucial implications for its operations, profitability,
and capacity to meet the needs of its customers. Information technology can facilitate
strategy implementation and can become a source of competitive advantage. The source
of competitive advantage in business is what you do with the information that technology
gives you access to. Therefore, planning and applying information systems in a way that
complements the overall strategies and tactics of the organization is important.

How information technology can be used to implement the five basic competitive
strategies is briefed in Table 4.1.




4.2.3 The Value Chain and Strategic IS

A strategic information system is designed to play a major role in an organization’s
competitive strategy and involves using various strategic uses of information technology
for gaining a competitive advantage or reducing a competitive disadvantage or meeting
other strategic enterprise objectives. In this framework of developing information system,
organizations would devise business strategies that would use information technology to
develop products, services and capabilities that would give the organization major
advantages in the markets in which it competes.

The value chain concept was briefly introduced in section 4.1. It views the organization
as a chain of value-added processors or activities. In this view, the organization should
focus developing of a variety of strategic uses of information technology on those
processors that add the most value to an organization’s products or services, and thus to
the overall business value.

As such, the value chain concept is useful in analyzing where and how the strategic
capabilities of information technology can be applied. It also shows how various types of
information technologies might be applied to specific business processes to help an
organization gain competitive advantages in the market place.

Some examples of strategic applications of information systems technology to primary
and support business processes is presented in table 4.2.



4.2.4 Other Strategic Uses of IT

There are many other strategic uses of information technology in addition to one
described in the previous section. Let’s look at several of those.

4.2.4.1 Building a Customer Focused Business

The value of this type of business lies in its ability to help organizations keep customers
loyal, anticipate their future needs, respond to customer concerns and provide top-quality
customer service. This strategic focus on customer value considers quality of products
and services, rather than prices, as the primary determinant in a customer’s perception
of the value. The organization that consistently offer the best value to customers from
their point of view, are mainly able to keep track of their customers’ individual
preferences and provide customer services tailored to individual needs.

Let’s look at how IT can be used to build a customer based business.

• The Internet provides a strategic opportunity. It offers a fast, responsive, high
quality products and services tailored to individual customer preferences.

• Customer Relationship Management (CRM) systems and Internet, intranet and
extranet web sites create new channels for interactive communications within a
company with customers and suppliers, business partners and others in the
external environment.

• Internet and extranet links to suppliers and business partners can be used to
ensure prompt delivery of quality components/services.

4.2.4.2 Reengineering Business Processes

Reengineering business processes, often called reengineering, is the fundamental
rethinking and radical redesign of business processes to achieve dramatic improvements
in critical measures of performance, such as cost, quality, service and speed. Obviously,
its payback is very high. However, making radical changes to the business processes to
dramatically improve efficiency and effectiveness is not an easy task. Because of the
radical restructuring it calls for, most firms attempting major reengineering projects have
found them difficult and risky. Common outcomes of reengineering include combining
several jobs into one, permitting workers to make more decisions themselves, and
reorganizing jobs to give individuals more understanding and more responsibility. Many
reengineering efforts also result in significant staff reductions.

Information technology plays a major role in reengineering most business processes.
The speed, information processing capabilities and connectivity of computers, Internet
technologies can substantially increase the efficiency of business processes, as well as
communication and collaboration among the people responsible for their operation and
management.

4.2.4.3 Improve Agility

Agility in business performance is the ability of a company to remain competitive in
rapidly changing, continually fragmenting global markets for high-quality, high
performance products and services. Thus, an agile company can compete in markets
with broad product ranges and short reproduction lifetimes. It also can fill large orders
individually. It offers customized products while maintaining high volumes of production.
Agile companies depend heavily on internet technologies to integrate and manage
business processes.

Four basic strategies must be implemented to be an agile company.

1. Customers view products or services as solution to their individual problems. Thus,
the price of a product is only based on the value of it to customers, and not based on
the cost to produce.

2. Company cooperates with customers, suppliers, and other companies, and even with
competitors to bring products to the market as rapidly and cost effectively as
possible.

3. Company succeeds on change and uncertainty. It uses flexible organizational
structures keyed to the requirements of different and constantly changing customer
opportunities.

4. Company leverages the impact of its people and the knowledge they possess.

4.2.4.4 Develop Virtual Organizations

A virtual organization can be one of the most important strategic uses of information
technology. A virtual organization uses information technology to link people,
organizations, assets and ideas. The major aspects of core processes such as design,
production, and delivery are outsourced to other organizations that specialize in these
areas. Virtual organizations exist by agreement of their members and sometimes need
immediate access to shared information in order to operate efficiently. Virtual
organizations typically form flexible and adaptable virtual workgroups and alliances with
business partners that are interlinked by the Internet, Intranet and extranets to exploit
fast changing business opportunities. People and organizations are forming virtual
companies as the best way to implement key business strategies and alliances that
promise to ensure success in today’s chaotic business climate.

4.2.4.5 Improve Knowledge Creation

In a company where the only certainty is uncertainty, the one sure source of lasting
competitive advantage is knowledge. When markets shift, technologies proliferate,
competitors multiply, and products become obsolete almost overnight. Successful
companies are those that consistently create new knowledge, disseminate it widely
throughout the organization, and quickly embody it in new technologies and products.
These activities define the "knowledge-creating" company, whose sole business is
continuous innovation. These companies are famous for their ability to respond quickly to
customers, create new markets, rapidly develop new products, and dominate emergent
technologies. The secret of their success is their unique approach to managing the
creation of new knowledge. Successful knowledge management creates techniques,
technologies, systems, and rewards for getting employees to share what they know and
to make better use of accumulated workplace and enterprise knowledge as they do their
job.

Knowledge management has thus become one of the major strategic uses of information
technology. Knowledge management system manages organizational learning and
business know-how. The goal of such systems is to help knowledge workers create,
organize and make available important business knowledge, wherever and whenever it’s
needed in an organization. As the organizational learning process continues and its
knowledge base expands, the knowledge creating company works to integrate its
business processes, products and services. This helps the company become more
innovative and agile provider of high quality products and customer services.

4.1 Organizations

An organization is a formal collection of people and other resources established to
accomplish a set of goals. The primary goal of a for-profit organization is to maximize
profits by increasing revenues while reducing costs. Nonprofit organizations or public
bodies include social groups, religious groups, universities, and other organizations that
do not have profit as the primary goal. The income of these organizations may not be
generated by the services provided. Income is probably indirect, through donation or
taxation, and the organization’s costs must be contained within the funds available. It
may not compete for customers but it does compete for available resources.

As explained in Chapter 1, an organization is a system. It has a goal, components,
inputs, processing and outputs. It can be analyzed to identify system boundaries and
environment in which they operate. Money, people, materials, machines and equipment,
data, information, and decisions are constantly in use in any organization. A general
model of an organization is illustrated in Figure 4.1, which shows that resources such as
material, people, and money input to the organizational system from the environment, go
through a transformation process and are output to the environment. The outputs from
the transformation process are usually goods or services. Although not shown in the
figure, input to the subsystem can come from internal and external sources, and output
from the subsystem can go to either internal or external systems.



The values of the goods or services produced by the organization are relatively higher
than the inputs alone. Within the transformation process contains various processes that
help turn inputs into goods or services of increasing value. These value-added
processes increase the relative value of the inputs on their way to becoming final outputs
of the organization. For example, consider a simple self-service car wash system. The
primary purpose of the car wash system is to clean automobile. The inputs to the system
are the dirty car, soap and water, and the instructions to the operator. The desired out of
the system is a clean and dry car. The first value-added process might be identified as
washing the car. A clean but wet car is worth more than the mere collection of soap and
water (messed car). The second value-added process is drying, which transform the wet
car into dry one. The value comes from the skill, knowledge, time and energy invested by
the organization. By adding a significant amount of value to their product and services,
organizations will achieve their goals.

All business organizations contain a number of processes. Providing value to a
customer, supplier, manager or employee is the primary goal of any organization. The
value chain concept developed by Michael Porter is a concept that shows how
organizations can add value to their products and services. The original value chain
model was based primarily on manufacturing business, but its structure can be applied to
most other types of business. The value chain views the organization as a chain of
business activities. Some business activities are primary processes and others are
support processes.

Primary processes include the following.

1. Inbound logistic: Obtaining, receiving, storing and provisioning key inputs and
resources required by the central operations of the business. This can include
recruiting staff, buying materials and services, and dealing with subcontractors.

2. Operations: Transforming inputs of all types into the products or services to meet
customer requirements. This involves bringing together the requisite materials,
resources and assets to produce the right quantity of products or services – for
instance in a university, delivering the courses in the prospectus and examining the
students.

3. Outbound logistic: Distributing the products or services to the place of sale, or to
customers directly, using channels of distribution by which the customer can obtain
the product or service and pay for it.

4. Sales and marketing: Making customers and consumers aware of the product or
service, and how they can obtain it; promoting the products in a way that the
customers are persuaded the product satisfies a need at an appropriate price.

5. Services: Adding additional value for the customer at the time of sale or afterwards;
for example by means of financial services, user training and warranty claims
processing.

Support processes include technology development, administrative support services,
human resources management and procurement of resources.

While these activities fulfill the value adding role of a business unit as seen in its
industrial context by its suppliers and customers, they must each be optimized
individually and the whole linked together if the best overall performance is to be
achieved. Depending on the customer perception, value may mean lower price, better
service, higher quality or uniqueness of product.

Supply chain and customer relationship management are two key aspects of managing
the value chain. Supply chain management (SCM) is the overall system of coordinating
closely with suppliers so that both the organization and its suppliers reap the benefits of
smaller inventories, smoother production and less waste. It helps determine what
supplies are required, what quantities are needed to meet customer demand, how the
supplies are to be processed (manufactured) into finished goods and services, and how
the shipment of supplies and products to customers is to be scheduled, monitored, and
controlled. For an automobile company, for example, SCM is responsible for identifying
key supplies and parts, negotiating with supply and parts companies for the best prices
and support, making sure that all supplies and parts are available when they are needed
to manufacture cars and trucks, and sending finished products to dealerships around the
country when and where they are needed.

Customer relationship management (CRM) programs help an organization manage all
aspects of customer encounters including marketing and advertising, sales, customer
service after the sale, and programs to help keep and retain loyal customers. An
important part of CRM is the collection of data from customer interactions such as
service calls, call center responses, sales transactions, and Web-site activity. Analyzing
these types of customer relationship data potentially helps in identifying patterns that are
useful in crafting marketing campaigns and building targeted sales pitches. It also
potentially helps in figuring out how to serve different groups of customers more
effectively and profitably.

What role does information play in these processes? From an information systems
perspective, the internal value chain is a valuable way of identifying where better
information and systems are needed, especially to show where integration through
systems could provide potential advantages over competitors (or reduce current
disadvantages).

A logical approach to identifying how an information system can improve
the business is:

1. Improving relationships with customers and suppliers in all aspects of their interface
with the organization.

2. Improving the critical information flows through the activities in the value chain,
namely removing bottle necks and delays, ensuring the accuracy and consistency of
information used.

3. Improving the systems within each activity in the value chain to achieve local
improvements in efficiency etc.

An information system can turn feedback from subsystems into more meaningful
information for employees’ use within an organization. This information might summarize
the performance of the systems and be used to change the way that the system
operates. Such changes could involve using different raw materials (inputs), designing
new assembly-line procedures (product transformation) or developing new products and
services (outputs). In this view, the information system plays an important role externally
through controlling and monitoring processes in ensuring effectiveness and efficiency of
the organization.

More importantly, information systems are best considered to be a part of the process
itself. From this perspective, the information system is internal and plays an integral role
in the process, whether providing input, supporting product transformation or producing
output. An example might be an information system that helps a farmer by collecting and
displaying information about soil condition in different parts of the farm. The main work
that is going on involves planting and tending to crops. The information system helps
with decisions that are important, but bulk of work involves physical activities rather than
information processing. In this situation, the information system is small, dedicated
component of the system. In other situation, the information system may significantly
overlap with the overall work of the system. An example is the process of granting and
monitoring loans in a bank’s student loan program. This process is information intensive
because it is mostly about processing information such as identification, qualifications,
references, payments and balance due. The information system itself is an integral part
of this process. It does not just monitor the process externally but works as a part of the
process to transform raw data into a product. This view of information system brings with
it a new perspective on how and why information systems can be used in business.
Rather than searching to understanding the value-added processes independently of
information system, the potential role of information system is considered within the
process itself. This will often lead to the discovery of new and better ways to accomplish
the process. Thus, the way an organization views the role of information system will
influence the ways it accomplishes its value-added processes.

4.1.1 Organization Structure

Organizational structure refers to organizational subunits and the way they relate to the
overall organization. An organization’s structure can affect how information systems are
viewed and used. Depending on the goals of the organization and its approach to
management, a number of structures can be used: i.e. hierarchical, project, team and
matrix.



In the hierarchical organizational structure, the hierarchy of decision making and
authority from the strategic management to non-management employees is shown in
Figure 4.2. The strategic level, including the president of the company and vice
president, has a higher degree of decision authority, more impact of corporate goals and
more unique problems to solve. In most cases, major department heads report to a
president or top-level manager. As shown in Figure 4.3, the major departments can
include marketing, manufacturing, human resource, information systems, finance,
planning and so on. Manufacturing and marketing supervisors report to vice presidents
of manufacturing and marketing respectively. Other positions may not be directly
involved with the formal chain of command but may assist a department or functional
area. For example, legal counsel reports to the president.



The trend, today, is to reduce the number of management levels in the hierarchy of
organizational structure. This can be achieved by empowering employees at lower levels
to make decisions and solve problems without needing permission from midlevel
managers. Information systems play an important role in empowering employees. They
can directly provide required information to employees at lower levels of the hierarchy or
the employees may develop or use their own personnel information systems.

The project organizational structure is focused around major products or services.
Traditional functions are positioned within the major products. For example, in an
aerospace firm that produces numerous types of aircrafts and satellites, each type is
produced by a separate unit. Traditional functions such as marketing, finance and
manufacturing are positioned within these major units (see Figure 4.4). When the project
is finished, the members may move to another project.



The team organizational structure is focused around work teams or groups, which may
be small or large. Each team has a leader who reports to a higher-level manager in the
organization. The team can be either temporary or permanent depending on the type of
work being performed.

A matrix or multidimensional organizational structure may have several structures at
the same time. For example, an organization may have both traditional functional areas
and major project units. A major disadvantage here is multiple lines of authority.
Employees in each group may have two bosses – a project leader and a head of a
functional area.

4.1.2 Organizational Culture

Discussions of systems often focus on formal procedures for performing tasks, but the
organization’s culture is often just as important as the system’s official rationale in
determining system’s success. Organizational culture is the shared understanding
about relationships and work practices that determine how things are done in a business,
cooperation or an organization. The understanding, which can include common beliefs,
values and approaches to decision making, are often not written as goals or formal
policies. But culture is subtle because it shows rules and practices that govern the way
people behave.

Organizational culture can significantly affect the development and operation of
information systems within an organization. A design of an information system might
conflict with an informal procedural rule that is part of organizational culture. A decision
maker’s view of the factors and priorities that must be considered in setting objectives
might also be influenced by the organizational culture.

4.1.3 The Effect of Culture to Organizational Change

Organizational change deals with how organizations plan for, implement and handle
change. Change can be caused by internal activities initiated by employees at all levels
or external activities formed by competitors, stockholders, government laws, community
regulations, natural occurrences and general economic conditions.

It is simply difficult to change the way an organization operates. Any particular change
that has positive consequences in some areas may have negative consequences in
other areas. For example, new efficiencies may mean that fewer employees are needed
or that hard-learned skills are no longer important. Differences of opinion and
uncertainties about the positive and negative impacts of proposed changes often
contribute to the tendency to continue doing things in the same way and therefore to
resist change. This resistance applies to any Organization when Information systems are
introduced initially.. Therefore overcoming resistance to change can be the hardest part
of bringing information systems into a business. Just changing an information system
may not have much impact unless other things are changed, such as the way work is
organized and the incentives that are established for the participants. When a company
introduces a new information system, a few members of the organization must become
agents of change. They can overcome resistance by understanding the organizational
change so that the new system can be used to maximum efficiency and effectiveness.

4 Organizations and Information Systems

Until the early 1970s, many computerized information systems were developed to
provide reports for business decision makers. The information in these reports helped
managers monitor and control business processes and operations. For example, reports
of fast-moving products could be used to increase the sales of other products.

Unfortunately, many of these early computer systems did not take the overall goals of
the organization and managerial problem-solving styles into consideration. As a result,
these computer systems failed or were not utilized to their potential. In this chapter, we
will explore how information systems can help organizations produce higher-quality
products and increase their return on investment. Let’s starts by investigating
organizations and information systems.

3.4. Database Applications

Introduction to Database Applications

With the fast moving world there is a shift from simply accessing the data contained in a database to managing & manipulating the content of a database to producing useful information. Among the database manipulating activities,
Searching, filtering, synthesizing, assimilating are important.

With the help of databases it is possible to,
• Link the company databases to the Internet
• Set up data warehouses and marts
• Use databases for strategic business intelligence
• Place data at different locations
• Use online processing and open connectivity standards for increased productivity
• Develop databases with the object oriented approach
Search for and use unstructured data such as graphics, audio & video

3.4.1 Linking the Company Database to the Internet

Today customers, suppliers and company employees must be able to access corporate database
through the internet, intranet and extranet to meet various business needs.

Example:
1. When a customer is going to buy a book through internet he is accessing a database to
find the book information, author, price, etc.

2. With the help of the databases the suppliers can check the raw materials and the
current production schedule to determine when & how much of their products must be
delivered to support just-in-time inventory management

3. Employees Of a company working from abroad may want to access the internal
databases through the Internet or the intranet to make important decisions.

Developing a seamless integration of traditional databases with the internet is often called a
semantic web. The semantic web is about taking the relational database & webbing it. It allows
accessing and manipulating a number of traditional databases at the same time through the
internet.

Instead of the internet, organizations are gaining access to databases through networks to get
good prices and reliable services. However, linking company databases to external network such
as the Internet can be potentially dangerous due to issues related to security. For example a
competitor or any other hacker may gain access to these databases.

3.4.2. Data warehouses, Data Marts and Data Mining

The raw data necessary to make sound business decisions is stored in a variety of locations and
formats.

Using data warehouses, data marts and data mining this data can be used to support decision
making.

Data Warehouses



A data warehouse stores data that have been extracted from the various operational,
external and other databases of an organisation. It is a central source of the data that have
been cleaned, transformed, catalogued so that they can be used by managers and other
business professionals for data mining, online analytical processing and other form of
business analysis, market research and decision support. A data warehouse can also be
viewed as a database for historical data from different functions within a company.
A data warehouse is designed specifically to support management decision making, not to
meet the needs of transaction processing systems. The structure of data warehouse is
easier for end users to navigate, understand and query against unlike the relational
databases primarily designed to handle lots of transactions. Data warehouse enable
queries that cast across different segments of a company’s operation.

Example: Production data could be compared against inventory data even if they were
originally stored in different tables with different structures. Data warehousing is an efficient
way to manage and report on data that is from a variety of sources, non uniform and
scattered throughout a company.

For the purpose of keeping the data fresh and accurate data warehouse need regular
updates. Updating of the data warehouse must be fast, efficient and automated in order to
retain the value of the data warehouse.

A primary advantage of data warehousing is the ability to relate data in new, innovative
ways. However, establishing a data warehouse can be difficult and costly.

Data Marts

This is a sub set of a data warehouse. Using this concept it is possible to store a subset of
the data for a single aspect of a company’s business rather than saving all enterprise data
in one monolithic database.

Example: Finance, inventory, personnel

A data mart could provide more details about a specific area than the data warehouse
would provide. Data marts are useful for smaller groups such as a particular department in
an organization to access a detailed data while a warehouse contains a summary data that
can be used by an entire company. Typically, as data marts contain less giga bytes than a
data warehouse, they can be deployed.

Data Mining

Data mining is a major use of data warehouse databases. It is an information-analysis tool
that involves the automated discovery of hidden patterns and trends in historical business
activity. Data mining’s objective is to extract patterns, trends and rules from data
warehouses to evaluate (i.e. predict or score) proposed business strategies, which in turn
will improve competitiveness, improve profits and transform business processes. With the
help of data mining it is possible to improve customer retention, campaign management
and customer segmentation analysis.

E-commerce is another major opportunity for effective use of data mining.

Example: When online retail web sites launch discount sales, it is difficult to figure out how
many first time customers are likely to come back and buy again. Further finding which
customers are price sensitive and more likely to jump on future sales is difficult to identify.
As a solution for that companies are gathering data on user traffic through their web sites
into databases. These databases are analysed using data mining techniques and based on
the analysis, sales promotions are developed and targeted at specific customers.

Predictive analysis is also an advantage of data mining. It combines historical data with
assumptions about future conditions to predict outcomes of events such as future product
sales.

3.4.3. Business Intelligence

Databases can be used for the purpose of business intelligence closely linked to data mining.
Business Intelligence is the process of gathering enough of the right information in a timely
manner and usable form and analyzing it so that it can have a positive impact on business
strategy, tactics or operations. Business Intelligence turns data into valuable information and
distributes it throughout an enterprise. This information is used by the companies to improve
strategic discussions about which markets to enter, how to select and manage key customer
relationships, how to improve sales promotions etc. There are tools available in the market which facilitates Business Intelligence. These tools (applications) can be found in different categories such as Business planning, Customer Relationhip Management (CRM), Management Information Systems (MIS) etc.

Today a number of companies use the business intelligence approach.

3.4.4. Distributed Databases



A distributed database is a database in which the data may be spread across several databases
connected through telecommunications devices. The user does not need to have knowledge about the physical location of the database. DBMS finds the location of data according to the user
requirement.

Distributed databases give more flexibility to the process of database organizing. With the help of
distributed databases employees in one office has the ability to access and share the data in
another office. This feature may improve effectiveness and the efficiency of the organizations.
However, distributed databases create some additional problems for the companies too. As the
distributed databases allow users to access the data from different sites, controlling the access
and changes to data are sometimes difficult. Therefore, ensuring that the data in an organisation
distributed databases are consistently and concurrently updated is a major challenge of distributed database management.

Further, as the databases depend on telecommunications data transport speed can be slower.
To minimize telecommunications cost, some organizations build a replicated database. A
database that holds a duplicate set of frequently used data. At the beginning of the day the
company sends a copy of important data to each distributed processing location. At the end of the day these sites send the changed data back to update the main database. This process is known as data synchronization.

3.4.5. Online Analytical Processing (OLAP)

Online analytical processing allows users to explore data from a number of different perspectives.

To respond to the dynamic and competitive nature of today’s global business environment, the IS industry has made developments like analytical databases, data marts, data warehouses and
specialised servers and web enabled software products that support Online Analytical Processing
(OLAP).

OLAP enables users to interactively examine and manipulate large amounts of detailed and
consolidated data from many perspectives. OLAP involves analysing complex relationships among thousands or even millions of data items stored in data marts, data warehouses, and other multidimensional databases to discover patterns, trends and exceptional conditions. An OLAP session takes place online in real time with rapid response to a manager’s or analyst’s queries, so that their analytical or decision making process is undisturbed.

3.4.6. Object-oriented & Object-Relational Database Management System

Object Database Management Systems extend the object programming language with
transparently persistent data, concurrency control, data recovery, associative queries and other
database capabilities.

An initial area of focus by several object-oriented database vendors has been the Computer Aided Design (CAD), Computer Aided Manufacturing (CAM) and Computer Aided Software Engineering (CASE) applications. A primary characteristic of these applications is the need to manage very complex information efficiently. The most significant benefit of the OODBMS is that these databases have extended into areas not known by the RDBMS. Medicine, multimedia, and highenergy physics are just a few of the new industries relying on object-oriented databases.
As with the relational database method, object-oriented databases also have disadvantages or
limitations. One disadvantage of OODBMS is that it lacks a common data model. There is also no
current standard, since it is still considered to be in the development stages.

ORDBMS is a database management system that provides both relational and objects database
management capabilities. ORDBMS was created to handle new types of data such as audio,
video, and image files that relational databases were not equipped to handle. ORDBMS is a
relational database management system that allows developers to integrate the database with
their own custom data types and methods.

Relational databases store data in tables that have to be joined together to answer complex
queries and this can take considerable processing resources and time. But object databases let
users link complicated data structures as more easily accessible objects. Because of the efficiency
provided by the object-oriented databases they are widely used around the world.

3.4.7. Visual, Audio and Other Database Systems

Apart from raw data, visual and audio signals also need to be stored in organizations.
Example: Credit card companies input pictures of charge slips into an image database using
a scanner Physicians use image databases to store x-rays Music companies store and manipulate sound from recording studios.

Visual databases can be stored in some object –relational databases or special-purpose database
systems.

Combining and analyzing data from separate and totally different databases is an increasingly
important database challenge. Global businesses need to analyze sales and accounting data
stored around the world in different database systems.

Other Database Systems include virtual database systems which integrate data from different
databases from around the world that use different file formats and types.

3.3. Database Management Systems

Introduction

Creating and implementing the right database system ensures that the database will support both business activities and goals. Using the database management system it is possible to create, implement, use and update the database.

Databases range from those for a single user with a desktop computer to those on mainframe
computers with thousands of users.

• Personal databases
• Workgroup databases
• Departmental databases
• Enterprise databases

Personal databases are designed to support single user with a stand alone PC. MS Access is
commonly used to create personal databases.

Example:

• A sales person keeping track of this customer information with contact details
• Names of 50 relatives and friends to whom Christmas Cards are sent each year

Workgroup to enterprise databases target small to large user groups. These systems allow
hundreds of people to access the same database system at the same time. Oracle, Informix
and SQL Server are examples for this kind of databases.

All DBMS systems provide common functions.

Example: Providing a user view, physically storing and retrieving data in a database, allowing for
database modification, manipulating data and generating reports.

3.3.1 Overview of Database Types

Databases range from small, inexpensive packages to huge, expensive packages. Following are
some of the alternatives.

Flat File

This is a simple database program which has no relationship between its records and
normally used to store and manipulates a single table or file.

Example: Spreadsheet programs
Word processing programs

Single User

The databases are normally for personal computers. Only one person can use the
database at a time.

Example: Access
Quicken

Multiple Users

Large mainframe computers use multiple user databases. These are more powerful,
expensive systems which allow large number of people to access the database at the
same time.

Example: Oracle, Sybase, IBM

3.3.2. Providing a User view



The DBMS is responsible for access to a database. Among the first steps in installing and using a
database involves telling the DBMS the logical and physical structure of the data and relationships

among the data in the database. This description of the entire database is known as a schema.
Using the schema the DBMS can find where to access the requested data in relation to another
piece of data.

A DBMS also acts as a user interface by providing a view of the database. A user view is the
portion of the database a user can access. For the purpose of giving different user views different
sub schemas have been developed. A subschema is a file that contains a description of a subset
of the database and identifies which users can view and modify the data items in that subset. As a schema is a description of the entire database, a subschema shows only some records and their
relationships in the database. Normally programmers and the managers need to access only a
subset of the database.

Example: A sales representative might need only data describing customers in his region and not
the sales data for the entire nation. So the subschema is the customer data in his region.
Number of different sub schemas can be created according to the user requirement. On the other hand sub schemas provide security as the users are typically allowed to view only certain parts of the database.

3.3.3. Creating and Modifying the Database

Schemas and sub schemas are entered into the DBMS through a data definition language (DDL).
A DDL is a collection of instructions and commands used to define and describe data and data
relationships in a specific database.

Another important step in creating a database is to establish a data dictionary. Data dictionary is
a detailed description of all data used in the database. It contains the name of the data item, other names to describe the item, the range of values that can be used, the type of data, the amount of storage needed for the item, a notation of the person responsible for updating it and the various users who can access it and a list of reports that use the data item.
Some uses of the data dictionary are as follows.

• Provide a standard definition of terms and data elements.
• Assist programmers in designing and writing programs
• Simplify database notification
With the help of a data dictionary the database approach achieve following advantages
• Reduce data redundancy
• Increase data reliability
• Faster program development
• Easier modification of data and information

3.3.4. Storing and Retrieving Data

When an application program needs data, it requests that data through the DBMS. The process of a user or application requesting data is first done through a logical access path, and subsequently through a physical access path.

Example: To calculate the total price of an invoice the application program needs the unit price for each item purchased.

• The application program requests this data from the DBMS using a logical path.
• The DBMS working in conjunction with various system software programs, access a
storage device.
• The DBMS goes to the storage device to retrieve the data; it follows a path to the physical
location where the prices of these items are stored. In this example the DBMS may go to a
disk drive to retrieve the unit price data for each item purchased.

When two or more people or programs attempt to access the same record in the same database
at the same time, there can be a problem. Concurrency control can be used to avoid this
potential problem. According to this when one program is using or updating a record, all other
application programs’ access to that record is controlled through a locking mechanism.

3.3.5. Manipulating and Generating Reports



Once a DBMS has been installed, employees and managers can use it to generate reports and
obtain important information. It is possible to perform queries and other database tasks by opening windows and clicking on the data or features according to the requirement.
Database commands can be used in a programming language also.

Example:
COBOL commands can be used in simple programs that will access or manipulate
certain pieces of data in the database. In general, the commands that are used to manipulate the
database are part of the Data Manipulation Language (DML). The DML, with the DBMS allows database users to access, modify and make queries about the data that contained in the database.

SQL (Structured Query Language) is the data manipulation language for relational databases.
Once a database has been set up and loaded with data, it can produce desired reports,
documents and other outputs. By the output control feature a database program allows to select the records and fields to appear in reports.

A database program can produce a wide variety of documents, reports and other outputs that can help organization achieve their goals. The most common reports select and organize data to
present summary information about some aspect of company operations.
Database programs can produce literally hundreds of documents and reports.

Example: Form letters with address labels
Payroll checks and reports
Invoices
Orders for materials and supplies
A variety of financial performance reports

3.3.6. Database Administration

A database administrator (DBA) is a highly skilled systems professional who directs or performs
all activities necessary to maintain a successful database environment.

The DBA’s responsibilities include

• designing, implementing and maintaining the database system and the DBMS.
• establishing policies and procedures pertaining to the management, security, maintenance
(performance), use of DBMS (availability of data).
• training employees in database management and use.
A DBA must need to,
• have a clear understanding of the fundamental business of the organization.
• be proficient in the use of selected database management system.
• stay abreast of emerging database technologies and new design tools and approaches.
The DBA works with,
• users to decide the content of the database
• programmers as they build applications to ensure that their programs comply with
database management system standards and conventions.

Data Administration: A high-level function that is responsible for the overall management of
data resources in an organization, including maintaining corporate-wide definitions and
standards

The data administrator,

• is responsible for defining and implementing consistent principles for a variety of data
issues.
• works with business managers to identify who should have read and/or update access
to certain databases and to selected attributes within those databases.
• can be a high level position reporting to top-level managers.

3.3.7. Popular database management systems

According to the latest generation of database management systems the end users can build their own database applications. Using these tools the end users address how to manage a mounting pile of information on employees, customers, inventory or sales.
Like other software products, there are a number of commercial (SQL Server, DB2, Oracle,
Informix) and open-source (PostgreSQL and mySQL) database systems.
MySQL : This is the most popular open-source database management system.

3.3.8 Special–purpose Database Systems

In addition to the popular database management systems, there are some specialized database
packages used for specific purposes (document management) or in specific industries
(manufacturing).

Example: Summation and Concordance – used in law firms to organize legal documents.

CaseMap – Organizes information about a case
LiveNote – Display and analyze transcripts
Geographical Information Systems (GIS), Computer Aided Design (CAD), Statistical Databases,
etc. are kind of special purpose database systems.

3.3.9. Selecting a Database Management System

The database administrator often selects the best database management system for an
organization. The process begins by analyzing database needs and characteristics. The
information needs of the organization affect the type of data that is collected and the type of
database management system that is used.

The important features that have to consider when selecting a Database Management System are as follows.

• Database size
Database size depends on the number of records or files in the database. The size determines
the overall storage requirement for the database.
To maintain good performance and reduce costs companies are trimming the size of their
databases.

• Number of concurrent users
Number of simultaneous users that can access the contents of the database is also an
important factor. A database that is used by a large workgroup must be able to support a
number of concurrent users. If it cannot, then the efficiency of the user requests will be
lowered. To provide flexibility to the database, highly scalable DBMS is preferred by the
companies. Scalability describes how well a database performs as the size of the database or
the number of concurrent users increase.

• Performance
How fast the database is able to update records can be the most important performance
criterion for some organizations.

Example: Credit and airline companies must have database systems that can immediately
update customer records and check credit or make a plane reservation in seconds not
minutes. However payroll applications can be process once a week or less frequently and do
not require immediate processing. When an application demands immediacy, it also demands
rapid recovery facilities in the event that the computer system shuts down temporarily. Other
performance considerations include the number of concurrent users that can be supported and the amount of memory that is required to execute the database management program.

• Integration
A key aspect of any database is its’ ability to be integrated with other applications and
databases. A key determinant here is what operating systems it can run under – such as
Linux, UNIX or Windows. Some companies use several databases for different applications at
different locations.

• Features
The features of the database management system can also make a big difference. Most
database programs come with security procedures, privacy protection and a variety of tools.

• The vendor
The size, reputation and financial stability of the vendor is also an important aspect. Some
organisations would rely on vendor support to handle operational aspects of the system.

• Cost
Cost of a database system varies from few thousands to millions of rupees based on the
number of users and functionalities. In addition to the initial cost of the database package,
annual or monthly maintenance or operating costs should be considered. Subsequent
additional hardware and software upgrade cost could come up to cope with future data
volumes and performance issues.

3.3.10 Using Databases with other Software

Database management systems are used combined with other software packages or internet.
A DBMS may work as a front-end application or a back-end application.
Front-end application directly interacts with people or users.

Example: Marketing researches Back-end applications interact with other applications or programs, it only indirectly interacts with people or users

Example: Finding the details of the database books available in the university library
through the library web site.

3.2. Data Modeling & the Relational Database Model

Organizing Data in a Database


In today’s businesses, there are so many data elements. Thus it is critical to keep data organized,
so, that it can be used effectively.

A database should be designed to store all data relevant to the business. It should provide quick
access to the data and easy modification. It must reflect the business processes of the
organization.

When building a database, an organization must consider the following questions:

• Content: What data should be collected and at what cost? • Access: What data should be provided to which users and when? • Logical structure: How should data be arranged so that it makes sense to a given user? • Physical organization: where should data be physically located?

3.2.1. Data Modeling

Data model is a tool that the database designers use to show the logical relationships among data.
When data modeling done at a level of entire organization it is known as enterprise data modeling.



E-R diagram is an example of a data model. It uses graphical symbols to show the organization of
and relationships between data. The original ER diagram used boxes to indicate data items or
entities and diamonds to show relationships between them. However ER diagrams have evolved
and many alternate diagrammatic techniques have emerged.
ER diagram is independent of a database model. It allows end-users to visualise the data
requirements that has been captured and how it could be accessed.

3.2.2. The Relational Database Model

The relational model describes data using a standard tabular format. In a database structured
according to the relational model, all data elements are placed in two dimensional tables, called
relations which are the logical equivalent of files. The tables in relational databases organize data
in rows and columns, simplifying data access and manipulation. It is easier for managers to
understand the relational model than other database models.

In the relational model, each row of a table represents a data entity, with the columns of the table

representing attributes. Each attribute can take on only certain values. The allowable values for
these attributes are called the domain. The domain for a particular attribute indicates what values

can be placed in each of the columns of the relational table.

Example: Domain for the attribute gender- Male or female, which are formed using characters.
With the wide acceptance of object-oriented concepts the need to manage data-objects raised.
Object-oriented database model and Object-relational database models emerged as a result, The
relational database model was quite adequate to deal with traditional business applications. Thus
the object-oriented database model was required only for special purposes. Modern relational
database management systems provide some object-oriented features thus they are based on
object-relational database model.

3.2.2.1 Manipulating Data





Once data has been placed into a relational database, users can make inquiries & analyze data.
To manipulate relational databases a set of relational operators have been defined. Basic data
manipulations using relational operators include selecting, projecting & joining. Selecting involves
eliminating rows according to certain criteria.
Projecting involves eliminating columns in a table.
Joining involves combining two or more tables.

Selecting Operation



Projection Operation



Join Operation



As long as the table share at least one common data attribute, the tables in a relational database
can be linked to provide useful information and reports. One of the primary advantages of a
relational database is that it allows tables to be linked. It is easier to control, more flexible, more
intuitive than other approaches because it organizes data in tables. The ability to link relational
tables also allows users to relate data in new ways without having to redefine complex
relationships. Because of the advantages of the relational model, many companies use it for large
corporate databases, such as those for marketing and accounting. The relational model can be
used with personal computers and mainframe systems.

3.2.2.2. Data Cleanup

The characteristics of valuable data include that the data is accurate, complete, economical,
flexible, relevant, simple, timely, verifiable, accessible and secure. The purpose of data cleanup is
to develop data with these characteristics. A database can contain errors. For example, a survey
of a thousand electric-utility companies found that customer databases were only 45.6 percent
accurate. The errors were caused by inaccurate data entry.
Formalized approaches, such as database normalization are often used to clean up problems with
data.

3.2.3. Brief Comparison of Database Models

Each of the database models is used by a variety of organizations and each has advantages &
disadvantages. The primary advantage of the hierarchical model is processing efficiency. A
hierarchical database system can take less time to manipulate than other database models, as thedata relationships are less complex. This is best when the data forms a natural hierarchy.
Hierarchical models are difficult to change and the databases can be difficult to install.
Network models are more flexible than hierarchical model in data organizing aspect. Network
models are difficult to develop and use because of the complexity of the data relationships.
The relational database model is the most widely used. It is easier to control, more flexible and
more initiative than the others because it organizes data in tables. The ability to link relational
tables also allows users to relate data in new ways without having to redefine complex
relationships. Many companies use it for large corporate databases such as marketing and
accounting.