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Part 3 Examination – Paper 3.4
Business Information Management                                                                                    June 2004 Answers

1   (a)   PEST
          Political, Economic, Social and Technological Analysis.
          In PEST analysis, various influences on an organisation are examined to help determine any threats to the strategy of an
          organisation and identify areas for expansion. In this particular scenario emphasis should be placed on internal issues.
          Political:
          Is there any current legislation that may affect the development of the video ordering via the internet system e.g. data
          protection legislation, European Union directive on e-mail spam. How will the development of the new system affect the
          internal politics? There is an apparent difference of opinion within the management structure on the best way to expand the
          business. What are the effects on the individual stores: threat of redundancy etc? A change in the management structure may
          be necessary. This move may create internal competition.
          Economic:
          Internet trading should support the overall business strategy of the organisation. Decisions have to be made whether the video
          ordering via the internet system will compete with, replace, or simply enhance supply of goods and services. Seemore Co
          have historically adopted a business strategy for expansion that involved opening more stores. Will the company require its
          current number of stores? If successful, the whole business could possibly be controlled, supported and run from one central
          base. This potentially provides a relatively cheaper method of marketing and advertising.
          Social:
          The social implications include: the required number of staff may be drastically reduced; this may have repercussions for the
          company. Redundancy payments, fear of impaired status. There are general ethical considerations to be considered in
          evaluating the human cost of implementation, such as changes in the working practices of remaining staff. Is there an
          adequate market for this type of service? The previous PMS was initially successful but interest has waned. There may be a
          requirement for an internal cultural change.
          Technological:
          Seemore’s have a good record in the development and implementation of IS/IT systems. They have recently implemented an
          extranet. They have successfully employed consultants and outsourcers. Can the new system integrate with the existing
          system? How many potential customers have the technology to use the new service?

    (b)   Suitable headings...........
          Proposal: To develop an information system that will enable customers to rent movies via the internet from the comfort of their
          own homes.
          Introduction
          The aim of the proposed system is to encourage customers to become members of Seemore’s online ordering club. The system
          will also promote the image of the company as a go ahead organisation that uses technology to provide a unique, easy to use
          service that will encourage customers to remain loyal to Seemore, providing customers with convenient, effective and efficient
          service.
          The proposed system will not affect the range of services provided. It will simply give the customers another option for using
          the existing service. It may well encourage new customers who are not currently using Seemore. Many potential customers
          may not have a Seemore store in their location. Under this new system, Seemore’s customer base need no longer be
          constrained to physical proximity. The web based system can promote the company’s services and if developed correctly can
          be used to market and advertise more economically than the current methods. It will act as a shop window for the entire
          business. The success of this proposed system might positively affect the performance of the existing stores.
          The resources required have not been precisely determined. Initial analysis suggests that the company can exploit its current
          systems knowledge and experience and develop a system that will integrate with its current operation.
          Seemore is experiencing fierce competition and must seek new ways of attracting customers while maintaining its customer
          base. Currently customers must become members of the company and visit a store to rent a movie. Seemore operates a
          successful reservation system. The company has previously developed a postal membership system (PMS). The proposed
          system is virtually a modern version of the PMS. The major difference is the exploitation of technology in providing such a
          service. There will no longer be a requirement to maintain a manual process for providing the membership system except for
          the transportation of the movies. The company has experience of maintaining a membership database and using similar
          technology in the form of an intranet and extranet. Seemore has always used technology to provide customer satisfaction and
          appropriate business support. Staff throughout the company has always embraced technological innovation.
          Some specialist hardware and software will be required, but overall the requirements will involve enhancing and adapting the
          current infrastructure as opposed to starting from a zero base. The company has successful experience of employing
          consultants and outsourcers to provide technological solutions. Similar technological solutions have been successfully
          exploited in numerous businesses. The company will not be pioneering technological development, but merely applying
          proven technology to the solution of a business problem.
          Alternatively the company could expand by opening new stores. This involves more risk as the current stores are in decline.




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          Conclusion
          There is a business requirement to halt the decline in the customer base and to gain a larger share of the market. The
          proposed system will enable the company to reach a wider market, which is not determined by location of stores. To be
          successful the system must offer a convenient method of supplying customers with an efficient and effective service. Overall
          the proposed system is a viable solution to the company’s current problem and meets the objectives of both the business and
          IS strategies.


2   (a)   The critical success factor (CSF) approach was initially developed by John Rockart. Rockart claimed there were four main
          sources for CSFs: The industry that the business is in, the company itself, its situation within the industry and environmental
          and temporal organisational factors. The CSF approach is based on the assumption that an organisation has certain goals
          and that specific factors are crucial in achieving these goals. These factors must be established and appropriate management
          controls agreed. By focusing attention on the critical success factors, management highlights those areas where it is crucial
          to have good management information. Information subsystems can then be developed to serve these critical factors. The
          main applicability of this approach is in the design of systems for the provision of control information to monitor the state of
          the critical success factors. CSF is an active approach to the design of management information systems, rather than the
          passive acceptance of reported information based on tradition and collected historical data. The CSF approach is therefore
          genuinely information rather than data-led. Its chief importance is the recognition that the purpose of providing information
          is to serve corporate goals.
          Each objective taken from the strategic plan may yield a set of CSFs. All CSFs should have known and reliable performance
          measures, often referred to as performance indicators. These performance indicators are used to monitor the success of each
          factor and will require specific information in order to perform their task. Some performance indicators will require hard facts,
          while others will require information of a softer nature such as opinions or perceptions. Many of these CSFs will require
          information systems support in tracking their performance. This leads to a valuable way of focusing the development of
          information systems, particularly the applications portfolio. The strength of using CSFs is that they provide an important link
          between the business strategy and the information systems strategy. The actual information system required will depend on
          the specific CSF and the level of management using that CSF.

    (b)   Only two CSFs required per level of management. These MAY include:
          Strategic:
          CSF: Obtain a larger share of the market by attracting new online customers.
          CSF: Maintain customer satisfaction.
          CSF: Increase profit.
          Tactical:
          CSF: Maintain sufficient stock to meet demand.
          CSF: Create loyal membership.
          CSF: Competitive pricing.
          Operational:
          CSF: Deliver within 24 hours of request.
          CSF: Track late returns.
          CSF: Quality control.

    (c)   Only one set required per level of management this MAY include:
          Strategic:
          CSF: Obtain a larger share of the market by attracting new online customers.
          PI: N% increase in market share.
          Compare new figures with historic data. Simulation models: trend analysis.
          CSF: Maintain customer satisfaction.
          PI: Decrease number of complaints by N%.
          Maintain customer service records. Analyse nature of complaints.
          CSF: Increase profit
          PI: % increase in profit applicable to new system.
          Financial ledgers. Increased profit against increased cost of system. ROI.




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          Tactical:
          CSF: Maintain sufficient stock to meet demand.
          PI: Reduce number of stock outs or reduce number of stock titles not requested by N%.
          Environmental information list of top movies. Stock recording system exception reporting facilities. Delivery data.
          CSF: Create loyal membership
          PI: % of members who renew annual contract
          Membership renewal details, payment records.
          CSF: Competitive pricing
          PI: Seemore’s price vs average price.
          Seemore’s prices, average prices for competitors.

          Operational:
          CSF: Deliver within 24 hours of request.
          PI: N% reduction in the number of late deliveries.
          Order processing system. Orders not processed within 24 hours of receipt.
          CSF: Track late returns
          PI: Number of movies returned late.
          Customer database listing return dates, exception reports on overdue returns.
          CSF: Quality control
          PI: Reduce number of returns for faulty goods by N%.
          Maintain history of faulty returns. Film record details.


3   (a)   The general appearance of the website is important. This is the shop window for the business. Attractive and easy to fill
          interactive forms can convert a potential rental customer into a confirmed customer. In the internet environment Seemore only
          has seconds in which to achieve this end, particularly in the case of casual browsers or surfers.
          Integration with all company systems (i.e. back office). It is important that Seemore links its existing back office systems with
          the new system. The system must link with the customer database, all of the standard financial systems and the stock
          recording system. As far as possible these links should be transparent. Transactions completed via the internet should be
          treated in the same way as transactions from any other form of input.
          Availability 24/7. The site must be available 24 hours a day, 7 days a week. Therefore downtime must be minimal. One of
          the major reasons for suggesting the implementation of the online ordering system is customer convenience. Therefore the
          system should be available permanently.
          Quick and easy updating, preferably by Seemore’s own staff. This characteristic is generally required by all businesses. In the
          case of Seemore’s it is essential. New releases in this business are occurring on a regular basis. Product supply and demand
          is extremely volatile in the movie rental business.
          Scope to interact with the customers. The website must permit the customers to interact with the system. There are several
          thousand titles available. The customer must be permitted to navigate through the system easily e.g. by category. Customers
          will not want to view all titles before making a choice.
          The system should maintain customer history. In this way the system can refer to the customer history, present titles and any
          special offers that are appropriate to the customer.
          The ability to advertise and promote business. The system should permit Seemore’s to actively promote the business. Lists
          of current top N movie rentals are displayed. Functions allowing customers to comment on movies and to offer these
          comments to potential customers, should be available along with details of special promotions.
          Security and trust. The system must instil security and trust within the customers. Fear that information they provide about
          themselves, particularly credit card details, can be stolen or used as a basis for fraud is one of the biggest barriers to customers
          completing transactions on the internet. In the case of Seemore’s once a customer is a registered member they could be given
          a membership ID. They will then only be required to enter the ID to complete transactions.

    (b)   Selection: The consumer now has the ability to search for movies via the internet in minutes. Previously similar searches may
          have taken days or weeks.
          Travelling time/resources. Rather than visit stores the consumer can now sit at home and make enquiries. This should also
          have an impact on traffic congestion and over-crowded shopping centres.
          Social interaction: Less face-to-face interaction with people. This may affect people in both positive and negative ways. If
          human contact is valued it will have a negative effect, on the other hand it may remove possible conflict.
          In the case of movie selection there is no requirement to physically view or try the commodity, prior to selection, as there may
          be with clothes etc.
          Permits better time management: Rather than being confined to business hours the consumer can shop twenty-four hours a
          day seven days of the week. This may free up time to pursue other activities.


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          If the website is correctly designed, enabling Seemore’s to maintain customer history, the customer may ‘feel’ they are getting
          a personal service.
          Globalisation has enabled consumers to trade in places and with companies they would never have considered or even known
          about. Renting videos is probably best suited to a local setting – as the transportation of videos to and from the customer can
          be cost effective.
          Range of choices is dramatically increased with product information at their fingertips.
          Speed of transaction: Purchasing goods or services can be instantaneous.
          Not everyone has the facilities to participate in e-trading and thus could be disadvantaged.
          Security and trust are still major concerns of potential internet customers. People are still reluctant to trust online businesses
          and fear of fraudulent use of credit card details and other personal details is a major factor in deterring them from trading on
          the internet.
          There is a danger of losing personal contact. The customer requires reassurance regarding quality of service, return of faulty
          movies, refunds and delivery dates.


4   (a)   The rich picture is normally constructed in the investigation stage of Checkland’s Soft Systems Methodology (SSM).
          A rich picture is a cartoon-like pictorial representation of a situation/system. The picture should show all the complexities of
          the current system. It should contain factual data on, for instance, departments, individuals and channels of communication.
          It should also contain ‘soft’ information such as people’s views and perceptions relating to the system. The rich picture can
          enable an analyst to become familiar with a problem situation. In particular the analyst is attempting to portray the structure,
          key processes, and the interaction between process and structure. At this early stage it is important that the analyst does not
          impose a systems structure on the problem situation. The rich picture identifies the primary tasks and issues and attempts to
          view these from various perspectives. A rich picture can often be used as a starting point for discussions between different
          stakeholders in determining the current situation or at least provide the foundations for a common perception of the situation.
          These rich pictures can be shown to a variety of stakeholders, including users and management to help them see where there
          are dysfunctional aspects within the system. It may help to determine whether the major problems are procedural or human
          based. The rich picture can help owners of a problem to identify the fundamentals of the situation. An analysis of the rich
          picture will help in the process of moving from ‘thinking about the problem situation’ to ‘thinking about what can be done
          about the problem situation’.




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5   (a)   The five forces model can help identify areas of a business where information systems can supply a strategic advantage.
          Modern technology and information systems are increasingly being exploited to develop a strategy that yields competitive
          advantage for an organisation. The model operates at the level of an organisation as opposed to an industry level in aiding in
          the analysis of an organisation with respect to its relative position within an industry. One way in which an organisation can
          gain competitive advantage is to change the structure of the industry within which it operates. The five forces model views
          an organisation operating in an industry as being subject to five main competitive forces. The manner in which an
          organisation responds to these forces may determine its success or failure.
          The model provides a framework where an organisation can analyse its information systems to decide where best they will
          yield competitive advantage. An organisation can assess where IS can influence the relative power of the five forces. The
          model should stimulate debate and encourage strategic management to ask such questions as, ‘can IS help to build barriers
          to entry?’, ‘can IS change the balance of power with suppliers and/or customers?’ The advantages may be in defending the
          organisation against forces, or by attacking and influencing them in its favour.
          Management can use the model to determine which of the forces poses a threat or an opportunity to the future of the
          business. These threats and opportunities can be ranked in terms of intensity, immediacy and economy and thus an overall
          IS strategy can be developed. Information systems’ strategic role can be assessed by its abilities in dealing with the five
          competitive forces.

    (b)   Only three forces required.
          (i) Potential entrants: When an industry is financially attractive, other organisations often seek to enter the market.
               Information systems can be used to defend a position or to penetrate the barriers that others have built around a specific
               industry. Therefore information systems can have two roles, defensive or offensive. In the defensive role information
               systems can create barriers that new entrants into the market must overcome. IS can increase the economies of scale
               by using computer-controlled production methods thus requiring a huge investment by other parties wishing to enter the
               market. Another defensive use of IS is to lock suppliers and customers into a supply chain. The harder the service is to
               match, the higher the barrier is for new entrants. The offensive role of IS is breaking down the barriers of entry into
               certain markets. An example is the use of telephone banking which reduces the need to establish a physical bank branch
               network. Automated teller machines (ATMs) have given banks an opportunity to provide services to customers in
               locations where previously only a limited presence was possible such as supermarkets and airports.
          (ii)   Competitive rivalry: The intensity of rivalry between competitors is usually greater in mature or declining industries.
                 Important factors may include industry growth, fixed assets/value-added, intermittent over-capacity, etc. This rivalry is
                 between organisations making similar products, or offering the same services to the same market. There are several
                 approaches to this situation that can be adopted and supported by IS. Cost-leadership can be exploited by IS where just
                 in time (JIT) systems are used to reduce costs or by reducing the number of administrative personnel required to deliver
                 the same service. Differentiation is an alternative approach. An example of this, often cited, was the move into
                 publishing encyclopaedias in electronic form where old established companies found themselves being forced into
                 producing their products in electronic forms such as CD-ROM.
                 An alternative approach in this area is to use IS to support collaborative ventures by changing the basis of competition
                 through setting up alliances with complementary organisations to lower costs. Banks often share the same ATMs.
          (iii) Threats from substitutes: Substitute products or services are those that are within the industry, but are differentiated in
                some way. When suppliers have alienated their customers they increase the readiness of those customers to use an
                alternative product whenever it becomes available. If the price/performance balance of product shifts dramatically then
                that will increase the threat of a substitute being used. A classic example is the replacement of typewriters with the
                introduction of word processors.
                 E-commerce may be viewed as a substitute for a high street shop. IS is the basis for new leisure activities e.g. the
                 computer games market. IT has been used to imitate existing goods e.g. electronic keyboards imitating pianos and
                 organs.
                 Technology may be used to provide differentiated products swiftly by the use of computer-aided design and computer-
                 aided manufacturing (CAD/CAM), for example personal specifications for a car or kitchen. In this case the business
                 produces the ‘substitute’ product itself.
          (iv) Buyers’ bargaining power: Buyers (customers) can exert power over a business by purchasing the product or service
               from another provider. One way in which a business can try to deter a customer from transferring their business is by
               introducing switching costs. These costs may be financial or other. For example, with electronic banking once a customer
               has established a familiarity with one system, gaining advantage from it, there will be a learning disincentive to switch
               to another. There are several examples where organisations have supplied terminals and the supporting facilities to
               permit customers to order directly from them. These allow the speedy order/delivery of supplies using less skilled
               personnel compared with more expensive purchase agents.
                 Another form of attempting to lock customers in is the development of Customer Relationship Management (CRM)
                 systems. Analysis techniques and sophisticated software tools have been developed to exploit information kept in
                 databases of customer details and activity. CRM refines this information into customer profiling, developing categories
                 of customer and attempting to predict their future behaviour. This information permits businesses to target certain
                 customers in terms of direct marketing and forms of incentives such as loyalty schemes. Many airlines have schemes
                 such as frequent flyers and air miles as incentives.


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          (v)    Suppliers’ bargaining power: The suppliers provide the necessary inputs of raw materials, components or information
                 for the organisations’ ability to supply their goods or services. These suppliers can exert their bargaining power on an
                 organisation by pushing up their prices or taking their supplies elsewhere to a competitor business in the same or similar
                 industry. It is in the interests of an organisation to make rival businesses who would purchase the supplier’s goods seem
                 less attractive to the supplier. The bargaining power of suppliers can be eroded in several ways using IS. One way is to
                 provide a purchases database that enables easy scanning of prices from a number of suppliers. Another way is sharing
                 the supplier’s power. An example is using CAD/CAM systems to design components in tandem with suppliers. Such a
                 relationship might be developed with a few key suppliers. The supplier and the organisation may both benefit from
                 performance improvement. The implementation of electronic data interchange (EDI) systems is another way of
                 establishing good relations with suppliers that benefit both parties. The benefits include: reduced delivery times, reduced
                 paperwork and associated labour costs and increased accuracy of information. EDI can also be an important component
                 of a just in time (JIT) strategy.


6   (a)   (i)    Timeliness: Receiving information as required to make decisions. The MIS will be providing information on demand. As
                 the system is currently only accessing information on a single client, the response should be instantaneous. The ES will
                 probably have to analyse a very large knowledge base and process this knowledge via many rules. It may take seconds
                 or minutes to arrive at an appropriate response.
          (ii)   Relevance/volume: The MIS records may contain a large amount of client information, which is irrelevant. Modifying or
                 constructing specific conditions in the query may eliminate this. Searching and sorting on specific conditions may lead
                 to highly relevant information being obtained. The ES should provide information specific to the circumstances of the
                 query. It is possible that certain combinations of conditions may give rise to a number of relevant results. This is often
                 overcome by sorting the possible solutions in order of probability.
          (iii) Accuracy/completeness: The MIS will produce accurate information, depending on the accuracy and quality of the
                information input. Completeness also depends on the quality of information input by the application. The ES will produce
                information that is subjective and based on the application of best financial practice. Accuracy is not a strong feature of
                ES. The completeness depends on the frequency at which the latest knowledge is updated and rules modified to
                incorporate the relevant changes.
          (iv) User confidence: Subject to the points made above, the users should be confident about the information provided. The
                information should easily be checked by referring to original documents or to the people supplying the information. ES
                systems that provide information that users believe to be plausible instil user confidence. However if the ES provides a
                range of answers that the users ‘know’ is incorrect, or provides answers that are viewed as absurd, then this will
                undermine the confidence of the users. It will draw attention to the fact that the system is not really capable of judgement
                in the way a human being is. There is a notion of trusting the computer, which varies amongst many user populations.

    (b)   The major advantages:
          The management information system contains purely factual information such as the personal details of the clients, their
          financial status and details of current investments. Individual records are updated whenever the client supplies new
          information. The expert system will use some of this information and collate it with a possible change in circumstances and
          information contained in the knowledge base that will include information on the latest financial products or details on the
          latest investment opportunities. Using all this information the expert system should provide appropriate suggestions for future
          investment by the client. For example the expert system may offer suggestions such as when a client’s portfolio has a certain
          spread of investments in specific sectors and they wish to invest more in ‘safe’ commodities. Then the best solution is to
          advise investment in ‘X’ rather than ‘Y’.
          The expert system is permanent, whereas human experts are not. The CEO has concerns about maintaining the number of
          financial consultants in the company. A knowledge engineer, who studies a human expert or experts at work, determines the
          rules and frames and then programs this information into the expert system.
          The knowledge in the expert system may be the sum of several experts in the particular area. Thus it may be more reliable
          than the knowledge of an individual expert. Currently a single financial consultant provides the advice to clients.
          Expert systems are consistent. Often human experts can be inconsistent with their answers when faced with the similar
          circumstances at different times. Clients with similar circumstances may be given different advice by the same financial
          consultant or by different financial consultants.
          Expert systems can be documented giving rise to audit trails as the recommendations and the relevant information that led
          to the recommendation can be recorded. It is not stated in the scenario what records are kept concerning advice given.
          The speed of response is much faster. Currently the financial adviser can take several days to respond to clients. An expert
          system should reduce this response time dramatically.




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The major disadvantages:
Expert systems can only be used in areas where general rules and frames can be applied to the knowledge in that area. A
client may wish to sell shares to raise money for personal reasons, although the expert knowledge currently may suggest it is
a bad time to sell shares. A human consultant may offer advice based on personal circumstances that are difficult to program
in a rule-based manner.
The expert system is wholly dependent on the latest information contained in the knowledge base. A human may react to
knowledge instantaneously or to knowledge not yet in the public domain. A financial consultant may be privy to information
that a system may not have.
People can be more creative and/or intuitive. They are able to view a wider perspective and take into account factors that may
be considered outside the area of the expert. Personal relationships between clients and financial consultants are very difficult
to emulate.
The time/cost of developing, implementing and maintaining an expert system can be very high. As much of the knowledge
and expertise becomes intuitive, the knowledge engineer must spend a long time eliciting all the rules and possible
permutations. Permanent updating may be required. The financial sector is constantly changing and would require an
immediate method of updating the knowledge base and applying new rules.




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Part 3 Examination – Paper 3.4
Business Information Management                                                                          June 2004 Marking Scheme

In many questions suggested model answers were given to open ended questions. Credit will be given for any valid alternative responses
within the limits of the marking scheme.

1    (a)   Award up to 2 marks for each element, 4 elements, max of 8 marks.

     (b)   Award up to 2 marks for introduction. Award up to 2 marks for each valid point in the body of the report, max 8 marks. Award
           up to 2 marks for conclusion.

     Total marks 20



2    (a)   Award up to 2 marks for each valid point, max 8 marks.

     (b)   Award 1 mark for each CSF in the correct level of management. 3 * 2 = 6 marks.

     (c)   Award 1 mark for each PI and 1 mark for information required. 3 * 2 = 6 marks.

     Total marks 20



3    (a)   Award up to 1 mark for each valid characteristic. Max 5 marks. Award up to 5 for relating them to the scenario.
           Max 10 marks.

     (b)   Award up to 2 marks for each advantage and disadvantage. Up to a max of 5 marks in each category. Max 10 marks.

     Total marks 20



4    (a)   Award up to 2 marks for each valid point. Max 6 marks.

     (b)   Award 1/2 mark for each element correctly identified: actor max 4 marks, concern max 4 marks and relationship max 4 marks.
           Award up to 2 marks for general layout/construction of a rich picture. Max 14 marks.

     Total marks 20



5    (a)   Award up to 2 marks for each valid point. Max 8 marks.

     (b)   Award up to 2 marks for each description of a force and up to 2 marks for identifying appropriate supporting information
           systems. 4 * 3 = 12 marks.

     Total marks 20



6    (a)   Award up to 2 marks for identifying each difference. 4 * 2 = 8 marks.

     (b)   Award 1 mark for each advantage up to a max of 3 marks and award up to 3 marks for relating them to the scenario. Award
           1 mark for each disadvantage up to a max of 3 marks and award up to 3 marks for relating them to the scenario.
           2 * 6 = 12 marks.

     Total marks 20




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