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National Institute of Business Management

Chennai - 020


Subject : Information Technology

Attend any 4 questions. Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

1. Explain the emerging technological issues facing management that can

be effectively managed by information systems in organizations.
2. How have the trends in information technology influences management?

3. How can knowledge become a competitive resource for the firm?Explain.

4. How can information technology contribute to unstructured decisions?


Decision Making Concepts

Much of managerial work is decision making. Managers often

have to consider large amounts of data, synthesis from them only
relevant information and make decisions that will best benefit the
organization. Hence, information should be conceived and able to
prove their value as information system should support and assist
effective decision-making.
Because of the importance of high-quality decision making,
firms are investing heavily in decision making and intelligence
systems, which consist of technologies and applications designed

to help users make better decisions. When we think of intelligence

as applied to humans, we typically think of peoples ability to
combine learned knowledge with new information and change
their behavior in such a way that they succeed at their task or
adapt to a new situation.
The decision-making process is a complex process in the
higher hierarchy of management. The complexity is the result of
many factors, such as the interrelationship among the experts or
decision makers, a job responsibility, a question of feasibility, the
codes of morals and ethics, and a probable impact on business.
The personal values of the decision maker play a major role in
decision-making. A decision otherwise being very sound on the
business principle and economic rationality may be rejected on
the basis of the personal values, which are defeated if such a
decision is implemented. The culture, the discipline and the
individual's commitment to goals will decide the process and
success of the decision.
Whatever may be the situation, if one analyses the factors
underlying the decision-making process, it would be observed
that there are common characteristics in each of them. There is a
definite method of arriving at a decision; And it can be put in the
form of decision process model.
The decision-making process requires creativity, imagination
and a deep understanding of human behavior. The process covers
a number of tangible and intangible factors affecting the decisionmaking process. It also requires a foresight to predict the post
decision implications and a willingness to face those implications.
All decisions solve a "problem" but over a period of time they give
rise to a number of other problems.

Types of Decisions
Structured decisions follow a set of rules. This means that:
decisions can be taken objectively there is a clearly defined
method of solving the problem generally, there is a right
answer. There are a number of operational research techniques
to help reach structured decisions. These include linear
programming and network analysis.

Unstructured decisions are normally subjective and do not

follow any definite set of rules. (Efforts are made to turn
unstructured decisions into structured ones by setting hardand-fast criteria.).
Semi-structured decisions lie between structured and
unstructured decisions. Some parts of the decision making
process are programmable (structured), others not.

There are different types of decision-making at different

levels; senior executives face many unstructured decision
situations, such as establishing the firm's five or ten-year goals.
Middle management faces more structured decision scenarios but
their decisions may include unstructured components.

Operational management and rank-and-file employees tend to

make more structured decisions.
Table 1: Examples of Decisions Commonly Made Within

Other types of decisions are:Analytical decisions: An analytical decision is one that is based
on an analysis of information that has been systematically
acquired and evaluated. Much of the information will be

Heuristic decisions: These solutions will usually depend on

trial and error. Common sense, past experience and general
guidelines may be used to help, but the decision maker is not
applying any techniques that will guarantee the correct answer
first time.
Generally, not all decisions have major consequences or even
require a lot of thought. For example, before we come to class, we
make simple and habitual decisions such as what to wear, what to
eat, and which route to take as we go to and from home and
school. We probably do not spend much time on these mundane
decisions. These types of straightforward decisions are termed
programmed decisions, or decisions that occur frequently
enough that we develop an automated response to them. The
automated response we use to make these decisions is called the
decision rule. For example, many restaurants face customer
complaints as a routine part of doing business. Because
complaints are a recurring problem, responding to them may
become a programmed decision. The restaurant might enact a
policy stating that every time they receive a valid customer
complaint, the customer should receive a free dessert, which
represents a decision rule.
On the other hand, unique and important decisions require
conscious thinking, information gathering, and careful
consideration of alternatives. These are called nonprogrammed decisions. For example, in 2007 McDonalds
Corporation became aware of the need to respond to growing
customer concerns regarding the unhealthy aspects (high in fat
and calories) of the food they sell. This is a non-programmed
decision, because for several decades, customers of fast-food
restaurants were more concerned with the taste and price of the
food, rather than its healthiness. In response to this problem,
McDonalds decided to offer healthier alternatives such as the
choice to substitute French fries in Happy Meals with apple slices
and later they banned the use of trans fat at their restaurants.
Decision makers have to choose among the policies that
contain various mixes of conflicting goals. This is especially
evident in the strategic level. As a result, decision-making
systems are useful to assist this situation. The decision making
process can be broken down into five stages, namely:

1. Trigger: (find what to fix): Find or recognize a problem, need,

or opportunity (also called the diagnostic phase of decision
making). This phase involves detecting and interpreting signs
that indicate a situation which needs our attention. These
signs come in many forms: consistent customer requests for
new-product features, the threat of new competition, declining
sales, rising costs, an offer from a company to handle our
distribution needs, and so on.
2. Information gathering: Identifies preliminary information
needs; obtain information.
3. Design: (find fixes): Consider possible ways of solving the
problem, filling the need, or taking advantage of the
opportunity. In this phase, we develop all the possible solutions
we can.
4. Choice: (pick a fix): Examine and weigh the merits of each
solution, estimate the consequences of each, and choose the
best one (which may be to do nothing at all). The best
solution may depend on such factors as cost, ease of
implementation, staffing requirements, and timing. This is the
prescriptive phase of decision makingits the stage at which a
course of action is prescribed.
5. Evaluation: (apply the fix): Carry out the chosen solution,
monitor the results, and make adjustments as necessary.
Simply implementing a solution is seldom enough. Our chosen
solution will always need fine tuning, especially for complex
problems or changing environments.

This five-phase process is not necessarily linear: Well often find it

useful or necessary to cycle back to an earlier phase. When
choosing an alternative in the choice phase, for example, we
might become aware of another possible solution. Then we would
go back to the design phase, include the newly found solution,
return to the choice phase, and compare the new solution to the
others we generated.

Figure : Decision making process phases

Information Technology In Unstructured Decision Making:

Uma (2009) has stated that a Decision Support System is an integrated set of computer
tools allowing a decision
maker to interact directly with computer to retrieve information useful in making semi
structured and unstructured decisions.
Decision Support Systems:
Decision Support Systems

- Focus on providing information interactively to support specific types

of decisions by individual managers.

- DSS help managers solve typical semi-structured and unstructured


Objective of DSS

- Provide information and decision support techniques needed to solve

specific problems or pursue specific opportunities.

Decision support systems are a major category of management information systems. They are computer-based
information systems that provide interactive information support to managers during the decision-making process.
Decision support systems use:

Analytical models


Specialized databases


Decision makers own insights and judgements

4. Interactive, computer-based modelling processes to support the making of semistructured and unstructured
decisions by individual managers.
DSS Characteristics

Decision support system has a number of characteristics,

which include following:
- DSS provide support for decision maker mainly in semi structured and
unstructured situations by
bringing together human judgment and computerized information. Such problem can not be
solved (can
not be solved conveniently) by other computerized systems, such as MIS.
- DSS attempts to improve the effectiveness of decision-making (accuracy,
timeliness, quality) rather than
its efficiency (cost of making the decision, including the charges for computer time) (Davis &

- DSS provides support to individuals as well as to groups. Many organizational
problems involve group
decision-making. The less structured problem frequently requires the involvement of several
from different departments and organizational levels.
- Advanced DSS are equipped by a knowledge component, which enables the efficient
and effective
solution of very difficult problems (Turban & Aronson, 1998).
- A DSS can handle large amount of data for instance advanced database management
package have
allowed decision makers, to search database for information. A DSS can also solve problems
where a
small amount of data is required.
- A DSS can be developed using a modular approach. With this approach, separate
functions of the DSS
are placed in separate modules - program or subroutines-allowing efficient testing and
implement of
systems. It also allows various modules to be used for multiple purposes in different
- A DSS has a graphical orientation. It has often been said that a picture is worth a
thousand words.
Todays decision support systems can help managers make attractive, informative graphical
presentations on computer screens and on printed documents. Many of todays software
packages can
produce line drawing, pie chart, trend line and more. This graphical orientation can help
decision makers
a better understanding of the true situation in a given market place.
- A DSS support optimization and heuristic approach. For smaller problems, DSS has
the ability to find
the best (optimal) situation. For more complex problems, heuristics are used. With heuristic,
computer system can determine a very good-but not necessarily the best- solution. This
approach gives
the decision maker a great deal of flexibility in getting computer support for decision making
- A DSS can perform what if" and goal seeking analysis. What if analysis is
the process of
making hypothetical change to problem data and observing impact of the results. In with
what if
analysis, a manager can make changes to problem data (the number of automobiles for
next month) and
immediately see the impact on the requirement for subassemblies (engines, windows, etc.)
(Stair, 1992).
The role of the DSS in the process of decision making

DSS are designed to be ad-hoc, quick-response systems that are initiated and controlled by managerial end users.
Decision support systems are thus able to directly support the specific types of decisions and the personal decisionmaking styles and needs of individual managers.

DSS Models and Software:

Unlike management information systems, decision support systems rely on model bases as well as databases as vital
system resources. A DSS model base is a software component that consists of models used in computational and
analytical routines that mathematically express relationships among variables.


Examples of DSS Applications:

Decisions support systems are used for a variety of applications in both business and government.

Institutional DSS - DSS which are developed to solve large or complex problems that continually face an

Ad-hoc DSS - DSS which are quickly developed to solve smaller or less complex problems. They are also
used to solve one-time situations.

Industry DSS - DSS which are developed to solve problems faced by a specific industry.

Functional DSS - DSS which are developed to solve problems in a specific functional area.

Examples of DSS applications:


DSS at American Airlines


DSS at PepsiCo


GIS in Business (Geographic information systems)


Using Decision Support Systems:

Using a decision support system involves an interactive analytical modelling process. Typically, a manager uses a
DSS software package at his workstation to make inquires, responses and to issue commands. This differs from the
demand responses of information reporting systems, since managers are not demanding prespecified information.
Rather, they are exploring possible alternatives. They do not have to specify their information needs in advance.
Instead they use the DSS to find the information they need to help them make a decision.

Using a DSS involves four basic types of analytical modelling activities:

What-If Analysis: - In what-if-analysis, an end user makes changes to variables, or

among variables, and observes the resulting changes in the values of other variables.

Sensitivity Analysis: - Is a special case of what-if analysis. Typically, the value of only
one variable is
changed repeatedly, and the resulting changes on other variables are
observed. So sensitivity analysis
is really a case of what-if analysis involving repeated
changes to only one variable at a time. Typically,
sensitivity analysis is used when
decision makers are uncertain about the assumptions made in
estimating the value of
certain key variables.

Goal Seeking Analysis: - Reverses the direction of the analysis done in what-if and
analysis. Instead of observing how changes in a variable affect other variables,
goal seeking analysis sets
a target value for a variable and then repeatedly changes other
variables until the target value is achieved.


Optimization Analysis: - Is a more complex extension of goal seeking analysis.

Instead of setting
a specific target value for a variable, the goal is to find the optimum
value for one or more target
variables, given certain constraints. Then one or more other
variables are changed repeatedly, subject to
the specified constraints, until the best
values for the target variables are discovered.
Executive Information Systems:

Executive information systems (EIS) are information systems that combine many of the features of information
reporting systems and decision support systems. EIS focus on meeting the strategic information needs of top
management. The goal of EIS is to provide top management with immediate and easy access to information about a
firm's critical success factors (CSFs), that is, key factors that are critical to accomplishing the organizations strategic

Rational for EIS:

Top executives get the information they need from many resources. These include, letters, memos, periodicals, and
reports produced manually or by computer systems. Other major sources of executive information are meetings,
telephone calls, and social activities. Thus, much of a top executive's information comes from noncomputer sources.
Computer-generated information has not played a major role in meeting many top executives' information needs.
EIS were developed to meet the need that MIS was not meeting.


An Overview of Artificial Intelligence:

Business and other organizations are significantly increasing their attempts to assist the human intelligence and
productivity of their knowledge workers with artificial intelligence tools and techniques. AI includes natural
languages, industrial robots, expert systems, and intelligent agents.

Artificial intelligence (AI) is a science and technology based on disciplines such as computer science, biology,
psychology, linguistics, mathematics, and engineering. The goal of AI is to develop computers that can think, as
well as see, hear, walk, talk, and feel. A major thrust of AI is the development of computer functions normally
associated with human intelligence, such as reasoning, learning, and problem solving.

The Domains of Artificial Intelligence: [Figure 11-17]

AI application can be grouped into three major areas:

Cognitive Science - This area of artificial intelligence is based on research in biology,

neurology, psychology, mathematics, and many allied disciplines. It focuses on researching how the human
brain works and how humans think and learn. The results of such research
in human information processing are the basis for the development of a variety of computer-based applications in
artificial intelligence.
Applications in the cognitive science area of AI include:

Expert Systems - A computer-based information system that uses its knowledge about a specific complex
application area to act as an expert consultant to users. The system consists of a knowledge base and software
modules that perform inferences on the knowledge, and communicates answers to a users questions.

Knowledge-Based Systems - An information system which adds a knowledge-base and some reasoning
capability to the database and other components found in other types of computer-based information systems.

Adaptive Learning Systems - An information system that can modify its behaviour based on information
acquired as it operates.

Fuzzy Logic Systems - Computer-based systems that can process data that are incomplete or only partially
correct. Such systems can solve unstructured problems with incomplete knowledge by developing approximate
inferences and answers.

Neural Network - software can learn by processing sample problems and their solutions. As neural nets start to
recognize patterns, they can begin to program themselves to solve such problems on their own.

Genetic Algorithm - software uses Darwinian (survival of the fittest), randomizing, and other mathematical
functions to simulate evolutionary processes that can generate increasingly better solutions to problems.

Intelligent Agents - Use expert system and other AI technologies to serve as software surrogates for a variety of
end user applications.

Robotics: - AI, engineering, and physiology are the basic disciplines of robotics. This technology produces
robot machines with computer intelligence and computer-controlled, humanlike physical capabilities.
Robotics applications include:
1. Visual perception (sight)
2. Tactility (touch)
3. Dexterity (skill in handling and manipulation)
4. Locomotion (ability to move over any terrain)
5. Navigation (properly find ones way to a destination)

Natural Interface: - The development of natural interfaces is considered a major area of AI applications and is
essential to the natural use of computers by humans. For example, the development of natural languages and
speech recognition are major thrusts of this area. Being able to talk to computers and robots in conversational
human languages and have then understand us is the goal of AI researchers. This application area involves
research and development in linguistics, psychology, computer science, and other disciplines. Efforts in this
area include:

Natural Languages - A programming language that is very close to human language. Also, called very high-level

Multisensory Interfaces - The ability of computer systems to recognize a variety of human body movement which
allows them to operate.

Speech Recognition - The ability of a computer system to recognizes speech patterns, and to operate using these

Virtual Reality - The use of multisensory human/computer interfaces that enables human users to experience
computer-simulated objects, entities, spaces, and Aworlds@ as if they actually existed.


Neural networks:

Neural networks are computing systems modelled on the human brain's mesh-like network of interconnected
processing elements, called neurons. Of course, neural networks are much simpler than the human brain (estimated
to have more than 100 billion neuron brain cells). Like the brain, however, such networks can process many pieces
of information simultaneously and can learn to recognize patterns and programs themselves to solve related
problems on their own.

Neural networks can be implemented on microcomputers and other computer systems via software packages which
simulate the activities of a neural network of many processing elements. Specialized neural network coprocessor
circuit boards are also available. Special-purpose neural net microprocessor chips are used in some application

Uses include:
1. Military weapons systems
2. Voice recognition
3. Check signature verification
4. Manufacturing quality control
5. Image processing
6. Credit risk assessment

7. Investment forecasting

Neural Nets at Infoseek:

Infoseek has developed a targeted marketing service that more closely targets advertising on its Internet search
engine to users interests by keeping track of every search that a user makes. The service uses neural network
technology to observe all the searches users run every time they visit the InfoSeek search engine. The neural net
software then calculates a single numeric value, or vector, that describes users interests. InfoSeek uses that
information to match users to the online ads it sells to advertisers on its Web search pages.

Data Mining a Bank of America:

The Bank of America is using neural net technology in data mining software to develop more accuracy in marketing
and pricing financial products, such as home equity loans.


Fuzzy Logic Systems

Fuzzy Logic is a method of reasoning that resembles human reasoning since it allows for approximate values and
inferences (fuzzy logic) and incomplete or ambiguous data (fuzzy data) instead of relying only on crisp data, such as
binary (yes/no) choices.

Fuzzy Logic in Business:

An example of the use of fuzzy logic in business is to analyse the credit risk of a business.


Genetic Algorithms:

The use of genetic algorithms is a growing application of artificial intelligence. Genetic algorithm software uses
Darwinian (survival of the fittest), randomizing, and other mathematical functions to simulate an evolutionary
process that can yield increasingly better solutions to a problem. Genetic algorithms were first used to simulate

millions of years in biological, geological, and ecosystem evolution in just a few minutes on a computer. Now
genetic algorithm software is being used to model a variety of scientific, technical, and business processes.

Genetic algorithms are especially useful for situations in which thousands of solutions are possible and must be
evaluated to produce an optimal solution. Genetic algorithm software uses sets of mathematical process rules
(algorithms) that specify how combinations of process components or steps are to be formed.

Virtual Reality (VR)

Virtual reality (VR) is computer-simulated reality. VR is the use of multisensory human/computer interfaces that
enable human users to experience computer-simulated objects, entities, spaces, and "worlds" as if they actually
existed (also called cyberspace and artificial reality).

VR Applications:

1. Computer-aided design (CAD)

2. Medical diagnostics and treatment
3. Scientific experimentation in many physical and biological sciences
4. Flight simulation for training pilots and astronauts

Product demonstrations
Employee training
Entertainment (3-D video games)

VR Limitations:

The use of virtual reality seems limited only by the performance and cost of its technology. For example, some VR
users develop:

Cybersickness - eye strain, motion sickness, performance problems

Cost of VR is quite expensive


Intelligent Agents [Figure 11-26]

An intelligent agent (also called intelligent assistants/wizards) is a software surrogate for an end user or a process
that fulfills a stated need or activity. An intelligent agent uses a built-in and learned knowledge base about a person
or process to make decisions and accomplish tasks in a way that fulfills the intentions of a user. One of the most
well-known uses of intelligent agents are the Wizards found in Microsoft Word, Excel, Access, and Powerpoint.

The use of intelligent agents is expected to grow rapidly as a way to for users to:
1. Simplify software use.
2. Access network resources.
3. Information screening and retrieval.


Expert Systems

One of the most practical and widely implemented application of artificial intelligence in business is the
development of expert systems and other knowledge-based information systems.

Knowledge-based information system - adds a knowledge base to the major components found in other types of
computer-based information systems.

Expert System - A computer-based information system that uses its knowledge about a specific complex application
area to act as an expert consultant to users. ESs provide answers to questions in a very specific problem area by
making humanlike inferences about knowledge contained in a specialized knowledge base. They must also be able
to explain their reasoning process and conclusions to a user.

Expert systems can be used for either operational or management information systems, depending on whether they
are giving expert advice to control operational processes or to help managerial end users make decisions.

Components of Expert Systems: [Figure 11-29]

The components of an expert system include a knowledge base and software modules that perform inferences on the
knowledge and communicate answers to a users question. The interrelated components of an expert system

Knowledge base: - the knowledge base of an ES system contains:

1. Facts about a specific subject area
2. Heuristics (rule of thumb) that express the reasoning procedures of an expert on the subject.

Software resources: - An ES software package contains:

1. Inference engine that processes the knowledge related to a specific problem.

User interface program that communicates with end users.


Explanation program to explain the reasoning process to the user.

4. Software tools for developing expert systems include knowledge acquisition programs and expert system

Hardware resources: - These include:

1. Stand alone microcomputer systems
2. Microcomputer workstations and terminals connected to minicomputers or mainframes in a
telecommunications network.

Special-purpose computers.

People resources: - People resources include:

1. Knowledge engineers

End users

Examples of Expert Systems: [Figure 11-32]

Using an expert system involves an interactive computer-based session, in which:


The solution to a problem is explored with the expert-system acting as a consultant.

2. Expert system asks questions of the user, searches its knowledge base for facts and rules or other knowledge.

Explains its reasoning process when asked

4. Gives expert advice to the user in the subject area being explored. Examples include: credit management,
customer service, and productivity management.

Expert System Applications:

Expert systems typically accomplish one or more generic uses. Seven activities include:
1. Decision Management
2. Maintenance/Scheduling
3. Design/configuration
4. Process monitoring/control
5. Diagnostic Troubleshooting
6. Intelligent text/documentation
7. Selection/classification

Advertising Strategy
ADCAD (Advertising Communications Approach Designer) is an expert system that assists advertising agencies in:

Setting marketing and communications objectives

Selecting creative strategies
Identifying effective communications approaches
In particular it is designed to help advertisers of consumer products with the:

Development of advertising objectives

Ad copy strategies
Selection of communications techniques


Developing Expert Systems

Expert Systems Shells. The easiest way to develop an expert system is to use an expert system shell as a
developmental tool. An expert system shell is a software package consisting of an expert system without a kernel,
that is, its knowledge base. This leaves a shell of software (the inference engine and user interface programs) with
generic inferencing and user interface capabilities). Other development tools (such as rule editors and user interface
generations) are added in making the shell a powerful expert system development tool.

Knowledge Engineering

A knowledge engineer is a professional who works with experts to capture the knowledge (facts and rules of thumb)
they possess. The knowledge engineer then builds the knowledge base using an interactive, prototyping process
until the expert system is acceptable. Thus, knowledge engineers perform a role similar to that of systems analysts
in conventional information systems development. Obviously, knowledge engineers must be able to understand and
work with experts in many subject areas. Therefore, this information systems speciality requires good people skills,
as well as a background in artificial intelligence and information systems.


The Value of Expert Systems

Expert systems are not the answer to every problem facing an organization. The question becomes what types of
problems are most suitable to expert system solutions? Ways to answer this question include:
1. Look at examples of the applications of current expert systems, including the generic tasks they accomplish.
2. Identify criteria that make a problem situation suitable for an expert system. Some of this important criteria
include: Domain, expertise, complexity, structure, and availability.

The domain, or subject area, of the problem is relatively small and limited to a welldefined problem area.


Solutions to the problem require the efforts of an expert. That is, a body of knowledge,
techniques, and intuition is needed that only a few people possess.


Solution of the problem is a complex task that requires logical inference processing, which would
not be handled as well by conventional information processing.


The solution process must be able to cope with ill-structured, uncertain, missing, and
conflicting data, and a problem situation that changes with the passage of time.


An expert exists who is articulate and cooperative, and who has the support of the management
and end users involved in the development of the proposed system.

Before deciding to acquire or develop an expert system, it is important that managerial end users evaluate its
benefits and limitations. In particular, they must decide whether the benefits of a proposed expert system will
exceed its costs.

Benefits of Expert Systems:

1. Captures the expertise of experts. It may outperform a single human expert in many problem situations.

Is faster and more consistent than a human expert.


Can have the knowledge of several experts.


Does not get tired or distracted by too much work or stress.


Is available at all times, whereas a human expert may be away, sick, or may have left the company.


Can be used to train the novice.


Effective use of expert systems can allow a firm to:

a. improve the efficiency of its operations

b. produce new products and services
c. lock in customers and suppliers with new business relationships
d. build knowledge-based strategic information resources.

Limitations of Expert Systems


Limited focus (specific problems & specific domains)


Inability to learn


Difficulties in maintaining expert systems


Cost involved in developing them.


Hybrid AI Systems:

Increasingly, AI developers are constructing products which integrate several AI technologies into a single hybrid
AI system. This frequently includes two popular AI technologies: expert systems and neural nets.

Most integrated AI systems are designed to provide the best features of expert systems, neural nets, or fuzzy logic
technologies, and to offset each others strengths and weaknesses.

5. What role does the manager play in the management of Information

6. Explain how an International firm can see local staff members give
enough expertise to develop and apply Information Technology.