The Study Hall College

Affiliated to University of Lucknow

BBA VI Sem
Management Information System
UNIT – II

Competitive Advantage
There is no one answer about what is competitive advantage or one way to measure it, and for
the right reason. Nearly everything can be considered as competitive edge, e.g. higher profit
margin, greater return on assets, valuable resource such as brand reputation or unique
competence in producing jet engines. Every company must have at least one advantage to
successfully compete in the market. If a company can’t identify one or just doesn’t possess it,
competitors soon outperform it and force the business to leave the market.

There are many ways to achieve the advantage but only two basic types of it: cost or
differentiation advantage. A company that is able to achieve superiority in cost or differentiation
is able to offer consumers the products at lower costs or with higher degree of differentiation and
most importantly, is able to compete with its rivals.

In business, a competitive advantage is the attribute that allows an organization to outperform its
competitors. A competitive advantage may include access to natural resources, such as high-
grade ores or a low-cost power source, highly skilled labor, geographic location, high entry
barriers, and access to new technology.

The following diagram illustrates the basic competitive advantage model-

 1. External Changes

(i) Changes in PEST factors

PEST stands for political, economic, socio-cultural and technological factors that affect firm’s
external environment. When these factors change many opportunities arise that can be exploited
by an organization to achieve superiority over its rivals. For example, new superior machinery,
which is manufactured and sold only in South Korea, would result in lower production costs for
Korean companies and they would gain cost advantage against competitors in a global
environment. Changes in consumer demand, such as trend for eating more healthy food, can be
used to gain at least temporary differentiation advantage if a company would opt to sell mainly
healthy food products while competitors wouldn’t. For example, Subway and KFC.
If opportunities appear due to changes in external environment why not all companies are able to
profit from that? It’s simple, companies have different resources, competences and capabilities
and are differently affected by industry or macro environment changes.

(ii) Company’s ability to respond fast to changes

The advantage can also be gained when a company is the first one to exploit the external change.
Otherwise, if a company is slow to respond to changes it may never benefit from the arising
opportunities.

2. Internal Environment

(i) VRIO resources

A company that possesses VRIO (valuable, rare, hard to imitate and organized) resources has an
edge over its competitors due to superiority of such resources. If one company has gained VRIO
resource, no other company can acquire it (at least temporarily). The following resources have
VRIO attributes:

 Intellectual property (patents, copyrights, trademarks)

 Brand equity
 Culture
 Know-how
 Reputation

(ii) Unique competences

Competence is an ability to perform tasks successfully and is a cluster of related skills,

knowledge, capabilities and processes. A company that has developed a competence in
producing miniaturized electronics would get at least temporary advantage as other companies
would find it very hard to replicate the processes, skills, knowledge and capabilities needed for
that competence.

(iii) Innovative capabilities

Most often, a company gains superiority through innovation. Innovative products, processes or
new business models provide strong competitive edge due to the first mover advantage. For
example, Apple’s introduction of tablets or its business model combining mp3 device and iTunes
online music store.

Types of Competitive Advantage

1. Porter has identified 2 basic types of competitive advantage: cost and differentiation
advantage.

1. Cost advantage
Porter argued that a company could achieve superior performance by producing similar quality
products or services but at lower costs. In this case, company sells products at the same price as
competitors but reaps higher profit margins because of lower production costs. The company that
tries to achieve cost advantage (like Amazon.com) is pursuing cost leadership strategy. Higher
profit margins lead to further price reductions, more investments in process innovation and
ultimately greater value for customers.

2. Differentiation advantage

Differentiation advantage is achieved by offering unique products and services and charging
premium price for that. Differentiation strategy is used in this situation and company positions
itself more on branding, advertising, design, quality and new product development (like Apple
Inc. or even Starbucks) rather than efficiency, outsourcing or process innovation. Customers are
willing to pay higher price only for unique features and the best quality.

The cost leadership and differentiation strategies are not the only strategies used to gain
competitive advantage. Innovation strategy is used to develop new or better products, processes
or business models that grant competitive edge over competitors.

Porter Five Forces

The main purpose of industry analysis, in the context of strategic choice is to determine the
industry attractiveness, and to understand the structure and dynamics of the industry with a view
to find out the continued relevance to strategic alternatives that are there before a firm.

It follows that, for instance, if the industry is not, or no longer, sufficiently attractive (i.e. it does
not offer long-term growth opportunities), then the strategic alternatives that lie within the
industry should not be considered. It also means that alternative may have to be sought outside
the industry calling for diversification moves.

Porter’s Five Forces is a business analysis model that helps to explain why different industries
are able to sustain different levels of profitability. The model was originally published in
Michael Porter’s book, “Competitive Strategy: Techniques for Analyzing Industries and
Competitors” in 1980.

The model is widely used to analyze the industry structure of a company as well as its corporate
strategy. Porter identified five undeniable forces that play a part in shaping every market and
industry in the world. The forces are frequently used to measure competition intensity,
attractiveness and profitability of an industry or market.

These forces are:

 1. Threat of new entrants

This force determines how easy (or not) it is to enter a particular industry. If an industry is
profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations
compete for the same market share, profits start to fall. It is essential for existing organizations to
create high barriers to enter to deter new entrants. Threat of new entrants is high when:

 Low amount of capital is required to enter a market;

 Existing companies can do little to retaliate;
 Existing firms do not possess patents, trademarks or do not have established brand
reputation;
 There is no government regulation;
 Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to
other industries);
 There is low customer loyalty;
 Products are nearly identical;
 Economies of scale can be easily achieved.

New entrants raise the level of competition in an industry and reduce its attractiveness. Threat of
new entrants depends on barriers to entry. More barriers to entry reduce the threat of new
entrants. Some of the key entry barriers are:

(i) Economies of scale

Industries where the fixed investment is high (such as automobiles), yield higher profits with
larger scale of operations. In such industries, established players may have economies of scale of
production which new entrants will not have, thus acting as a barrier.

(ii) Capital requirements

Industries that require large seed capital for establishing the business (such as steel) discourage
new entrants that cannot invest this amount.

(iii) Switching costs

Customers may face some switching cost like having to buy new spare parts or train employees
to run the new machine, in moving from one company to the other, thus discouraging movement
of customers from existing players to new entrants.

(iv) Access to distribution

Established players may have access to the most efficient distribution channels. Distribution
channel members may not tie up with new entrants who pose competition to their existing
partners.

(v) Expected retaliation

If existing players have large stakes in continuing their business (large investment, substantial
revenues, strategic importance), or if they are dominant players, they would retaliate strongly to
any new entrant.

(vi) Brand equity

Existing players have established product reputation and built a strong brand image over the
years. New players would find it hard to convince customers to switch over to their offering. To
incumbent competitors, industry attractiveness can be increased by raising entry barriers. In fact,
one of the main objectives of existing players in the industry is to erect strong entry barriers to
prevent new competitors from entering the industry.

2. Bargaining power of suppliers

Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to
their buyers. This directly affects the buying firms’ profits because it has to pay more for
materials. Suppliers have strong bargaining power when:

 There are few suppliers but many buyers

 Suppliers are large and threaten to forward integrate
 Few substitute raw materials exist
 Suppliers hold scarce resources
 Cost of switching raw materials is especially high
Bargaining power of suppliers will be high when:

(i) Many buyers and few sellers

There are many buyers and few dominant suppliers. Suppliers would be in a position to charge
higher prices or cause instability in supply of essential products. The buyers should develop
more suppliers by agreeing to invest in them and helping them with technologies.

(ii) Differentiated supplies

When suppliers offer differentiated and highly valued components, their bargaining power is
higher, since the buyer cannot switch suppliers easily. When many suppliers offer a standardized
product, their bargaining power reduces. The buyer should bring the processes that enable the
supplier to make differentiated products in-house and buy only standard components from the
supplier.

(iii) Crucial supplies

If the product sold by the supplier is a key component for the buyer, or it is crucial for its smooth
operations, then the bargaining power of suppliers is higher. The buyer should always keep the
production of key components with itself.

(iv) Forward integration

When there is a threat of forward integration into the industry by the suppliers, their bargaining
power is higher. There is a strong threat of forward integration when the supplier supplies a very
crucial part of the final product. The supplier of engines to an automobile maker is in a very
strong position to contemplate making automobiles because it already has expertise over a key
component of the final product.

(v) Backward integration

When there is threat of backward integration by buyers, the bargaining power of suppliers
becomes weaker, as the supplier may become redundant if the buyer starts making the same
product. The buyer should always have an idea of the technologies that are being employed in
making crucial and differentiated products and should be capable of putting together the
resources to make these components. Suppliers should always understand that if the buyer is
cornered, he will start making the components himself.

(vi) Level of dependence

When the industry is not a key customer group for suppliers, their bargaining power increases.
Buyers are dependent on suppliers, though suppliers do not focus on the customer group. The
suppliers can survive even when they stop supplying to the buyers as the major part of their
business is coming from some other industry. The buyers should be careful in selecting their
suppliers. They should select suppliers who have strong stake in the buyers’ industry and not
those who only have peripheral interests in the buyers’ industry.

3. Bargaining power of buyers

Buyers have the power to demand lower price or higher product quality from industry producers
when their bargaining power is strong. Lower price means lower revenues for the producer,
while higher quality products usually raise production costs. Both scenarios result in lower
profits for producers. Buyers exert strong bargaining power when:

 Buying in large quantities or control many access points to the final customer
 Only few buyers exist
 Switching costs to other supplier are low
 They threaten to backward integrate
 There are many substitutes
 Buyers are price sensitive

Higher bargaining power of customers implies that they can seek greater compliance from the
companies of the industry.

(i) Few dominant customers

When there are few dominant customers and many sellers, customers can exercise greater
choice. They also dictate terms and conditions to the supplier. This is true in industrial markets
where many suppliers make standard components for a few Original Equipment Manufacturers.
The OEMs are able to extract big concessions on price and coerce the suppliers to provide
expensive services like just-in-time supplies. The suppliers have to agree to debilitating terms of
the buyers if they have to continue to supply to them.

(ii) Non-differentiated products

If products sold by the players in the industry are standardized, or there are little differences
among them, buyers can easily switch over to competitors, increasing their bargaining power.
This is increasingly happening in consumer markets. Customers are not able to tell one
manufacturer’s product from that of another. The result is that the customers are buying mostly
on price and the manufacturers are reducing prices to lure customers.

The problem with such an approach is that with reduced profits, a company’s ability to
differentiate its product further goes down. The manufacturer is caught in the spiral of low
differentiation-low price-low profits- further low differentiation-further low prices-further low
profits. The manufacturer has to break this chain and collect resources to differentiate its product
so that it can fetch a higher price and profit.

(iii) Small proportion of customer’s total purchase

If the product offered by the firm is not important or critical for the customer, the bargaining
power of customers is higher. The product may be of a relatively smaller value in the overall
disposable income of the customer. This may work out to be to the advantage of the seller.

The customer will not be overly worried if the supplier raises its price by small amount as the
slightly increased expenditure will not be a big dent in the income of the customer. As level of
economic prosperity rises, manufacturers of packaged foods and other fast moving consumer
goods can increase the quality and price of their products. Customers would not mind paying
slightly higher prices for better products.

(iv) Backward integration

Customers may threaten to integrate backward into the industry, and compete with suppliers.
This may be a reality in industrial markets but it is very rare in consumer markets. Most
customers do not have the resources to start making what they buy.

(v) Forward integation

Suppliers can threaten to integrate forward into customers’ industry. The customers have to
understand and contain the imminent threat of competition from their suppliers. This threat is
meaningless in consumer markets but the threat is real in industrial markets, particularly when
the supplier is supplying a key component.

(vi) Key supplies

The industry is not a key supplying group for buyers. In consumer markets, one manufacturer
supplies only a small fraction of his total purchases.

4. Threat of substitutes

This force is especially threatening when buyers can easily find substitute products with
attractive prices or better quality and when buyers can switch from one product or service to
another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike
switching from car to bicycle.

The threat of substitute products depends on:

(i) Buyer’s willingness to substitute

Buyers will substitute when the industry’s product is not strongly differentiated, so the buyers
will not have developed strong preference for the product. In industrial markets, the product
should be either enhancing value of the final product it becomes a part of, or is enhancing the
operation of the buyer.

(ii) Relative prices and performance of substitutes

If the substitute enhances the operation of the customer without incurring additional costs,
substitute product would be preferred.

(iii) Costs of switching over to substitutes

In industrial markets, if a company has to buy another manufacturer’s product, the company will
have to buy new spare parts and will have to train its operations and maintenance staff on the
new machine.

The substitute products satisfy the same general need of the customer. The customer evaluates
various aspects of the substitute products such as prices, quality, availability, ease of use etc.
Relative substitutability of products varies among customers. The threat of substitute products
depends on how sophisticated the needs of the buyers are, and how strongly entrenched their
habits are. Some people will continue to drink coffee, and will never ever switch to drinking tea,
no matter how costly coffee may become.

A company can lower threat of substitute products by building up switching costs, which may be
monetary or psychological-by creating strong distinctive brand personalities and maintaining a
price differential commensurate with perceived consumer value.

5. Rivalry among existing competitors

This force is the major determinant on how competitive and profitable an industry is. In
competitive industry, firms have to compete aggressively for a market share, which results in low
profits. Rivalry among competitors is intense when:

 There are many competitors

 Exit barriers are high
 Industry of growth is slow or negative
 Products are not differentiated and can be easily substituted
 Competitors are of equal size
 Low customer loyalty

The intensity of rivalry between competitors depends on:

(i) Structure of competition

An industry witnesses intense rivalry amongst its players, when it has large number of small
companies or a few equally entrenched companies. An industry witnesses less rivalry when it has
a clear market leader. The market leader is significantly larger than the industry’s second largest
player, and it also has a low cost structure.

(ii) Structure of costs

In an industry which has high fixed costs, a player will cut price to attract competitors’
customers to fill capacity. A player may be willing to price just above its marginal cost, and
since the industry’s marginal cost is low, it is not unusual to see price cuts of 50-70 per cent Such
price cuts are almost always matched by competitors, because all of them are trying to fill
capacity. The inevitable result is a price war.

(iii) Degree of differentiation

Players of an industry whose products are commoditized will essentially compete on price, and
hence price cuts of a player will be swiftly matched by competitors, resulting in intense rivalry.
But when players of an industry can differentiate their products, they understand that customers
do not associate the industry’s products with a single price, and that the price of a product is
dependent on its features, benefits and brand strength. Players of such an industry compete on
features, benefits and brand strength, and hence rivalry is less intense. When a player cuts price,
its competitor can react by adding more features, providing more benefits, or hiring a celebrity in
its advertisements, instead of cutting price.

(iv) Switching costs

Switching cost is high when product is highly specialized, and when the customer has expended
lot of resources and efforts to learn how to use it. Switching cost is also high when the customer
has made investments that will become worthless if he uses any other product. Since a customer
of a company is not likely to be lured by competitors’ price cuts and other manoeuvres,
competitive rivalry is less in such an industry.

(v) Strategic objectives

When competitors are pursuing build strategies, they will match the price cuts of a player
because they do not want to lose market share to the player who has cut price. Therefore, rivalry
will be intense. But when competitors are pursuing hold or harvest strategies, they will not be too
keen to match the price cuts of a player, because they are more interested in profits than market
share. Therefore, rivalry will be less intense.

(vi) Exit barriers

When players cannot leave an industry due to factors such as lack of opportunities elsewhere,
high vertical integration, emotional barriers or high cost of closing down a plant, rivalry will be
more intense. In such an industry, players will compete bitterly as they do not have the option to
quit. But, when exit barriers are low, players who are not good enough, or who have found more
attractive industries to enter, can exit. With fewer numbers of players in the industry now, rivalry
will be less intense.

Although, Porter originally introduced five forces affecting an industry, scholars have suggested
including the sixth force: complements. Complements increase the demand of the primary
product with which they are used, thus, increasing firm’s and industry’s profit potential. For
example, iTunes was created to complement iPod and added value for both products. As a result,
both iTunes and iPod sales increased, increasing Apple’s profits.
The Value Chain of Business Function
A company is in essence a collection of activities that are performed to design, produce, market,
deliver and support its product (or service). It’s goal is to produce the products in such a way that
they have a greater value (to customers) than the orginal cost of creating these products. The
added value can be considered the profits and is often indicated as ‘margin’. A systematic way of
examining all of these internal activities and how they interact is necessary when analyzing the
sources of competitive advantage. A company gains competitive advantage by performing
strategically important activities more cheaply or better than its competitors. Michael Porter’s
value chain helps disaggregating a company into its strategically relevant activities, thereby
creating a clear overview of the internal organization. Based on this overview managers are
better able to assess where true value is created and where improvements can be made.

One company’s value chain is embedded in a larger stream of activities that can be considered
the supply chain or as Porter mentions it: the Value System. Suppliers have a value chain
(upstream value) that create and deliver the purchased inputs. In addition, many products pass
through the value chain of channels (channel value) on their way to the buyer. A company’s
product eventually becomes part of its buyer’s value chain. This article will not go into the entire
supply chain (from suppliers all the way to the end-consumer), but rather focuses on one
organization’s value chain. The value chain activities can be divided into two broader types:
primary activities and support activities.

Primary Activities

The first are primary activities which include the five main activities. All five activities are
directly involved in the production and selling of the actual product. They cover the physical
creation of the product, its sales, transfer to the buyer as well as after sale assistance. The five
primary activities are inbound logistics, operations, outbound logistics, marketing & sales and
service. Even though the importance of each category may vary from industry to industry, all of
these activities will be present to some degree in each organization and play at least some role in
competitive advantage.

1. Inbound Logistics

Inbound logistics is where purchased inputs such as raw materials are often taken care of.
Because of this function, it is also in contact with external companies such as suppliers. The
activities associated with inbound logistics are receiving, storing and disseminating inputs to the
product. Examples: material handling, warehousing, inventory control, vehicle scheduling and
returns to suppliers.

2. Operations

Once the required materials have been collected internally, operations can convert the inputs in
the desired product. This phase is typically where the factory conveyor belts are being used. The
activities associated with operations are therefore transforming inputs into the final product form.
Examples: machining, packaging, assembly, equipment maintenance, testing, printing and
facility operations.

3. Outbound Logistics

After the final product is finished it still needs to finds it way to the customer. Depending on how
lean the company is, the product can be shipped right away or has to be stored for a while. The
activities associated with outbound logistics are collecting, storing and physically distributing the
product to buyers. Examples: finished goods warehousing, material handling, delivery vehicle
operations, order processing and scheduling.

4. Marketing & Sales

The fact that products are produced doesn’t automatically mean that there are people willing to
purchase them. This is where marketing and sales come into place. It is the job of marketers and
sales agents to make sure that potential customers are aware of the product and are seriously
considering to purchase them. Activities associated with marketing and sales are therefore to
provide a means by which buyers can purchase the product and induce them to do so. Examples:
advertising, promotion, sales force, quoting, channel selection, channel relations and pricing. A
good tool to structure the entire marketing process is the Marketing Funnel.

5. Service

In today’s economy, after-sales service is just as important as promotional activities. Complaints

from unsatisfied customers are easily spread and shared due to the internet and the consequences
on your company’s reputation might be vast. It is therefore important to have the right customer
service practices in place. The activities associated with this part of the value chain are providing
service to enhance or maintain the value of the product after it has been sold and delivered.
Examples: installation, repair, training, parts supply and product adjustment.

Support Activities

The second category is support activities. They go across the primary activities and aim to
coordinate and support their functions as best as possible with eachother by providing purchased
inputs, technology, human resources and various firm wide managing functions. The support
activities can therefore be divided into procurement, technology development (R&D), human
resource management and firm infrastructure. The dotted lines reflect the fact that procurement,
technology development and human resource management can be associated with specific
primary activities as well as support the entire value chain.

1. Procurement

Procurement refers to the function of purchasing inputs used in the firm’s value chain, not the
purchased inputs themselves. Purchased inputs are needed for every value activity, including
support activities. Purchased inputs include raw materials, supplies and other consumable items
as well as assets such as machinery, laboratory equipment, office equipment and buildings.
Procurement is therefore needed to assist multiple value chain activities, not just inbound
logistics.

2. Technology Development (R&D)

Every value activity embodies technology, be it know how, procedures or technology embodied
in process equipment. The array of technology used in most companies is very broad.
Technology development activities can be grouped into efforts to improve the product and the
process. Examples are telecommunication technology, accounting automation software, product
design research and customer servicing procedures. Typically, Research & Development
departments can also be classified here.

3. Human Resource Management

HRM consists of activities involved in the recruiting, hiring (and firing), training, development
and compensation of all types of personnel. HRM affects the competitive advantage in any firm
through its role in determining the skills and motivation of employees and the cost of hiring and
training them. Some companies (especially in the technological and advisory service industry)
rely so much on talented employees, that they have devoted an entire Talent Management
department within HRM to recruit and train the best of the best university graduates.

4. Firm Infrastructure

Firm infrastructure consists of a number of activities including general (strategic) management,

planning, finance, accounting, legal, government affairs and quality management. Infrastructure
usually supports the entire value chain, and not individual activities. In accounting, many firm
infrastructure activities are often collectively indicated as ‘overhead’ costs. However, these
activities shouldn’t be underestimated since they could be one of the most powerful sources of
competitive advantage. After all, strategic management is often the starting point from which all
smaller decisions in the firm are being based on. The wrong strategy will make it extra hard for
people on the workfloor to perform well.

Linkages within the Value Chain

Although value activities are the building blocks of competitive advantage, the value chain is not
a collection of independent activities. Rather, it is a system of interdependent activities that are
related by linkages within the value chain. Decisions made in one value activity (e.g.
procurement) may affect another value activity (e.g. operations). Since procurement has the
responsibility over the quality of the purchased inputs, it will probably affect the production
costs (operations), inspections costs (operations) and eventually even the product quality. In
addition, a good working automated phone menu for customers (technology development) will
allow customers to reach the right support assistant faster (service). Clear communication and
coordination across value chain activities are therefore just as important as the activities itself.
Consequently, a company also needs to optimize these linkages in order to achieve competitive
advantage. Unfortunately these linkages are often very complex and go unrecognized by the
management thereby missing out on great improvement opportunities.

In the end, Porter’s Value Chain is a great framework to examine the internal organization. It
allows a more structured approach of assessing where in the organization true value is created
and where costs can be reduced in order to boost the margins. It also allows to improve
communication between departments. Combining the Value Chain with the VRIO Framework is
a good starting point for an internal analysis. In case you are interested in the entire supply chain,
you could repeat the process by adding the value chains of your company’s suppliers and buyers
and place them in front and behind your own company’s value chain.
Aligning Information Systems with Business
Aligning information systems with business is crucial for organizations to achieve their strategic
objectives and remain competitive in the digital age. Here are some steps to align information
systems with business:

Define business objectives:

The first step in aligning information systems with business is to define the organization’s
business objectives. Business objectives provide direction for the organization, and the
information system should be aligned with these objectives.

Analyze business processes:

Once business objectives are defined, the next step is to analyze the business processes. This
analysis will help to identify inefficiencies in the processes that can be addressed by information
systems.

Identify information needs:

After analyzing business processes, the organization needs to identify the information needs that
are required to support the processes. This information needs to be collected, processed, and
shared efficiently to support business objectives.

Develop an information system strategy:

An information system strategy should be developed that is aligned with the business objectives.
This strategy should consider the technology infrastructure, applications, data, and people
required to support the business objectives.

Develop an implementation plan:

Once the information system strategy is developed, an implementation plan should be developed
to ensure that the system is implemented successfully. The implementation plan should consider
factors such as resource allocation, timeline, and risk management.

Align the organization:

The organization needs to be aligned with the new information system strategy. This involves
ensuring that the organization’s structure, culture, and processes are aligned with the new
system.

Monitor and evaluate:

Finally, the information system needs to be monitored and evaluated to ensure that it is
delivering the expected benefits. This involves tracking performance metrics and making
changes to the system and strategy as needed.

Theories of Aligning Information Systems with Business:

Strategic Alignment Theory:

This theory proposes that the alignment between business and information systems is critical to
the success of the organization. It suggests that the organization’s strategy should drive the
development and implementation of the information system.

Resource-Based View Theory:

This theory proposes that an organization’s resources, including information systems, can be a
source of competitive advantage. Therefore, aligning information systems with business can help
the organization to gain a competitive advantage.

Contingency Theory:

This theory proposes that the alignment between business and information systems should be
contingent on the organization’s external environment and internal structure.

Benefits of Aligning Information Systems with Business:

Improved Decision Making:

Aligning information systems with business can help organizations make better decisions. With
access to accurate and timely information, decision-makers can make more informed decisions
that are aligned with the organization’s strategic objectives.

Increased Efficiency:

Aligning information systems with business can help organizations streamline their operations
and improve efficiency. By automating business processes, information systems can reduce the
time and effort required to complete tasks, allowing employees to focus on higher-value
activities.

Better Customer Service:

Aligning information systems with business can help organizations provide better customer
service. By collecting and analyzing customer data, organizations can gain insights into customer
needs and preferences, allowing them to tailor their products and services to better meet
customer needs.

Cost Savings:
Aligning information systems with business can also help organizations reduce costs. By
eliminating inefficiencies in business processes, organizations can reduce costs associated with
manual processes, errors, and rework.

Competitive Advantage:

Aligning information systems with business can help organizations gain a competitive
advantage. By leveraging information systems to improve decision-making, efficiency, customer
service, and cost savings, organizations can differentiate themselves from their competitors and
gain a stronger market position.

Decision Making and Management

Information System
Management information systems can help you make valid decisions by providing accurate and
up-to-date information and performing analytic functions. You have to make sure the
management information system you choose can work with the information formats available in
your company and has the features you need. Suitable management information systems can
structure the basic data available from your company operations and records into reports to
present you with guidance for your decisions.

Role of Management Information Systems in Decision-Making

1. Information from Company Operations

When you base your decisions on data available from management information systems, they
reflect information that comes from the operations of your company. Management information
systems take data generated by the working level and organize it into useful formats.
Management information systems typically contain sales figures, expenses, investments and
workforce data. If you need to know how much profit your company has made each year for the
past five years to make a decision, management information systems can provide accurate
reports giving you that information.

2. Capability to Run Scenarios

The capability to run scenarios is a key decision-making tool. Some management information
systems have this feature built in, while others can provide the information required for running
scenarios on other applications, such as spreadsheets. Your decision is influenced by what
happens if you decide a certain way. What-if scenarios show you how different variables change
when you make a decision.

You can enter reduced staff levels or increased promotion budgets and see what happens to
revenue, expenses and profit for different levels of cuts or increases. Management information
systems play a critical role in making realistic scenarios possible.
 3. Projections to Assist in Decision Making

Any decisions you make result in changes in the projected company results and may require
modifications to your business strategy and overall goals. Management information systems
either have trend analysis built in or can provide information that lets you carry out such an
analysis. Typical business strategies include projections for all fundamental operating results.

A trend analysis allows you to show what these results would be in the current situation and how
they will change once you have implemented the decisions you have taken. The new values form
the basis of your strategic approach going forward.

4. Implementation and Evaluation

While you make your decisions with specific goals in mind and have the documentation from
management information systems and trend analysis to support your expectations, you have to
track company results to make sure they develop as planned. Management information systems
give you the data you need to determine whether your decisions have had the desired effect, or
whether you have to take corrective action to reach your goals. If specific results are not on
track, you can use management information systems to evaluate the situation and decide to take
additional measures if necessary.
Decision Making Concepts
Decision-making is a cognitive process that results in the selection of a course of action among
several alternative scenarios.

Decision-making is a daily activity for any human being. There is no exception about that. When
it comes to business organizations, decision-making is a habit and a process as well.

Effective and successful decisions result in profits, while unsuccessful ones cause losses.
Therefore, corporate decision-making is the most critical process in any organization.

In a decision-making process, we choose one course of action from a few possible alternatives.
In the process of decision-making, we may use many tools, techniques, and perceptions.

In addition, we may make our own private decisions or may prefer a collective decision.

Usually, decision-making is hard. Majority of corporate decisions involve some level of

dissatisfaction or conflict with another party.

Decision-Making Process

Following are the important steps of the decision-making process. Each step may be supported
by different tools and techniques.
Step 1: Identification of the Purpose of the Decision

In this step, the problem is thoroughly analyzed. There are a couple of questions one should ask
when it comes to identifying the purpose of the decision.

 What exactly is the problem?

 Why the problem should be solved?
 Who are the affected parties of the problem?
 Does the problem have a deadline or a specific time-line?

Step 2: Information Gathering

A problem of an organization will have many stakeholders. In addition, there can be dozens of
factors involved and affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to
the factors and stakeholders involved in the problem. For the process of information gathering,
tools such as ‘Check Sheets’ can be effectively used.

Step 3: Principles for Judging the Alternatives

In this step, the baseline criteria for judging the alternatives should be set up. When it comes to
defining the criteria, organizational goals as well as the corporate culture should be taken into
consideration.

As an example, profit is one of the main concerns in every decision making process. Companies
usually do not make decisions that reduce profits, unless it is an exceptional case. Likewise,
baseline principles should be identified related to the problem in hand.

Step 4: Brainstorm and Analyze the Choices

For this step, brainstorming to list down all the ideas is the best option. Before the idea
generation step, it is vital to understand the causes of the problem and prioritization of causes.

For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-and-
Effect diagram helps you to identify all possible causes of the problem and Pareto chart helps
you to prioritize and identify the causes with the highest effect.

Then, you can move on generating all possible solutions (alternatives) for the problem in hand.

Step 5: Evaluation of Alternatives

Use your judgment principles and decision-making criteria to evaluate each alternative. In this
step, experience and effectiveness of the judgment principles come into play. You need to
compare each alternative for their positives and negatives.

Step 6: Select the Best Alternative

Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best
alternative is an informed decision since you have already followed a methodology to derive and
select the best alternative.

Step 7: Execute the decision

Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or
with the help of subordinates.

Step 8: Evaluate the Results

Evaluate the outcome of your decision. See whether there is anything you should learn and then
correct in future decision making. This is one of the best practices that will improve your
decision-making skills.

Process and Modeling in Decision-Making

There are two basic models in decision-making:

 Rational models
 Normative model

(i) Rational models

The rational models are based on cognitive judgments and help in selecting the most logical and
sensible alternative. Examples of such models include – decision matrix analysis, Pugh matrix,
SWOT analysis, Pareto analysis and decision trees, selection matrix, etc.

A rational decision making model takes the following steps −

 Identifying the problem,

 Identifying the important criteria for the process and the result,
 Considering all possible solutions,
 Calculating the consequences of all solutions and comparing the probability of satisfying the
criteria,
 Selecting the best option.

(ii) Normative model

The normative model of decision-making considers constraints that may arise in making
decisions, such as time, complexity, uncertainty, and inadequacy of resources.

According to this model, decision-making is characterized by −

 Limited information processing – A person can manage only a limited amount of information.
 Judgmental heuristics – A person may use shortcuts to simplify the decision making process.
 Satisfying – A person may choose a solution that is just “good enough”.

Dynamic Decision-Making

Dynamic decision-making (DDM) is synergetic decision-making involving interdependent

systems, in an environment that changes over time either due to the previous actions of the
decision-maker or due to events that are outside of the control of the decision-maker.

These decision-makings are more complex and real-time.

Dynamic decision-making involves observing how people used their experience to control the
system’s dynamics and noting down the best decisions taken thereon.
Sensitivity Analysis

Sensitivity analysis is a technique used for distributing the uncertainty in the output of a
mathematical model or a system to different sources of uncertainty in its inputs.

From business decision perspective, the sensitivity analysis helps an analyst to identify cost
drivers as well as other quantities to make an informed decision. If a particular quantity has no
bearing on a decision or prediction, then the conditions relating to quantity could be eliminated,
thus simplifying the decision making process.

Sensitivity analysis also helps in some other situations, like −

 Resource optimization
 Future data collections
 Identifying critical assumptions
 To optimize the tolerance of manufactured parts

Static and Dynamic Models

Static models

 Show the value of various attributes in a balanced system.

 Work best in static systems.
 Do not take into consideration the time-based variances.
 Do not work well in real-time systems however, it may work in a dynamic system being in
equilibrium
 Involve less data.
 Are easy to analyze.
 Produce faster results.

Dynamic models

 Consider the change in data values over time.

 Consider effect of system behavior over time.
 Re-calculate equations as time changes.
 Can be applied only in dynamic systems.

Simulation Techniques

Simulation is a technique that imitates the operation of a real-world process or system over time.
Simulation techniques can be used to assist management decision making, where analytical
methods are either not available or cannot be applied.

Some of the typical business problem areas where simulation techniques are used are –

 Inventory control
 Production planning
Operations Research Techniques

Operational Research (OR) includes a wide range of problem-solving techniques involving

various advanced analytical models and methods applied. It helps in efficient and improved
decision-making.

It encompasses techniques such as simulation, mathematical optimization, queuing theory,

stochastic-process models, econometric methods, data envelopment analysis, neural networks,
expert systems, decision analysis, and the analytic hierarchy process.

OR techniques describe a system by constructing its mathematical models.

Heuristic Programming

Heuristic programming refers to a branch of artificial intelligence. It consists of programs that

are self-learning in nature.

However, these programs are not optimal in nature, as they are experience-based techniques for
problem solving.

Most basic heuristic programs would be based on pure ‘trial-error’ methods.

Heuristics take a ‘guess’ approach to problem solving, yielding a ‘good enough’ answer, rather
than finding a ‘best possible’ solution.

Group Decision-Making

In group decision-making, various individuals in a group take part in collaborative decision-

making.

Group Decision Support System (GDSS) is a decision support system that provides support in
decision making by a group of people. It facilitates the free flow and exchange of ideas and
information among the group members. Decisions are made with a higher degree of consensus
and agreement resulting in a dramatically higher likelihood of implementation.

Following are the available types of computer based GDSSs −

(i) Decision Network

This type helps the participants to communicate with each other through a network or through a
central database. Application software may use commonly shared models to provide support.

(ii) Decision Room

Participants are located at one place, i.e. the decision room. The purpose of this is to enhance
participant’s interactions and decision-making within a fixed period of time using a facilitator.
(iii) Teleconferencing

Groups are composed of members or sub groups that are geographically dispersed;
teleconferencing provides interactive connection between two or more decision rooms. This
interaction will involve transmission of computerized and audio visual information.

Management Decision making process

Decision making is a daily activity for any human being. There is no exception about that. When
it comes to business organizations, decision making is a habit and a process as well.

Effective and successful decisions make profit to the company and unsuccessful ones make
losses. Therefore, corporate decision making process is the most critical process in any
organization.

In the decision making process, we choose one course of action from a few possible alternatives.
In the process of decision making, we may use many tools, techniques and perceptions.

In addition, we may make our own private decisions or may prefer a collective decision.

Usually, decision making is hard. Majority of corporate decisions involve some level of
dissatisfaction or conflict with another party.

Steps of Decision Making Process

Following are the important steps of the decision making process. Each step may be supported
by different tools and techniques.
Step 1: Identification of the purpose of the decision

In this step, the problem is thoroughly analysed. There are a couple of questions one should ask
when it comes to identifying the purpose of the decision.

 What exactly is the problem?

 Why the problem should be solved?
 Who are the affected parties of the problem?
 Does the problem have a deadline or a specific time-line?

Step 2: Information gathering

A problem of an organization will have many stakeholders. In addition, there can be dozens of
factors involved and affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to
the factors and stakeholders involved in the problem. For the process of information gathering,
tools such as ‘Check Sheets’ can be effectively used.

Step 3: Principles for judging the alternatives

In this step, the baseline criteria for judging the alternatives should be set up. When it comes to
defining the criteria, organizational goals as well as the corporate culture should be taken into
consideration.

As an example, profit is one of the main concerns in every decision making process. Companies
usually do not make decisions that reduce profits, unless it is an exceptional case. Likewise,
baseline principles should be identified related to the problem in hand.

Step 4: Brainstorm and analyse the different choices

For this step, brainstorming to list down all the ideas is the best option. Before the idea
generation step, it is vital to understand the causes of the problem and prioritization of causes.

For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-and-
Effect diagram helps you to identify all possible causes of the problem and Pareto chart helps
you to prioritize and identify the causes with highest effect.

Then, you can move on generating all possible solutions (alternatives) for the problem in hand.

Step 5: Evaluation of alternatives

Use your judgement principles and decision-making criteria to evaluate each alternative. In this
step, experience and effectiveness of the judgement principles come into play. You need to
compare each alternative for their positives and negatives.

Step 6: Select the best alternative

Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best
alternative is an informed decision since you have already followed a methodology to derive and
select the best alternative.

Step 7: Execute the decision

Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or
with the help of subordinates.

Step 8: Evaluate the results

Evaluate the outcome of your decision. See whether there is anything you should learn and then
correct in future decision making. This is one of the best practices that will improve your
decision-making skills.

When it comes to making decisions, one should always weigh the positive and negative business
consequences and should favour the positive outcomes.

This avoids the possible losses to the organization and keeps the company running with a
sustained growth. Sometimes, avoiding decision making seems easier; especially, when you get
into a lot of confrontation after making the tough decision.

But, making the decisions and accepting its consequences is the only way to stay in control of
your corporate life and time.

Business Value of Improved Decision Making

Improved decision making is a critical driver of business value as it enables organizations to
make better choices that align with their strategic objectives and lead to improved business
outcomes. Here are some of the ways in which improved decision making can deliver business
value:

Increased Efficiency:

Improved decision making can help organizations streamline their operations and eliminate
inefficiencies. By making informed decisions, organizations can optimize their processes, reduce
waste, and improve productivity.

Better Resource Allocation:

Improved decision making can help organizations allocate their resources more effectively. By
making decisions based on accurate and timely data, organizations can ensure that their resources
are used efficiently and effectively.

Reduced Costs:

Improved decision making can also help organizations reduce costs. By avoiding costly mistakes
and making better choices, organizations can reduce the costs associated with rework, delays,
and inefficiencies.

Improved Customer Satisfaction:

Improved decision making can help organizations deliver better customer experiences. By
making decisions that are aligned with customer needs and preferences, organizations can
improve customer satisfaction and loyalty.

Competitive Advantage:

Finally, improved decision making can help organizations gain a competitive advantage. By
making better choices and responding quickly to market changes, organizations can differentiate
themselves from their competitors and gain a stronger market position.

Business Value of Improved Decision Making theories

There are several theories that explain the business value of improved decision making:

1. Rational Decision Making Theory: This theory suggests that improved decision making leads to
better outcomes as it enables decision-makers to make choices that are rational and logical.
According to this theory, decision-making involves a systematic process of identifying
alternatives, evaluating them based on their consequences, and choosing the one that
maximizes the organization’s objectives.
2. Information Processing Theory: This theory suggests that improved decision making is a
function of the quality and quantity of information available to decision-makers. According to
this theory, decision-makers need accurate, relevant, and timely information to make informed
choices.
3. Resource-Based View Theory: This theory suggests that improved decision making is a source of
competitive advantage for organizations. According to this theory, an organization’s resources,
including its decision-making processes, can be a source of sustained competitive advantage.
4. Contingency Theory: This theory suggests that the effectiveness of decision making is
contingent on the organization’s environment and internal structure. According to this theory,
decision-making processes that are aligned with the organization’s structure and environment
are more likely to be effective.
5. Behavioral Decision Theory: This theory suggests that decision making is influenced by cognitive
biases and heuristics. According to this theory, decision makers may not always make rational
choices and may be influenced by factors such as emotions, biases, and heuristics.

indiafreenotes.com

Decision Support Systems, Attributes,

Characteristics, Classification, Types,
Advantages, Disadvanatages
By indiafreenotes

11–14 minutes
Decision Support system (DSS) is a computerized program used to support determinations,
judgments, and courses of action in an organization or a business. A DSS sifts through and
analyzes massive amounts of data, compiling comprehensive information that can be used to
solve problems and in decision-making.

Typical information used by a DSS includes target or projected revenue, sales figures or past
ones from different time periods, and other inventory- or operations-related data.

A DSS can be used by operations management and planning levels in an organization to compile
information and data and synthesize it into actionable intelligence. This allows the end user to
make more informed decisions at a quicker pace.

The DSS is an information application that produces comprehensive information. This is

different from an operations application, which would be used to collect the data in the first
place. A DSS is primarily used by mid- to upper-level management, and it is key for
understanding large amounts of data.

For example, a DSS could be used to project a company’s revenue over the upcoming six months
based on new assumptions about product sales. Due to the large amount of variables that
surround the projected revenue figures, this is not a straightforward calculation that can be done
by hand. A DSS can integrate multiple variables and generate an outcome and alternate
outcomes, all based on the company’s past product sales data and current variables.
The primary purpose of using a DSS is to present information to the customer in a way that is
easy to understand. A DSS system is beneficial because it can be programed to generate many
types of reports, all based on user specifications. A DSS can generate information and output it
graphically, such as a bar chart that represents projected revenue, or as a written report.

As technology continues to advance, data analysis is no longer limited to large bulky

mainframes. Since a DSS is essentially an application, it can be loaded on most computer
systems, including laptops. Certain DSS applications are also available through mobile devices.
The flexibility of the DSS is extremely beneficial for customers who travel frequently. This gives
them the opportunity to be well-informed at all times, which in turn provides them with the
ability to make the best decisions for their company and customers at any time.

Process of Decision Support Systems (DSS):

1. Data Input:

Gathering relevant data from various sources, both internal and external.

2. Data Processing:

Analyzing and processing data using models, algorithms, and analytical tools.

3. Knowledge Base:

Utilizing a knowledge base to store relevant information, rules, and decision criteria.

4. User Interface:

Providing a user-friendly interface for querying and interacting with the system.

5. Model Execution:

Executing models and simulations to generate insights and scenarios.

6. Results Presentation:

Presenting results through reports, dashboards, and visualizations.

7. User Feedback:

Gathering feedback from users to improve system performance.

Attributes of a DSS

 Adaptability and flexibility

 High level of Interactivity
  Ease of use
 Efficiency and effectiveness
 Complete control by decision-makers
 Ease of development
 Extendibility
 Support for modeling and analysis
 Support for data access
 Standalone, integrated, and Web-based

Characteristics of a DSS

 Support for decision-makers in semi-structured and unstructured problems.

 Support for managers at various managerial levels, ranging from top executive to line managers.
 Support for individuals and groups. Less structured problems often requires the involvement of
several individuals from different departments and organization level.
 Support for interdependent or sequential decisions.
 Support for intelligence, design, choice, and implementation.
 Support for variety of decision processes and styles.
 DSSs are adaptive over time.

Benefits of DSS

 Improves efficiency and speed of decision-making activities.

 Increases the control, competitiveness and capability of futuristic decision-making of the
organization.
 Facilitates interpersonal communication.
 Encourages learning or training.
 Since it is mostly used in non-programmed decisions, it reveals new approaches and sets up new
evidences for an unusual decision.
 Helps automate managerial processes.

Disadvantages of Decision Support Systems:

 Complex Implementation:

Implementing DSS may require specialized skills and technical expertise.

 High Initial Costs:

The initial investment in DSS development and implementation can be substantial.

 Dependency on Data Quality:

DSS effectiveness heavily relies on the quality and accuracy of input data.

 Resistance to Change:
Users may resist adopting new decision-making processes facilitated by DSS.

 Security Concerns:

DSS may handle sensitive information, raising security and privacy issues.

 Overemphasis on Technology:

Overreliance on technology may overlook the human element in decision-making.

 Limited Flexibility:

Some DSS may lack flexibility to adapt to rapidly changing business environments.

 Integration Challenges:

Integrating DSS with existing systems may pose compatibility and integration challenges.

 Learning Curve:

Users may face a learning curve when adopting new DSS tools and interfaces.

 Maintenance Requirements:

Regular maintenance and updates are necessary to keep DSS effective and up-to-date.

Components of a DSS

(i) Database Management System (DBMS)

To solve a problem the necessary data may come from internal or external database. In an
organization, internal data are generated by a system such as TPS and MIS. External data come
from a variety of sources such as newspapers, online data services, databases (financial,
marketing, human resources).

(ii) Model Management System

It stores and accesses models that managers use to make decisions. Such models are used for
designing manufacturing facility, analyzing the financial health of an organization, forecasting
demand of a product or service, etc.

(iii) Support Tools

Support tools like online help; pulls down menus, user interfaces, graphical analysis, error
correction mechanism, facilitates the user interactions with the system.
Classification of DSS

There are several ways to classify DSS. Hoi Apple and Whinstone classifies DSS as follows:

(i) Text Oriented DSS

It contains textually represented information that could have a bearing on decision. It allows
documents to be electronically created, revised and viewed as needed.

(ii) Database Oriented DSS

Database plays a major role here; it contains organized and highly structured data.

(iii) Spreadsheet Oriented DSS

It contains information in spread sheets that allows create, view, modify procedural knowledge
and also instructs the system to execute self-contained instructions. The most popular tool is
Excel and Lotus 1-2-3.

(iv) Solver Oriented DSS

It is based on a solver, which is an algorithm or procedure written for performing certain

calculations and particular program type.

(v) Rules Oriented DSS

It follows certain procedures adopted as rules.

(vi) Rules Oriented DSS

Procedures are adopted in rules oriented DSS. Export system is the example.

(vii) Compound DSS

It is built by using two or more of the five structures explained above.

Types of DSS

(i) Status Inquiry System

It helps in taking operational, management level, or middle level management decisions, for
example daily schedules of jobs to machines or machines to operators.

(ii) Data Analysis System

It needs comparative analysis and makes use of formula or an algorithm, for example cash flow
analysis, inventory analysis etc.

(iii) Information Analysis System

In this system data is analyzed and the information report is generated. For example, sales
analysis, accounts receivable systems, market analysis etc.

(iv) Accounting System

It keeps track of accounting and finance related information, for example, final account, accounts
receivables, accounts payables, etc. that keep track of the major aspects of the business.

(v) Model Based System

Simulation models or optimization models used for decision-making are used infrequently and
creates general guidelines for operation or management.

Decision Support Systems Role in Decision making process

1. Data Aggregation and Analysis:

o Role of DSS:
 Gathers and aggregates relevant data from various sources.
 Analyzes data using advanced modeling and analytical techniques.
o Impact on Decision Making:
 Provides decision-makers with a comprehensive view of relevant information.
 Enables in-depth analysis for better-informed decisions.

2. Scenario Simulation:
o Role of DSS:
 Allows for the creation and simulation of different decision scenarios.
 Models the potential outcomes of various decision options.
o Impact on Decision Making:
 Assists decision-makers in understanding the consequences of different choices.
 Supports proactive decision-making by exploring potential scenarios.

3. Decision Modeling and Optimization:

o Role of DSS:
 Utilizes mathematical models to represent decision problems.
 Optimizes decision variables to achieve the best outcomes.
o Impact on Decision Making:
 Provides decision-makers with quantifiable and objective insights.
 Optimizes resource allocation and decision parameters.

4. Access to Real-Time Information:

o Role of DSS:
 Integrates with systems to provide real-time data updates.
  Ensures decision-makers have access to the latest information.
o Impact on Decision Making:
 Enables timely decision-making based on current and relevant data.
 Supports agility and responsiveness in dynamic business environments.

5. User-Friendly Interfaces:
o Role of DSS:
 Provides intuitive and user-friendly interfaces for interaction.
 Allows users to easily input queries and interact with the system.
o Impact on Decision Making:
 Reduces the learning curve for users, fostering widespread adoption.
 Enhances accessibility for decision-makers across different levels.

6. Collaboration Support:
o Role of DSS:
 Facilitates collaboration by allowing multiple users to interact with the system.
 Supports shared decision-making processes.
o Impact on Decision Making:
 Encourages teamwork and collective decision-making.
 Improves communication and coordination among decision-makers.

7. Information Presentation:
o Role of DSS:
 Presents insights through visualizations, reports, and dashboards.
 Transforms complex data into easily understandable formats.
o Impact on Decision Making:
 Enhances comprehension by presenting information in a digestible manner.
 Supports quick and effective decision-making.

8. Risk Assessment and Mitigation:

o Role of DSS:
 Assesses potential risks associated with decision options.
 Recommends strategies to mitigate identified risks.
o Impact on Decision Making:
 Helps decision-makers make informed choices while considering potential risks.
 Supports the development of risk-conscious decision-making strategies.

9. Feedback Mechanism:
o Role of DSS:
 Establishes a feedback loop for continuous improvement.
 Collects feedback from users to enhance system performance.
o Impact on Decision Making:
 Enables continuous learning and improvement in decision-making processes.
 Incorporates user insights for refining decision support functionalities.
Decision Support Systems, Attributes,
Characteristics, Classification, Types,
Advantages, Disadvanatages
Decision Support system (DSS) is a computerized program used to support determinations,
judgments, and courses of action in an organization or a business. A DSS sifts through and
analyzes massive amounts of data, compiling comprehensive information that can be used to
solve problems and in decision-making.

Typical information used by a DSS includes target or projected revenue, sales figures or past
ones from different time periods, and other inventory- or operations-related data.

A DSS can be used by operations management and planning levels in an organization to compile
information and data and synthesize it into actionable intelligence. This allows the end user to
make more informed decisions at a quicker pace.

The DSS is an information application that produces comprehensive information. This is

different from an operations application, which would be used to collect the data in the first
place. A DSS is primarily used by mid- to upper-level management, and it is key for
understanding large amounts of data.
For example, a DSS could be used to project a company’s revenue over the upcoming six months
based on new assumptions about product sales. Due to the large amount of variables that
surround the projected revenue figures, this is not a straightforward calculation that can be done
by hand. A DSS can integrate multiple variables and generate an outcome and alternate
outcomes, all based on the company’s past product sales data and current variables.

The primary purpose of using a DSS is to present information to the customer in a way that is
easy to understand. A DSS system is beneficial because it can be programed to generate many
types of reports, all based on user specifications. A DSS can generate information and output it
graphically, such as a bar chart that represents projected revenue, or as a written report.

As technology continues to advance, data analysis is no longer limited to large bulky

mainframes. Since a DSS is essentially an application, it can be loaded on most computer
systems, including laptops. Certain DSS applications are also available through mobile devices.
The flexibility of the DSS is extremely beneficial for customers who travel frequently. This gives
them the opportunity to be well-informed at all times, which in turn provides them with the
ability to make the best decisions for their company and customers at any time.

Process of Decision Support Systems (DSS):

1. Data Input:

Gathering relevant data from various sources, both internal and external.

2. Data Processing:

Analyzing and processing data using models, algorithms, and analytical tools.

3. Knowledge Base:

Utilizing a knowledge base to store relevant information, rules, and decision criteria.

4. User Interface:

Providing a user-friendly interface for querying and interacting with the system.

5. Model Execution:

Executing models and simulations to generate insights and scenarios.

6. Results Presentation:

Presenting results through reports, dashboards, and visualizations.

7. User Feedback:
Gathering feedback from users to improve system performance.

Attributes of a DSS

 Adaptability and flexibility

 High level of Interactivity
 Ease of use
 Efficiency and effectiveness
 Complete control by decision-makers
 Ease of development
 Extendibility
 Support for modeling and analysis
 Support for data access
 Standalone, integrated, and Web-based

Characteristics of a DSS

 Support for decision-makers in semi-structured and unstructured problems.

 Support for managers at various managerial levels, ranging from top executive to line managers.
 Support for individuals and groups. Less structured problems often requires the involvement of
several individuals from different departments and organization level.
 Support for interdependent or sequential decisions.
 Support for intelligence, design, choice, and implementation.
 Support for variety of decision processes and styles.
 DSSs are adaptive over time.

Benefits of DSS

 Improves efficiency and speed of decision-making activities.

 Increases the control, competitiveness and capability of futuristic decision-making of the
organization.
 Facilitates interpersonal communication.
 Encourages learning or training.
 Since it is mostly used in non-programmed decisions, it reveals new approaches and sets up new
evidences for an unusual decision.
 Helps automate managerial processes.

Disadvantages of Decision Support Systems:

 Complex Implementation:

Implementing DSS may require specialized skills and technical expertise.

 High Initial Costs:

The initial investment in DSS development and implementation can be substantial.

  Dependency on Data Quality:

DSS effectiveness heavily relies on the quality and accuracy of input data.

 Resistance to Change:

Users may resist adopting new decision-making processes facilitated by DSS.

 Security Concerns:

DSS may handle sensitive information, raising security and privacy issues.

 Overemphasis on Technology:

Overreliance on technology may overlook the human element in decision-making.

 Limited Flexibility:

Some DSS may lack flexibility to adapt to rapidly changing business environments.

 Integration Challenges:

Integrating DSS with existing systems may pose compatibility and integration challenges.

 Learning Curve:

Users may face a learning curve when adopting new DSS tools and interfaces.

 Maintenance Requirements:

Regular maintenance and updates are necessary to keep DSS effective and up-to-date.

Components of a DSS

(i) Database Management System (DBMS)

To solve a problem the necessary data may come from internal or external database. In an
organization, internal data are generated by a system such as TPS and MIS. External data come
from a variety of sources such as newspapers, online data services, databases (financial,
marketing, human resources).

(ii) Model Management System

It stores and accesses models that managers use to make decisions. Such models are used for
designing manufacturing facility, analyzing the financial health of an organization, forecasting
demand of a product or service, etc.
(iii) Support Tools

Support tools like online help; pulls down menus, user interfaces, graphical analysis, error
correction mechanism, facilitates the user interactions with the system.

Classification of DSS

There are several ways to classify DSS. Hoi Apple and Whinstone classifies DSS as follows:

(i) Text Oriented DSS

It contains textually represented information that could have a bearing on decision. It allows
documents to be electronically created, revised and viewed as needed.

(ii) Database Oriented DSS

Database plays a major role here; it contains organized and highly structured data.

(iii) Spreadsheet Oriented DSS

It contains information in spread sheets that allows create, view, modify procedural knowledge
and also instructs the system to execute self-contained instructions. The most popular tool is
Excel and Lotus 1-2-3.

(iv) Solver Oriented DSS

It is based on a solver, which is an algorithm or procedure written for performing certain

calculations and particular program type.

(v) Rules Oriented DSS

It follows certain procedures adopted as rules.

(vi) Rules Oriented DSS

Procedures are adopted in rules oriented DSS. Export system is the example.

(vii) Compound DSS

It is built by using two or more of the five structures explained above.

Types of DSS

(i) Status Inquiry System

It helps in taking operational, management level, or middle level management decisions, for
example daily schedules of jobs to machines or machines to operators.

(ii) Data Analysis System

It needs comparative analysis and makes use of formula or an algorithm, for example cash flow
analysis, inventory analysis etc.

(iii) Information Analysis System

In this system data is analyzed and the information report is generated. For example, sales
analysis, accounts receivable systems, market analysis etc.

(iv) Accounting System

It keeps track of accounting and finance related information, for example, final account, accounts
receivables, accounts payables, etc. that keep track of the major aspects of the business.

(v) Model Based System

Simulation models or optimization models used for decision-making are used infrequently and
creates general guidelines for operation or management.

Decision Support Systems Role in Decision making process

1. Data Aggregation and Analysis:

o Role of DSS:
 Gathers and aggregates relevant data from various sources.
 Analyzes data using advanced modeling and analytical techniques.
o Impact on Decision Making:
 Provides decision-makers with a comprehensive view of relevant information.
 Enables in-depth analysis for better-informed decisions.

2. Scenario Simulation:
o Role of DSS:
 Allows for the creation and simulation of different decision scenarios.
 Models the potential outcomes of various decision options.
o Impact on Decision Making:
 Assists decision-makers in understanding the consequences of different choices.
 Supports proactive decision-making by exploring potential scenarios.

3. Decision Modeling and Optimization:

o Role of DSS:
 Utilizes mathematical models to represent decision problems.
 Optimizes decision variables to achieve the best outcomes.
o Impact on Decision Making:
 Provides decision-makers with quantifiable and objective insights.
  Optimizes resource allocation and decision parameters.

4. Access to Real-Time Information:

o Role of DSS:
 Integrates with systems to provide real-time data updates.
 Ensures decision-makers have access to the latest information.
o Impact on Decision Making:
 Enables timely decision-making based on current and relevant data.
 Supports agility and responsiveness in dynamic business environments.

5. User-Friendly Interfaces:
o Role of DSS:
 Provides intuitive and user-friendly interfaces for interaction.
 Allows users to easily input queries and interact with the system.
o Impact on Decision Making:
 Reduces the learning curve for users, fostering widespread adoption.
 Enhances accessibility for decision-makers across different levels.

6. Collaboration Support:
o Role of DSS:
 Facilitates collaboration by allowing multiple users to interact with the system.
 Supports shared decision-making processes.
o Impact on Decision Making:
 Encourages teamwork and collective decision-making.
 Improves communication and coordination among decision-makers.

7. Information Presentation:
o Role of DSS:
 Presents insights through visualizations, reports, and dashboards.
 Transforms complex data into easily understandable formats.
o Impact on Decision Making:
 Enhances comprehension by presenting information in a digestible manner.
 Supports quick and effective decision-making.

8. Risk Assessment and Mitigation:

o Role of DSS:
 Assesses potential risks associated with decision options.
 Recommends strategies to mitigate identified risks.
o Impact on Decision Making:
 Helps decision-makers make informed choices while considering potential risks.
 Supports the development of risk-conscious decision-making strategies.

9. Feedback Mechanism:
o Role of DSS:
 Establishes a feedback loop for continuous improvement.
 Collects feedback from users to enhance system performance.
o Impact on Decision Making:
  Enables continuous learning and improvement in decision-making processes.
 Incorporates user insights for refining decision support functionalities.

Database
The database is an organized collection of structured data to make it easily accessible,
manageable and update. In simple words, you can say, a database in a place where the data is
stored. The best analogy is the library. The library contains a huge collection of books of
different genres, here the library is database and books are the data.

In layman terms, consider your school registry. All the details of the students are entered in a
single file. You get the details regarding the students in this file. This is called a Database where
you can access the information of any student.

Facts about Database:

 Databases have evolved dramatically since their inception in the early 1960s.
 Some Navigational databases such as the Hierarchical database and the Network database were
the original systems used to store and manipulate data. Although these early systems were
actually inflexible
 In the early 1980s, Relational databases became very popular, which was followed by object-
oriented databases later on.
 More recently, NoSQL databases came up as a response to the growth of the internet and the
need for faster speed and processing of unstructured data.
 Today, we have cloud databases and self-driving databases that are creating a new ground when
it comes to how data is collected, stored, managed, and utilized.

Database Components

The major components of the Database are:

1. Hardware

This consists of a set of physical electronic devices such as I/O devices, storage devices and
many more. It also provides an interface between computers and real-world systems.

2. Software

This is the set of programs that are used to control and manage the overall Database. It also
includes the DBMS software itself. The Operating System, the network software being used to
share the data among the users, the application programs used to access data in the DBMS.

3. Data

Database Management System collects, stores, processes, and accesses data. The Database holds
both the actual or operational data and the metadata.
 4. Procedure

These are the rules and instructions on how to use the Database in order to design and run the
DBMS, to guide the users that operate and manage it.

5. Database Access Language

It is used to access the data to and from the database. In order to enter new data, updating, or
retrieving requires data from databases. You can write a set of appropriate commands in the
database access language, submit these to the DBMS, which then processes the data and
generates it, displays a set of results into a user-readable form.

Advantage of database

 Reduced data redundancy.

 Also, there is reduced updating errors and increased consistency.
 Easier data integrity from application programs.
 Improved data access to users through the use of host and query languages.
 Data security is also improved.
 Reduced data entry, storage, and retrieval costs.

Disadvantage of database

 Complexity: Databases are complex hardware and software systems.

 Cost: It requires significant upfront and ongoing financial resources.
 Security: Most leading companies need to know that their Database systems can securely store
data, including sensitive employee and customer information.
 Compatibility: There is a risk that a DBMS might not be compatible with a company’s operational
requirements.

Types of Database

There are a few types that are very important and popular.

 Relational Database
 Object-Oriented Database
 Distributed Database
 NoSQL Database
 Graph Database
 Cloud Database
 Centralization Database
 Operational Database

Database Concepts
A database intends to have a collection of data stored together to serve multiple applications as
possible. Hence a database is often conceived of as a repository of information needed for
running certain functions in a corporation or organization. Such a database would permit not
only the retrieval of data but also the continuous modification of data needed for control of
operations. It may be possible to search the database to obtain answers to queries or information
for planning purposes.

Purpose of Database

A database should be a repository of data needed for an organization’s data processing. That data
should be accurate, private, and protected from damage. It should be accurate so that diverse
applications with different data requirements can employ the data. Different application
programmers and various end-users have different views upon data, which must be derived from
a common overall data structure. Their methods of searching and accessing of data will be
different.

Advantage of Using Database

 Database minimizes data redundancy to a great extent.

 The database can control the inconsistency of data to a large extent.
 Sharing of data is also possible using the database.
 Database enforce standards.
 The use of Databases can ensure data security.
 Integrity can be managed using the database.

Various Levels of Database Implementation

The database is implemented through three general levels. These levels are:

 Internal Level or Physical level

 Conceptual Level
 External Level or View Level

The Concept of Data Independence

As the database may be viewed through three levels of abstraction, any change at any level can
affect other levels’ schemas. Since the database keeps on growing, then there may be frequent
changes at times. This should not lead to redesigning and re-implementation of the database. The
concepts of data independence prove beneficial in such types of contexts.

 Physical data independence

 Logical data independence

Basic Terminologies Related to Database and SQL

(i) Relation

In general, a relation is a table, i.e., data is arranged in rows and columns. A relation has the
following properties:

 In any given column of a table, all the items are of the same kind, whereas items in different
columns may not be of the same kind.
 For a row, each column must have an atomic value, and also for a row, a column cannot have
more than one value.
 All rows of a relation are distinct.
 The ordering of rows in a relationship is immaterial.
 The column of a relation are assigned distinct names, and the ordering of these columns is
immaterial.

(ii) Tuple

The rows of tables in a relationship are generally termed as Tuples.

(iii) Attributes

The columns or fields of a table is termed as Attributes.

(iv) Degree

The number of attributes in a relation determines the degree of relation. A relation having three
attributes is said to have a relation of degree 3.

(v) Cardinality: The number of tuples or rows in a relation is termed as cardinality.

Components of Data Base Management

System
Organizations produce and gather data as they operate. Contained in a database, data is typically
organized to model relevant aspects of reality in a way that supports processes requiring this
information.

The database management system can be divided into five major components, they are:

 Hardware
 Software
 Data
 Procedures
 Database Access Language
Let’s have a simple diagram to see how they all fit together to form a database management
system.

1. Hardware

When we say Hardware, we mean computer, hard disks, I/O channels for data, and any other
physical component involved before any data is successfully stored into the memory.

When we run Oracle or MySQL on our personal computer, then our computer’s Hard Disk, our
Keyboard using which we type in all the commands, our computer’s RAM, ROM all become a
part of the DBMS hardware.

2. Software

This is the main component, as this is the program which controls everything. The DBMS
software is more like a wrapper around the physical database, which provides us with an easy-to-
use interface to store, access and update data.

The DBMS software is capable of understanding the Database Access Language and intrepret it
into actual database commands to execute them on the DB.

3. Data
Data is that resource, for which DBMS was designed. The motive behind the creation of DBMS
was to store and utilise data.

In a typical Database, the user saved Data is present and meta data is stored.

Metadata is data about the data. This is information stored by the DBMS to better understand the
data stored in it.

For example: When I store my Name in a database, the DBMS will store when the name was
stored in the database, what is the size of the name, is it stored as related data to some other data,
or is it independent, all this information is metadata.

4. Procedures

Procedures refer to general instructions to use a database management system. This includes
procedures to setup and install a DBMS, To login and logout of DBMS software, to manage
databases, to take backups, generating reports etc.

5. Database Access Language

Database Access Language is a simple language designed to write commands to access, insert,
update and delete data stored in any database.

A user can write commands in the Database Access Language and submit it to the DBMS for
execution, which is then translated and executed by the DBMS.

User can create new databases, tables, insert data, fetch stored data, update data and delete the
data using the access language.

Users

 Database Administrators: Database Administrator or DBA is the one who manages the complete
database management system. DBA takes care of the security of the DBMS, it’s availability,
managing the license keys, managing user accounts and access etc.
 Application Programmer or Software Developer: This user group is involved in developing and
desiging the parts of DBMS.
 End User: These days all the modern applications, web or mobile, store user data. How do you
think they do it? Yes, applications are programmed in such a way that they collect user data and
store the data on DBMS systems running on their server. End users are the one who store,
retrieve, update and delete data.