How Businesses Use Information

Introduction to How Businesses Use Information

What you'll learn to do: discuss ways in which information is used in business

Source: Linda Williams, https://courses.lumenlearning.com/wm-introductiontobusiness/chapter/introduction-to-how-businesses-use-information/
This work is licensed under a Creative Commons Attribution 4.0 License.

Data vs. Information

Learning Outcomes

1. Define and distinguish between "data" and "information"

Many people are under the impression that the terms "data" and "information" are interchangeable and mean the same thing. However, there is a distinct difference between the two words. Data can be any character, text, word, number, and, if not put into context, means little or nothing to a human. However, information is data formatted in a manner that allows it to be utilized by human beings in some significant way. An individual has an almost unlimited amount of data associated with him or herself.  This data is of little use to business in it's raw, unorganized form. It is not until the data is formatted or compiled into something meaningful that business has information about the individual. For example, suppose the department store Big Box is collecting data about its customers from a loyalty card program and online customer surveys. It collects the following data about a particular customer:

• Age: 34
• Big Box Account #: 123456
• Gender: Female
• Zip Code: 22322
• Children: 2
• Marital Status: Married
• Last Purchase: Jogging Pants
  

These pieces of data alone are not particularly useful to Big Box. It is not until the data is compiled that Big Box begins to get a "picture" of the customer behind account #123456. Transforming this data into information, Big Box is able to know that this customer is a married female who has 2 children and enjoys jogging. They also know that because she lives in zip code 22322 that she is most likely to shop at their store at Halifax Mall since the mall is in the same zip code as the customer's home address. If Big Box wants to market to her successfully, then they will use this information to include her in an upcoming active wear promotion. Also, since she has children they will also include her in promotions that include children's wear. The key to collecting data and turning it into useful information for Big Box is that it is a continual process.

So, Big Box includes Customer #123456 in a future mailing and when she comes into the store and makes a purchase her loyalty card records that she purchased several items in the toddler clothing department. This data can be useful information when Big Box sends out information about their annual "Santa Comes to Town" promotion. They can use the purchase data to inform them that Customer #123456 has a toddler and toddlers love to come see Santa!

Later in the year, Customer #123456 makes an online purchase of a pair of men's work boots and a men's heavyweight coat. The data that comes into Big Box may look like this:

• Customer #123456
• Date: 10/5/2018
• Item #56-9876 Cougar Work Boots, Size 11
• Item #43-2341 Men's Heavyweight Denim Coat, Size XL
  

Not very interesting data by itself. But, now Big Box can use this data to have even better information about Customer #123456. They know that Mr. #123456 probably works outdoors, possibly in a skilled trade; hence the need for work boots and a heavy weight coat. When Big Box spends their promotion dollars on a men's suit sale they will not target Customer #123456 because they have "information" about them, gathered from these individual pieces of data. As Customer #123456 makes additional purchases, visits the company's web site and responds to special offers they will collect more and more data. Every piece of data collected will be useful in giving Big Box more and more information about this particular customer. Now, imagine this data is collected on every customer for every purchase over a period of years. The quantity of raw data collected is staggering and the challenge for Big Box is to store this data in a manner that allows it to be turned into information. This is where data warehousing and data mining come into play.

Business Data

Learning OUTCOMES

• Describe the different types of data businesses collect

Information flows in and out of a business in many different directions. The type of data a business collects is informed by a business's goals and objectives. Computing systems can collect a dizzying array of data about the world around us. Businesses must decide what type of data they need to inform their business decisions and where and how that data can be collected. The types of data that businesses collect can be broken down into five broad categories: business process, physical world observations, biological data, public data and personal data. Let's examine each of these categories of data in greater detail.

Business Process Data. In order to remain competitive businesses must find ways to increase efficiency while maintaining quality standards for their products, goods and services. In order to continuously improve their operations, businesses collect data regarding their business processes. This data can range from collecting data on the number of days it takes their customers to pay invoices to the time it takes to assemble and package a product. In order to collect this type of data, many businesses employ enterprise resource planning systems. ERP systems track business resources - cash, raw materials, production capacity - and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data.

Another source of process data is Point of Sale (POS) systems. We are all familiar with these – they are the systems that scan the barcodes on our purchases when we check out at the grocery store. When a cashier scans the barcode on an item that scan collects data that may be used in inventory management, loyalty programs, supplier records, bookkeeping, issuing of purchase orders, quotations and stock transfers, sales reporting and in some cases networking to distribution centers. The more data a business has about its processes the more likely it will find opportunities to improve or enhance those processes.

Physical-world observations. Technology has made it possible for business to capture real-time data about the physical world. This data is collected by the use of devices such as radio frequency identification (RFID), wireless remote cameras, GPS, sensor technology and wireless access points. By inserting computer chips into almost any object companies are able to track the movements of that item and in some cases control the object. One of the early adopters of such technology was the On-Star system installed in millions of U.S. automobiles. Through the use of a combination of RFID, GPS and satellites if car owners inadvertently locked their keys in the car they can make one call to On-Star and the doors to their vehicle would be unlocked.

In another application of RFID technology, Delta Airlines sends passengers real-time information about the location of their checked baggage.  In 2016 Delta began sending fliers who check bags mobile notifications as bags are loaded onto and off of airplanes and when they arrive at carousels for pickup. By embedding RFID chips in each luggage tag, Delta has achieved an eye-popping 99.9% tracking success rate, according to the company. "In the same way that customers want information at their fingertips about flight changes, we know our customers want clear visibility to their checked bags," says Tim Mapes, Delta's chief marketing officer.

Biological Data. If you have a newer smartphone, then you may be able to unlock your phone by simply looking at the screen. This is made possible by facial recognition software. Unlocking your laptop with your fingerprint is another example of biological data available to businesses. Although things like voice and face recognition, retinal scans and biometric signatures are currently used primarily for security purposes, it may be possible in the future for this type of data to allow for product and service customization.

Public Data. Businesses have an almost endless source of data available to them free from public sources. Whenever you log onto the Internet, use instant messaging, or send emails, an electronic footprint is left behind. For now this data is considered to be "public" and businesses collect, share and even sell this type of data every day. This has become a very controversial topic in the past several years and recent legislation by the EU regarding this type of data may be the first step in limiting the collection and use of this type of public data. For additional information on this groundbreaking legislation follow this link to the European Commission: European Commission and Data Protection

Personal Data. Much like data that is considered to be "public" data, as we use technology we provide a wealth of personal data that businesses can use to reveal much about our personal preferences, habits, pastimes, likes and dislikes. For example, Facebook uses information people provide - such as their age, gender and interests - to target ads to a specific audience. Advertisers tell Facebook which demographics they want to reach, and then the social media giant places the ads on related accounts. How businesses collect and use this data is also highly controversial as exemplified by recent disclosures that Facebook has been collecting and selling personal information gathered from subscribers' activities on the social network. Much like the controversy surrounding publicly available data, what rights an individual has to his or her data is currently being debated globally.

The volume of data available to businesses continues to increase exponentially and as more and more data becomes available collecting, storing and analyzing that data becomes increasingly complex.  This data explosion has made data warehousing and data mining of greater importance to businesses.

Data Mining and Warehousing

Learning Outcomes

• Explain the difference between data mining and data warehousing

Billions and billions of bits of data flood into an organization's information system, but how does that data get utilized effectively? The challenge lies not so much with the collection or storage of the data: today, it is possible to collect and even store vast amounts of information relatively cheaply. The main difficulty is figuring out the best and most efficient way to extract and manage the relevant data. In this section you will learn how organizations not only warehouse but then mine the data they collect.

Did you ever think about how much data you yourself generate? Just remember what you went through to start college. First, you had to fill out application forms asking you about test scores, high school grades, extracurricular activities, and finances, plus demographic data about you and your family. Once you'd picked a college, you had to supply data on your housing preferences, the curriculum you wanted to follow, and the party who'd be responsible for paying your tuition. When you registered for classes, you gave more data to the registrar's office. When you arrived on campus, you gave out still more data to have your ID picture taken, to get your computer and phone hooked up, to open a bookstore account, and to buy an on-campus food-charge card. Once you started classes, data generation continued on a daily basis: your food card and bookstore account, for example, tracked your various purchases, and your ID tracked your coming and going all over campus. And you generated grades.

And all these data apply to just one aspect of your life. You also generated data every time you used your credit card and your cell phone. Who uses all these data? How are they collected, stored, analyzed, and distributed in organizations that have various reasons for keeping track of you?

Warehousing and Mining Data

How do businesses organize all of this data so that they can transform it into useful information? For most businesses this is where data warehousing comes into play. A data warehouse collects data from multiple sources (both internal and external) and stores the data to later be used in an analysis. The primary purpose of a data warehouse is to store the data in a way that it can later be retrieved for use by the business. Despite the name, Data Mining is not the process of getting specific pieces of data out of the data warehouse, but rather the goal of data mining is the identification of patterns and knowledge from large amounts of data. Large retailers such as WalMart and Target track sales on a minute-by-minute basis and data mining allows these large retailers to recognize changes in purchasing behavior in an extremely short amount of time. They can quickly make adjustments to inventory levels based on the information gathered from thousands of individual transactions as a result of data mining. Clearly understanding consumer behavior is a primary goal of data mining. The following video explains just how businesses use data mining to understand and predict consumer behavior.

Today businesses are treating the Internet as a massive data warehouse and are using data mining techniques to gather data about not just existing customers, but potential customers. Data mining tools such as Scrapy, Nutch and Splash allow businesses to learn more about customers, competitors, compare prices and even find new customers and sales targets. As the quantity of data businesses can collect continues to grow, having an effective data warehousing system that can be easily mined has become increasingly critical to business success.

Information and Business

Learning Outcomes

• Explain how businesses use information.

We can summarize how businesses use information by saying, "businesses use information to gain a competitive advantage".

Simply put a competitive advantage is what makes a business's goods or services superior to all of a customer's other choices. Internally, however, we can examine closer how information is used in both primary and support activities within the business.
Information and Primary Business Activities

The primary activities are the functions that directly impact the creation of a product or service. The goal of the primary activities is to add more value than they cost. The primary activities are:

• Inbound logistics: These are the functions performed to bring in raw materials and other needed inputs. Information can be used here to make these processes more efficient, such as with supply-chain management systems, which allow the suppliers to manage their own inventory.
• Operations: Any part of a business that is involved in converting the raw materials into the final products or services is part of operations. From manufacturing to business process management, information can be used to provide more efficient processes and increase innovation through flows of information.
• Outbound logistics: These are the functions required to get the product out to the customer. As with inbound logistics, information can be used here to improve processes, such as allowing for real-time inventory checks.
• Sales/Marketing: The functions that will entice buyers to purchase the products are part of sales and marketing. Information is critical to every aspect of sales and marketing. From online advertising to online surveys, information can be used to innovate product design and reach customers like never before. The company website can be a sales channel itself as we have seen with Amazon.
• Service: The functions a business performs after the product has been purchased to maintain and enhance the product's value are part of the service activity. Service can be enhanced via technology as well, including support services through websites and mobile apps.
  

Information and Support Activities

The support activities are the functions in an organization that support, and cut across, all of the primary activities. The support activities are:

• Firm infrastructure: This includes organizational functions such as finance, accounting, and quality control, all of which depend on information; the use of ERP systems is a good example of the impact that information can have on these functions.
• Human resource (HR) management: This activity consists of recruiting, hiring, and other services needed to attract and retain employees. Using the Internet, HR departments can increase their reach when looking for candidates. There is also the possibility of allowing employees to use technology for a more flexible work environment.
• Procurement: The activities involved in acquiring the raw materials used in the creation of products and services are called procurement. Business-to-Business e-commerce can be used to improve the acquisition of materials.
  

This brief analysis sheds some light onto how businesses can use information to gain a competitive advantage. As you can see, the use of information cuts across the entire organization. Although the uses may vary from area to area one thing that is consistent is the use of accurate, timely information can improve business processes and thereby enhance the customer experience.

When the customer experience is enhanced, revenues rise, profits rise and business flourishes. Information is quickly becoming the lifeblood of business and its importance in the long-term success of an organization cannot be overstated.

Introduction to Information Networks

What you'll learn to do: compare the ways that businesses can manage information

Billions and billions of bits of data flood into an organization's information system, but how does that data get utilized effectively? The challenge lies not so much with the collection or storage of the data: today, it is possible to collect and even store vast amounts of information relatively cheaply. The main difficulty is figuring out the best and most efficient way to extract and manage the relevant data and resulting information. In this section you will learn how organizations use a variety of networks to manage their information.

The Internet and Cloud Computing

Learning Outcomes

• Discuss how businesses can use the Internet to manage information
  

Once it's grown beyond just a handful of employees, an organization needs a way of sharing information. Imagine a flower shop with twenty employees. The person who takes phone orders needs access to the store's customer list, as do the delivery person and the bookkeeper. Now, the store may have one computer and everyone could share it. It's more likely, however, that there are a number of computers (several for salespeople, one for delivery, and one for bookkeeping). In this case, everyone needs to be sure that customer records have been updated on all computers every time that a change is required. Traditionally the business would install a network (LAN) to allow the various computers to talk to one another and share information. Today businesses are looking to the cloud to provide a network solution.

Cloud Computing

So, what is cloud computing? Watch the following video, which describes some of the uses and benefits of cloud computing.



The term "cloud computing" means performing computer tasks using services provided over the Internet. In cloud computing a company's data and applications are stored at an offsite data center that is then accessed via the Internet (the cloud).  So when you hear or read that an individual or company is using the "cloud" or technology firms, such as IBM, Hewlett-Packard, and Salesforce.com, are offering cloud services, just substitute the word "Internet" for "cloud" and things will make sense.

You might be surprised to learn that you're already using the cloud - that is if you use Facebook (which is very likely - in fact, just mentioning Facebook here might prompt you to stop studying and check out your friends' pages). How do you know that Facebook is a cloud application? Remember the trick: just substitute the word "Internet" for "cloud". The Facebook computer application lets you store information about yourself and share it with others using the Internet.

Advantages and Disadvantages of Cloud Computing

In making a decision whether or not to use cloud computing to store and share information, a business should consider some of its advantages and disadvantages.
Advantages

1. Cost Savings - By "renting" software rather than buying it the cloud can reduce.  In most instances, the monthly fee to "use" software is generally less than the combined cost of buying, installing, and maintaining the software internally. On the hardware site, housing  data in a service provider's facilities (such as Amazon or Google), rather than in-house, reduces the large outlay of cash needed to build and maintain data centers.
2. Speed of Delivery - Purchasing and installing software and data processing equipment can be time consuming. A cloud computing service provider can get applications up and running in a minimal time frame and often without interrupting normal business operations.
3. Scalable - As businesses grow it's often difficult to gauge the level of technology needs. If businesses overestimate their requirements, they end up paying for technology they don't need. If they underestimate, efficiency goes down, and the experience for customers may diminish. By using cloud computing businesses are able to have exactly what they need at their disposal at any point in time.
4. Employees Can Be Mobile - The use of cloud computing frees workers from their desks and allows them to work wherever they are. As applications move to the cloud, all that is needed for employees to connect to their "offices" is the Internet. This mobility benefit also makes it easier for employees to collaborate on projects and connect with others in the company.
5. Information Technology Staff - Finding experienced and knowledgeable information technology staff is a continuing problem for many businesses. By using cloud computing, businesses can reduce their human resource needs by shifting some of the work to outside vendors who have a staff of highly skilled individuals.
   

Disadvantages

Although the advantages of moving to a cloud environment outnumber the disadvantages, the following disadvantages are cause for concern:

1. Disruption in Internet Service - Since both applications and data are accessed via the Internet, if the Internet is unavailable because of a disruption this could create serious problems for a business.
2. Security - Many companies are reluctant to trust cloud service providers with their data because they're afraid it might become available to unauthorized individuals or criminals. This is a particular concern to business that collect and store sensitive client information. 
3. Service Provider System Crash - Organizations considering moving to the cloud are often concerned about the possibility of a computer service crash at their service providers' facilities. If the service provider experiences an outage, then the business is in effect cut off from its data and operations.
   

Although there are some disadvantages, using cloud computing to manage information is the new normal for many businesses. In fact, according to Forbes magazine, the cloud computing market is estimated to grow to $411 billion by 2020. The global cloud computing services market size is driven by many factors. The most important factor, which is driving the market, is the cost effectiveness. With the deployment of cloud computing services, organizations can save more than 35% of the annual operating costs of their information systems. Clearly the future for the cloud is sky high!