Business Modeling

Business Modeling - Transcript

Business Modeling 1





Normally


The car manufacturer knows more about the car than the purchaser The clothes retailer is better informed about current fashions and the quality of materials The supermarket knows the origin and age of lettuces and knows that the buyer doesn t





Normally


In such situation there is no motive for exchange except differences in information There are no gains from trade through specialization or differences in capabilities



Further


Suppose there are two kinds of products one emphasizing good design and other lemons The salesman knows which is which but it is difficult for the customer buyer to figure out

And


The market price will be respective averages of the values of good designs and poor designs But those averages are fine for the producers of lemons and disappointing for the producers of good products So the producers of lemons will want to offer products at lower prices and the good quality product producers won t







And as customers discover this that knowledge will push down the price of the product and lead to market failure

Informational Errors
Research has shown that


60 of systems errors across all systems automobile nuclear power plants transportation systems etc are information errors and only 40 errors are due to material electrical and mechanical failures



In current business scenario


With innovations in IT the volume and speed of information processing and decision making have undergone sharp increases Accordingly business enterprises for their competitive survival are looking for bigger business opportunities through customized products



Fish pond example

Figure A systems view of Pond environment after accounting for the variables not accounted for in the earlier figure

Why discuss this example


To discuss the systems view To discuss the complexity involved in information modeling Environment has percolated every where





From To


From Traditional Design Business Model To Open system View of Business Process From Physical Work System to Informational Work System





Traditional Design Business Model


Emphasizes material and energy processing Seeks to produce standard product in high volumes Competitive advantage through Operational Optimization and Cost efficiency Does not have a need to process information optimally









Systems View of Traditional Business Model

Informational Work System


There is shift from Energy based to Data driven Technologies Presenting New Market Requirement of Need to use information decision smarter This requires maximization of informational work For delivering Flexible information decision for control implementation







Systems View of Business Process Model showing interrelationships between PWS and IWS

For example


Reliance Fresh retail stores Instant products cost effective efficient




Mass customization Juices coffee instant noodles etc



IT as a differentiating factor Hair styling fabric designing car customization shoe customization etc online business

Business Systems as Open Systems


This leads to recognizing business organizations to be open systems OS An open system is distinguished from a closed system as it open system has following features






Purpose objective Possesses porous boundary with its environment Is impacted by and impacts its environment and Whatever else it does it necessarily processes information

What Information


Information I has three components These are


a I1 an aggregate or a measure


A method to compare and select Money Marks Feedback



b I2 indicating business opportunities market imbalances


Market imbalances create opportunities



c I3 constituting knowledge of working mechanisms for resource allocation


I can spend 60 of my salary on food and clothes

What Information


Recipient or customer requires that a business IS which can originate and process that I I1 I2 I3


which are useful relevant and make it easy to function in the market i e which are usable


to rank the originated alternatives for comparison and to make a customized information decision

Example Education


If a student wants to achieve a CGPA of 8 0


I1 CGPA



Then he will want to take a course which can score more if he has a CGPA of 6 0 the course may may not interest him But if he has a CGPA of 9 0 he may take a course which interests him but may not fetch a very high CGPA


I2 Constraints opportunities on a c of market imbalances



He is ready to spend 8 hours a week on this course


I3 Knowledge of working mechanism for resource allocation

Example Business


A person wants to spend Rs 20 lacs for investing in business


I1 Measure



There are no vegetable outlets in a particular locality


I2 There is a market imbalance so we see an opportunity



The person needs to take the loan of Rs 7 lacs for setting up shop


I3 Resource allocation He is ready to pay an EMI of Rs 25k

I I


Information has to be with integrity Integrity is defined as




Accuracy Consistency Reliability of Information

Thus


For efficient processing of information I there has to be economic trade off between Costs of originating information I and Loss due to incorrect information i e due to I I Risk





In other words


That IS which for a certain kind of information origination is able to manage costs at the lower level will tend to prevail From this it follows that to compete successfully I1 I2 and I3must have integrity This provides the basis for the Usefulness Usability Integrity paradigm






Systems view of I I


It is the Business IS View modeled as Continuous Individual Information Originating Processing Situation under Uncertainty and the information I processed by it should then have so desired optimum Information Integrity

Systems view of I I


For System Development Life Cycle SDLC model


Design Integrity Development Integrity Testing Integrity Implementation Integrity Data and Data Processing Integrity



This is a holistic view of Information integrity presenting it as a systems issue

Summary
Business Modeling Information Integrity Issues Need for systems view


Further Next Session
Convergence ICT Case Studies Need for newer Business Models