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SummaryEdit

  1. Number of study hours: 30
  2. Short description of the course: In the first chapter organizations most important relations with IT field are discussed. Theoretical base is given to IT ability for moving classical business environment towards e-business and virtual organizations.
  3. Target groups: The employers of IT core level professionals are the target sector here. The first target group consists of IT students (vocational school basic level IT training and the first courses in colleges and universities) in the field of technology, and IT practitioners not having vocational certificates yet
  4. Prerequisites: There are no prerequisites for this course.
  5. Aim of the course - learning outcomes: After this course reader has basic knowledge about organizations need for usage of IT.

ContentsEdit

A.1.1 The structure and form of the organizationsEdit

The organization theory states that an organization is established in order to fulfill specific objectives, whereby the organization fulfils the objectives through people. Therefore an organization can be described as a system with certain structure, where people operate in order to attain the goals formulated on previously established plans.

Organizations are divided:

  • For-profit organizations
  • Non-profit organizations

The main goal (or one of the main goals) of for-profit organizations is to generate profits for the owners, that will be distributed when the stockholders meeting decides to do so. For-profit organizations are combined of two – private entities and economic communities. Sole proprietorship (FIE) is the only representative of private entities in Estonia. Economic communities consist of partnerships, co operations i.e. concessions and capital entities. Partnerships are made up from general partnership and limited partnership; their advantage is a relatively simple establishment and the disadvantage is the owners’ total liability for company’s actions with their own possessions. Capital entities are made up from limited liability companies and public limited companies, where the owners are only liable for their stocks or capital investment.

The companies today have developed from entrepreneurial management, where the owners manage the companies, into a new phase. This new situation is called professional management, where professional managers are put in charge of a business instead of the owners. The placement of professional managers in charge of businesses has put into question if earning the profit is the only goal of the companies. Of course all kinds of different effectively indicators have to be kept in mind in addition to maximizing the goal, when in some situations it might be more important for a company to maximize:

  • Turnover
  • Profit from sales
  • Number of clients
  • Number of employees

Non-profit organizations use their profit to realize the goals stated in the articles of association. Non-profit organizations are non-profit foundations, churches and different charity oriented enterprises.

In this part the main emphasis is on for-profit organizations. Therefore derived from the given aspect, a company deals with entrepreneurial tasks in one hand and on the other hand it carries company’s internal values, which can be based on:

  • Company’s history
  • Intangible assets (inventions, trademark, etc.)
  • Business connections
  • Possessions
  • Employees etc...

All these factors sculpture organizational behavior that is a separate branch of study deriving from the given theme.

In addition to previously mentioned division of entities by juridical and ownership differences, entities can be also divided by fields of activities, dominating production factor, the characteristics and size of production.

Division according to the fields of activities is based on the principles of field of production and the main industries are:

  • Industrial enterprises
  • Commercial enterprises
  • Transportation and communication enterprises
  • Banking enterprises
  • Insurance enterprises
  • Other service enterprises

Based on the dominating production factor the division can be made as follows:

  • Labor-intensive enterprises
  • Capital demanding enterprise
  • Substance demanding enterprise
  • Know-how demanding enterprise
  • Etc.

Based on production’s characteristics the division can be made up by:

  • Service enterprises (commerce, transportation, communication, banking, insurance etc.)
  • Producing enterprises that can be also divided into procuring and processing industry. Processing industry can be also divided into commodities and production equipment manufacturing companies.

In today’s globalizing World there is bi-dimensional development, on one hand the development of multinational conglomerates demands an up to date information system. On the other hand, thanks to the development of information systems it makes it possible for global companies to develop at all. It can only be imagined how the communication was possible previously in East-Indian companies, when the orders and reporting between the main and sub offices travelled by boats and the duration lasted for nearly a year.

Although the historical growth tendencies indicated clearly the domination of big corporations, almost all the companies have started off as small firms. The advantages of small companies are their flexibility and relatively quick reaction times to the changing demands of the market. At the same time the need for information systems for small companies is rather modest, limiting only with accounting and stock calculations. With the development of a company also the quality demands grow for information system’s content and technology. Average companies have already higher demands for their systems. Big companies that are outnumbered by small and average companies are stricter to changes and at the same time they are more stable than smaller companies.

The size of a company determines the hierarchical structure. A great attention is paid to the problems emerging from the structural and hierarchical issues, especially in big companies, where the reporting and management lines are tried to be clearly set up.

The outcomes of companies are also related to their size, according to the organization theory – bigger companies have the possibility to attain better effectively indicators, because of specialization. Higher specialization is possible either through mass or serial production; therefore the small and average size companies keep their market share with custom or small-scale production. Hence bigger organizations have to pay greater attention to the internal formal regulations and the structure. In order for a conglomerate to function properly, the so-called chain of command is needed, that in some way resembles the military structure.

Today all the companies are very interested in increasing flexibility, delegating rights and responsibility to lower hierarchy and in multilevel hierarchy systems. When observing different management structures, then they can be divided as follows:

  • Line system
  • Functional management system
  • HQ system
  • Line system with cross functions i.e. multi line system
  • Product or project line system
  • Matrix organization

A1.Figure 1

On the drawing A1.01 there is brought out the management structure of product or project line system, where the differences derived from hierarchy have been replaced by cooperation directed activities, where the internal communication is utilized and the operations are set to achieve common goals. Traditional line-organization is only applicable in case of a relatively narrow production program. Derived from the expanding product diversification many corporations dwell from functional management structure and build up the company’s management product based i.e. the management is based on product, group of products, technology or location.

Hence, an organization is composed of employees, who develop the business activities by using and processing initial information. In order to do their tasks successfully the people have to use equipment and machinery that might be related to IT (information technology). In most cases all the structured organizations put effort into storing and using information. The central position of IT that is observed as the automated possibility to use information is evidently insured.

The tasks can be graphically described by showing the work related relations between employees that are characterized by the transportation of materials and information. Using organizational structure on Figure A1.01 we can both describe information flow and logistics solutions for any kind of purchase and sales of goods. There are no big distinctions whether one buys production equipment or order a project, even an IT system project. At first, let’s take a look to the most significant activity i.e. firm own production sale. Sales activity starts from Sales department where salespeople have been found a customer by their own initiative (active sales model) or buyer itself has decided to buy that kind of production. In order to deliver goods in certain amount and quality reach customer at given deadline Sales department form sales order where all requirements to goods are described. Sales order will then reach storage personnel when amount of goods is large or directly production department where local production delivery person can handle smaller amounts of goods. After packaging options choice to avoid product to be spoiled or damaged goods are prepared to transportation. Related to payment condition, goods will then be transported to customer. On pre-paid billing option accounting department first check that money is arrived to the bank account and only then they give permission to delivery. Also when value of goods is insignificant or customer is loyal or long-termed management can decide to deliver goods immediately and issue a bill to be paid afterwards. In practice bill and goods are often move together i.e. buyer reaches product and bill together and bill is to be paid to given deadline. As a rule delivered goods are moved to buyers department dealing with procurement.

Purchase of goods to production or retail sales has exactly the same structure. Procurement personnel reach order about raw material or semi-manufatured goods to be purchased. In order is listed exactly amount and quality of the goods and deadline of arrival.

In order to standardize goods description various classifications are taken into usage. Classification is a code unique to every product which undoubtedly describes an object of trade. As a rule long-term trading relations develop between partner firms as long as goods can be produced without big changes and market takes the product. In long-term relations transactions also can be robust. When given amount of production needs certain amount of raw material it is simple to follow inventory of storage and procure materials on need.

In real life all the transaction related processes may be a lot more time consuming and complicated, because different banking services are used to reduce risks (letter of credit) and different transportation companies are exploited. As the previous miniature example shows, even the simplest transactions require sufficient amount of information exchange internally and externally (between different partners). Therefore the use of info systems could produce a substantial increase of effectiveness in management and in performing daily tasks (planning, accounting). As a result there would be an increase in the quality of supply, the company’s employees would be freed from routine tasks and their interest towards their work would grow, also there would be a better and faster overview of the present developments. Quicker reaction during changes can also increase the quality of management making their daily decisions or strategic conclusions.

Many companies have taken into use newer IT solutions that can be classified into groups by analyzing their different development state:

  1. The creation of computer. Few experimental computers during 1940-1950 – analogue computers, development of radar systems.
  2. The expansion of the use of computers, first computing centres. Distinctive to the 1960-1975. Aside of scientific facilities, computers were used in production, general euphoria, higher expectations towards IT emerged.
  3. Local use of computers. Describing 1975-1980, where computer centres arose aside companies. Computers were used for automating of production by directing certain processes and optimizing (power consumption, transportation or for guiding equipment, assembly lines etc). IT was mainly used in accounting for data processing.
  4. "Automated" workstations. In the 1980s personal computers started emerging. Although computing centers and IT departments continued their activities and capacious processing were still their tasks; new possibilities for PCs, firstly in word processing, but also in engineering and constructing evolved.
  5. Internal integration. In 1990s personal computers were widely used and the considerably developed operation systems with relatively steady communication channels made it possible to start using multilayer computer system model.
  6. Globalization. The fast development of internet and digital communication technology has given a base for realization of new logical connection networks. Computing technology has evolved from a local tool to an essential element in global systems. Due to new possibilities the so called „new economy” can be discussed, where new business models (IT Company, home office, w-business etc.) have found their solid place.

The management information systems often characterize organizations by acting as a business card. Big multinational conglomerates prefer to use more conservative integrated systems that require a stricter but compound approach. Smaller companies that are more dynamic themselves, stress on more versatility and use more general technology – this approach enables them to achieve greater flexibility and adaptability with changes in internal and external requirements. Although it may consequently arise several problems when one uses them only as management systems.

A.1.2 The influence of IT on organization’s information processingEdit

Information itself is a basis to any kind of economic relationship and some information systems has been used in a way or another long before first IT systems emerged. Computational equipment gives an option to produce a lot larger amounts of information and process it quickly in order to use widely different analysis and forecast methods. All this can then be used on operating decision making, strategic planning, accounting, adequate supply, logistics (transportation tasks), etc.

Tasks mentioned above can be solved with or without computer one needs specified information workers able to produce new knowledge using given input data. Especially after taking computing equipment into action so-called ponytailed Youngman needed both to keep hardware and software running. On operating level it is usually software related issues that are problematic depending on whether software is bought in, uniquely developed by Software Company or developed in-house.

Initial information is amount of data which is understandable only to insiders and means usually nothing to people outside the information owner. Special software is needed to read something meaningful that makes together a significant part of information system. But for end user all these details are not so important and gives us an option to look at them as “black box” defined in system theory. Especially for end user result is most important and, you are right, consequences to given result. Also initial conditions impact to result is important to our end user.

According to timing needs of the customer information system can act as:

  • Real-time system where changes in input make immediate changes in result of analysis;
  • Non-real-time system that has some time shift between input information change and that of result.

Real-time input analysis and result output is important in sectors of economy where reaction to change to conditions is immediately required. Typical example is electric power production where late reaction is not possible because any delay can jeopardize electric supply of the customers.

Surely this kind of prompt reaction is not needed in all kind of enterprises and also between different departments of an enterprise. For example full-scale financial analysis is neither possible to do real-time nor needed. Also macroeconomic analysis and market studies do not processed real-time in general. But one must emphasize that real-time data processing is very common because its ability to produce data to operational decisions for implementation.

Production process management is also one of the parts of information system and very common in industry usage as production automation. Most common examples are sewing industry, metal production, etc. Details to data in the mentioned systems are closed to out comers as a rule. In general two kinds of access rights can be separated:

  • Input, change and delete specific information for certain users
  • Read-only access to information system for part of users too.

Essentially an access of the users to different level of information depends, for example to information that contains business secret is allowed only by specially given permission. Oppositely level of access to corporate information is general information when allowed to every user of an enterprise. Rest of access conditions are between these limits.

In conclusion, information systems are playing central role in real activity of the enterprise. Poor or semi-manufactured information system usage bring along deduction of economic efficiency to whole enterprise.

A.1.3 Internal and external environmentsEdit

Depending on the company’s field of activity, its competitive advantage depends on the following factors.

  • The personality of the market, where the given entrepreneur is active, if it is a monopoly, perfect competition, monopolistic competition or oligopoly.
  • The division of market by products, if it is a supply market (raw material), business to business products market (equipment, machinery, blanks) or a market of products directed to the end-user
  • The characteristics of the product or service.
  • The production activity; how successfully the company has arranged its production processes, logistics, (supply, warehouses, sales, transportation) and how successfully one can run a business, formulate short and long-term plans and react on information obtained as feedback.

Production activity as a process is characterized on figure A.1.02 where the options for getting raw material and realizing the production have been taken into account. Namely, a company can develop their own sales network or use the help of intermediates. There comes the division into direct and indirect marketing.



Definitely, market is the place that gives a valuation to the producer’s economic activities by showing how the company has fulfilled the goals. The analysis of marketing capabilities (figure A1.03) is very important for every producer and it has to be kept in mind, what kind of product market is under discussion, is it cloyed, are there any close substitutes. Also it depends of the capacity of the market or the purchasing power of the market. Important role will have consumer groups to determine who is main user of the product, how big market share is attainable. Last but not less important is the economic goals, that are related to quality, price, distribution and whit it, either long after sales period or warranty time and communication (see Figure A1.04). Other factors that influence the sales of the product are for example payment terms, product lifecycle (figure A1.05), seasonality effect, etc.


The scheme on figure A1.03 enables to get an overview of the different stages in market analysis and based on the marketing possibilities analysis, definite goals and marketing conceptions can be worked out. The marketing goals may differ a lot, starting from:

  • To increase the importance of production in a certain geographical area by 5% every following quarter and to increase the sales turnover by 7%.
  • Increase the recognition of product X by 15% in a certain market segment.

These tasks have to include a measure (for example, increase in turnover), numerical value (7%) and time constraint (one year). This kind of goal establishments are marketing strategy’s starting points.

The fact, how well a company succeeds in selling their product or service on the market does not originate only from the quality and price of the product or good, that are usually considered as the logical truth, but from several other factors, that are generally named as „marketing methods“.

As a rule the factors are divided into four groups: the factors related to the product, factors related to the price, factors related to distribution and factors related to communication. The figure A1.04 gives an overview of these factors.


The planned marketing conception has to be fulfilled; the course and success should be checked systematically. The necessary criteria derived from previously formulated marketing goals.

The goal of the check is to take the marketing methods as one. So the typical indicators are:

  • Turnover
  • Market share, the development of market and its development
  • Consumer protection evaluation to products and trademark, etc.
  • Filling orders
  • Profit

In practice the indicators have to be concrete. The check should also cover substructures (product, price, distribution, communication). As an example advertisement and some other particular measures can be mentioned. One of the central questions of the product politics is about the scope of alternation and timing of production program to answer these questions different methods have to be used; definitely the model of product life-cycle has to be applied. With this model the assumption is used with every product that every product’s life-cycle (i.e. from the producers point of view, how long will it be in production) is limited and the product goes through different phases during its „life“. The cycles are different for various products, but with some simplification it can be presented as it is on figure A1.05.

The phases of product life-cycle are the following:

  1. Developing the product (from idea until taking it to the market)
  2. Taking it to the market
  3. Marketing – with the following phases:
    • Growth
    • Maturity
    • Saturation
    • Decline and the end of production

The utility for the company of a specific product, - its place on the market, is graphically described on figure A1.06, where are brought out different strategies to adapt to the market.

Logistics is part of the supply process, where the effective planning of its components, putting the plans into practice and supervision consists of the product movement, storage and the managing from the starting point to the end-user of related services and information streams to fulfill the clients’ demands.

Production related logistic problems start from continuous production processes (oil industry, glass industry, etc.) and end with small and individual production. As a rule the particular logistic problems have to be settled deriving from the specific production activity.

Logistics is firstly a strategic managing, that helps to improve the company’s strategic position and improve competitively. Logistics is a part of all the companies’ different actions and a central way of thinking and operating which supports independent subunits. When a unit that manages logistic activities, is founded in company, then it has to be handled as a unit that coordinates logistic operations.

A company can arrange their logistic activities as following:

  • The company creates a subunit, that will organize logistic activities and buys sometimes in the certain logistic services from a logistic service providers
  • The company buys in logistic services with long term contracts. In this case strategic alliances are created, where both parties (supplier and a receiver) settle a mutual agreement of using the service provider i.e. the third party.

Aside of this the following approach can be used when planning and supervising production to warehouse, according to production or planning orders.

The planned technological level depends on previously discussed processes, but also influences the behavior of competitors. Later in A1 and A4 the growing use of internet, because of expanding businesses will be observed. The cause can be the change in competition conditions that greatly is characterized by the growth of World economy, greater emphasis on information based on post-industrial society, the alternation of business activities and the beginning of new digital economy.

It has to be agreed, that the previously mentioned organization’s internal (strategy, production) and external (indicators characterizing the market) factors influence the competitors’ business models and create a distinguishable environment for a particular market segment. In more details, the strategic planning, research and development, that precede the arrangement of sales activity is substantially influenced by environmental effects. To illustrate the environmental influence, the Porter’s Five Forces model is used, that describe different influences taking place on the markets. The so called five forces are analyzed:

  • Consumer (client)
  • Supplier
  • Competition
  • Substitute products
  • Barriers of entry

A.1.4 Business planEdit

The most important in free market economy is the production that has to react quickly to the changes in market’s demands. The most mobile and flexible companies through times have been the small enterprises. Starting from the end of the last century, the more there has been discussions about the evolvement of small companies established on a different level that is called qualified entrepreneurship. This stands for a modern and development possibilities seeing company, which was powered up thanks to Internet or in a broader sense, thanks to the rapid development of communication- and info technology. The understanding, that monetary-economic aspects are secondary in entrepreneurship, additionally the broad usage of venture capital and the solutions, offered by business incubators , may lead to a situation where number of companies that are not well managed will collapse.

All the new risks have to be well evaluated before activities are started, it is also important to determine the expected goals. Of course the specific prognoses for a company are hard to find, because of the uncertainty is very big. At the same time some of the potential risks can be considered and therefore it is reasonable to put together a business plan, which includes possible problems and also shows clearly the positive sides.

When looking at the structure of a business plan, then the following approach is offered:

1. Main part that includes a short overview of the business plan and is written usually in after everything else is present. It is the part that potential investors read firstly and it should create interest for the business plan. If this part is not appealing for the investor, then the business plan is most probably put aside.

2. The business idea, planned goals. Answers to relevant questions: • What products or services are offered and on which market? • Why should clients use your product/service and what are they using today? • Where is the differentiation from the competitors?

3. Market analysis. Attention should be paid to potential clients, market and competitors. Answers to relevant questions: • Is there enough unsatisfied demand on the market that there is room for your company? • Is it a growing or declining market? • What are the clients’ needs, values, purchasing power and other characteristics? • What is the sales price, since the price has to cover your costs and profit needs?

4. Competitive advantages. Answers to relevant questions: • What are the advantages and disadvantages when comparing your product/service with your competitors? • The market consists of possible clients: which part of them is your clientele i.e. what is your niche? • How easily can a consumer switch from your product to a substitute in the future (example: if the lemonade price rises, or something bad happens, then is it easy to replace lemonade with juice for the customer. And thereby the lemonade producer loses) • Know your competitors’ products: what are their strengths, weaknesses, market share, competitive advantage? • Is your product better? • How are you planning to market your product? • Do you have already contacts with possible customers?

5. SWOT analysis. Evaluate your company’s strengths, weaknesses, opportunities and threats.

6. The structure of the company


7. The prognosis of product life-cycle

8. Marketing. How are you planning to sell your product, what channels are you planning to use to reach your customers? It is essential to draw up a detailed marketing budget. How to use IT solutions for advertisement (internet, banners)?

9. Production related issues. Naturally the production and the operations arrangement have to be at least as good as the competitors’. Otherwise the profitability of your enterprise becomes questionable Answers to relevant questions: • Is the product ready or research is still necessary? • If research is required, then how expensive will it be? • What kind of work force will you use? • How long is a production cycle? • How many employees are needed and how big are their salaries? • What are the competitors’ salaries like?

10. Financial planning, budget, forecasts of balance sheet, income statement. Analysis of cash flows. It would be wise to use some balance sheet calculators that are offered by some banks and some other financial institutions (example: SEB Iplanner). It would be wise to compile a profitability analysis.

11. The stages of setting up the company. Describing the most critical phases.


The above listed scheme gives general tips for the structure and for the main questions in a business plan. Of course every business plan includes specific distinctness’s and thereby additional information has to be included. Ideas about compiling business strategies can be obtained, in the start-up phase, during brainstorming, and also by using specialized skills and economic/financial evaluations.

To sum up, it can be stated, that to find innovative solutions, someone has to see everything from his or her point of view, and be prepared to change markets and enthuse investors. Unfortunately it is not always possible to rationally describe very vivid ideas.

A.1.5 Business processesEdit

Business activity is defined as economic practice to earn profit. More precisely it is long-term, organized, planned activity to fulfill certain objectives of an enterprise. Without doubt objectives are well reachable when prepared ie one has knowledge and experiences. Essential part of reaching result is to lead people, their thinkful behavior to achieve planned results which is good management. In theory of management most significant problems are personnel procurement and work motivation issues because majority of great results achieved by motivated, creatively following rules, skillful people. Sometimes this statement seems idealistic because top-level specialist is very expensive, reasonable is to find young talents and train them to enterprise manner.

Depending on the employees’ level of preparation the procedures can be either more specific, documented in details or more general ones. Analogically the equipment can be simpler and general or demand special skills. Traditionally the business process is sometimes described as a „black box“ that has an input and an output. In real life at the end phase of a business process there would be a customer, who consumes the product or uses the service independently.

Business processes can be described in more details, by bringing out the most important components of the process and by adding some supporting activities. In this case the business processes could be described with the scheme on Figure A.1.07.


Today the designing of business processes takes place mainly along in conjunction with IT solutions i.e. the systems for planning the company’s operations that at the same time are very important for the company by influencing all of the main fields of activities of the company.

In all the companies, starting from a small enterprise and finishing with a multinational conglomerate, all the important operations, information and transportation of materials are stored in information systems, and thereby supporting the business processes substantially. Naturally for a longer times some of the companies’ operations have been resolved with using IT possibilities, especially in some important operating niches. At the same time the IT solutions have been developed to confront suddenly appearing problems or to solve specific demands. To avoid useless extra work, it is reasonable to build in the relatively independently working solutions to the main IT system of the company, either directly or with the help of some interface.

In addition to previously mentioned business processes models, companies also use for some tasks some different IT solutions; one of these fields of activities is the supply process that is sometimes named as a supply management system. The process’ schematic description has been brought out on figure A1.08.

The scheme on figure A.1.08 describes the tasks of a production company, but most of the tasks are also important for all the other companies. The differences may occur mainly internally as mentioned in section A1.3 in planning and supervising. It was described that, when comparing non-profit and for-profit organizations, the main processes may differ a lot.

Most of the resource management systems originate from production related companies. Despite of their specific characteristics attention is also paid to administrative tasks in these systems; therefore they are observed as enhanced collection of vertical solutions, that are adapted to a specific field and uses the best entrepreneurial experience.

Aside with the profit gained from company’s resource management system’s main tasks, the system enables to fixate the company’s main goals in enhancing the organization and creating competitive advantages. As an example similar activities can be observed that are used in different organizations. One of them is organizational rearrangement from non-integrated functional activities to a highly integrated one. On the other side on needs to change the management culture (for example hiring new people) to ensure the transition from a narrow (a closed view) to a broader and global view of service culture by paying more attention to domestic and global clients.

Information systems and actually the whole information technology are trying to answer these questions. At the same time knowing that application of IT in a company is never an activity for just the company itself.


A1.6. Information system as a support in organization administrationEdit

The usage of information systems stands for using IT solutions to cope with different task. In an average organization, the assistant prepares documents, sales department analyses clients, supply department looks over raw material offers etc. Every previously mentioned activity involves using and processing information with the aim to find a better solution for attaining the company’s business goals. From the management point of view, the information system is necessary to administer the necessary information i.e. valid information, on time, in the right form and place for managerial activities.

Levels of management differ from decision making and responsibility levels. Top management lead the enterprise and is responsible for economic result of the whole enterprise. For that reason top management has to elaborate strategic plans and to fulfill strategy they have to enter tactical plans. Whole responsibility for chosen strategy relay on top management. Most difficult part of the management incorporates into medium level management which is responsible for both realizations of the strategy and resolve issues on production level. That way medium-level management seizes between “two fire lines”.

As a rule the value of IT for the management depends on the size investments and costs of the development of information system, whereby the usefulness and state of the art are not considered in the expenses. At the same time it is important to evaluate the values of information system due to the calculations of the reality in business activities and the development of the structure that at the same time offers a support for operative task and making strategic decisions. Top management needs information to make strategic decisions, at the same time the information should originate from the initial source to make good decisions. Therefore the necessary information capacity, that is required when making decisions is very big and that makes it necessary to process the initial data, aggregate, compare, to create statistical overview’s etc. An end result should be simple for the top manager, because often they have very good decisive abilities, but not the best relations with IT. Medium level managers need an information system that enables to use reliable juridical or economic information, but also the data for internal use, that enables to find evaluations for possible business trends. Mid level managers have to be able to answer to top managers’ questions or to offer information that is appropriate for top managers to generate new ideas. Therefore, by reducing the tasks of preparation and directing the knowledge and increasing the task of operational managing, then mid level manager’s demands would be broader.

Therefore management information system pictures a set of data files, which could be presented in different ways. The most common of them is reporting in a form of text or graphics (charts, graphics, tables, etc.). Some initial data can be observed in an unprocessed form in order to give an immediate evaluation for an economic procedure, trend or change. In case of more complicated problems, it is necessary to carry out a deeper analysis and for that, different analytical models are used, that enable to reach an ostensible result.

Some ambiguity is present in the designation and naming of the systems. Sometimes it is named as above mentioned supporting system for making decisions by Management Information System. Some different authors have taken in use Transaction Processing System for the same thing. In addition for the previous ones the systems used by top managers are described by different acronyms like Strategic Enterprise Management and Executive Information System, than basically cover the same field and could be defined as CEO Information System.

As a rule the Management information systems are built up with similar logic, as these systems have been in use for a longer time and the optimal solutions are well known. Therefore, the information systems are mainly based on the company’s quantitative indicators that can be used directly or in reporting or through the commonly used ratios (EBITDA, ROE, ROA etc.) to evaluate the company’s economic situation. Definitely no individual indicator gives a result that is an absolute truth, but their advantage is simplicity and compact presentation. In case of problems the information about them is quickly available and that fosters and directs the use of more specific measures of analysis.

Usually an inseparable part of this kind of information systems is the data warehouse, where the necessary data for making required analysis is kept. Also often there are used multilayered economic analysis models. In Estonia the founder of this area is academic U. Mereste, who has been dealing with companies’ matrix analysis for years. In addition to matrix, other dimensional models are used, that are more complicated in their essence.

In addition to average management information systems there are often used separate ones – object oriented systems and one of them, used in several organizations, is knowledge management system.

The term knowledge management evolved to a managerial term in the beginning of the 90’ies. In the beginning it got only cynical attention and it was stated, that there is nothing new in it. The cynicism disappeared quickly, and several question emerged:

  • How do we use the knowledge to achieve competitive advantages?
  • How to measure organization’s intellectual capital
  • Does our knowledge distinguish us from competitors?

Before defining knowledge management, other knowledge related processes and terms are observed

Data is specific, objective facts about something. Every organization need data and most of the economy is based on it. Effective data management is one of the most important criteria for success; hence greater amount of data does not automatically provide success. It is not possible to find objective and accurate decisions from automatic conclusions. Firstly, the huge capacity makes it harder to identify and understands it. Secondly (and mainly) the data has no meaning in reality. Data only describes or characterizes what has happened, but they don’t consist of evaluations or interpretation. Data is still important for organizations, because it is required to create information.

Information can be defined as a message that is in form of document or as a communication in an audio-visual form. Like every message, also information, has a sender and a receiver. The task of information is to influence the receiver’s evaluations or behavior. Data turns into information, when the creator adds to it a meaning. It is important to point out, that IT helps to transform data to information by adding additional value to them. At the same time IT doesn’t help to create a context (categories, calculations, form) – this is done by people.

Knowledge is a lot broader and richer than data or information. Knowledge consists of experience, values, information in context, expert evaluations, that create a framework, where new experiences and new information are gathered. The knowledge of a company can be found in production related documents (patents, technologies, etc.), but also in organizational routines, processes, practise and in developed norms.

Intellectual Capital Management is a two way process of transporting ideas and wishes between the consumer and the team who develops products/services; at the same time systemizing, processing, commenting the valuable information obtained from the business environment and making it available to the target group.

Intellectual Capital Management’s relations to organization’s strategy

Today’s World presents different challenges to companies and especially in the field of organization’s strategy: • rapid changes in business environment- globalization and deregulation

  • Integration of business processes with web solutions and new possibilities to grow turnover, reduce expenses and increase organizational effectiveness.
  • Demand to create new methods in order to better understand clients, competition and the whole area.

Organization strategy has in a broader sense two goals:

  • develop and maintain the present competitive advantages
  • Develop competitive advantages for the future.

Intellectual Capital Management presumes that the company’s competitive advantages can be increased by its knowledge. In order to obtain the advantage, firstly present organizational knowledge and knowledge about the target market have to be analyzed and identified. To accomplish the second task, the creation of new data is required and that is a lot more difficult task to do, especially when considering the today’s dynamic environment.

To manage and administer organizational knowledge it is necessary to see that:

  • gathering and recording the knowledge is a systematic process and requires reason
  • the gathering of new knowledge is critical from the organization’s survival point of view, especially in the changing business environment
  • In a bigger organization the people in charge of the knowledge administration should be full time employees.
  • The organizational culture has to be opened to exchange data; trust among the organization’s members is required.

Intellectual Capital Management’s relation to IT. IT is its basis infrastructure. Different from the organizational culture, structure and processes, IT is relatively easy to be updated and changed. At the same time IT has very little conformity with intellectual capital management. IT is mainly used to transport and store the information. It has to be kept in mind that:

  • The application of IT is not itself intellectual capital management, it only has a favoring influence for the ICM in the form of infrastructure.
  • IT does not create knowledge, but it enables to store and transport them
  • IT does not help to improve the use of knowledge, but it helps to distribute the knowledge

The purpose of Intellectual Capital Management and the specialties

Organization that has defined itself ICM and initiated the ICM project, finds definitely the need to create new roles and skills. In several organizations in USA and also in Europe there are appointed people with the following positions: Chief Knowledge Officer (CKO), Chief Learning Officer, Director of Intellectual Capital, Director of Knowledge Transfer, Global Director of Intellectual Asset/Intellectual Capital Management



The tasks of a CKO

- Creates organization’s ICM strategy and is responsible for renewing it - Takes care of the favoring organizational culture and the creation of internal processes - Designs and implements an ICM infrastructure to exchange information (the libraries and storages for information and knowledge) and a virtual environment - Creates and manages relations between the provider of information (partnerships with academic establishments) - Manages the creation of new knowledge and transportation at a strategic level - Measures the effectiveness derived from the use of knowledge (ICM is useless, when the company doesn’t benefit from it) - Creates organization’s internal regulations and standards about the use, distribution and storage of knowledge.


The above mentioned tasks have different importance. The most important of them is to create the fostering culture, the ICM infrastructure and to make it beneficial for the company.

The real ICM is based on different project that administer different types of knowledge. Aside from CKO and a project manager the organization may have additional positions with either directly or indirectly related to the development of ICM. The organization may require integrators, administrators, librarians and engineers including editors and reporters, who are in charge of the content of the intranet. A good candidate for this project’s manager, is a person who has experience in research and development, IT project management, carrying out organizational changes, etc.

The technologies of ICM

Although ICM is rather new discipline, knowledge has been gathered and manipulated already for several decades. The storages for keeping structured and published data are widely spread. The knowledge is usually kept in form of documents. A good example is internet that is not the best way of storing data, because it consists of useless and incorrect information. In the past data about external market, competitors, etc. was gathered, but today the internal structured knowledge about customers, products, etc. is collected.

To realize the idea of the storage of knowledge, mainly two different technologies are used:

  • group software (groupware, Lotus Notes)
  • Web solution (intranet solutions)

Today the two solutions have practically emerged.

.

Groupware can be used as storage for knowledge

  • the administration of documents
  • the creation and administration of discussion groups
  • The homogenizing of knowledge in scattered environment and remote access
  • Lessons-learn type knowledge gathering and administering
  • Reference system creation in documents.

Web-based intranet as storage for knowledge

  • the publication of information in very different platforms
  • Creation of a search engine
  • Referencing by hyperlinks


The ICM systems working in real-time are appropriate in cases where there is lack of time and there are experienced users (support system or Helpdesk-type solutions). These kinds of systems need experts who insert a certain amount of already solved (with positive results) cases. The user has to be able to find an appropriate solution for a problem and as quickly as possible – this is important for the end-user. These systems are widely used in IT companies and in organizations with IT departments. Another possibility to transform data into knowledge is to use nervous systems. These systems are statistics oriented tools that use data to classified different occasions or cases. The more there are solved situations or occasions, the more accurate the systems becomes. At the same time nervous systems demand high expertise from the users. The interpretation of the results is a complicated task; therefore at least in the beginning advanced statisticians are required. The nervous systems can be considered as a form of artificial intelligence and they are mainly used in finance sector.

Eight main success factors:

1. Knowledge oriented organization’s culture It is difficult to create an organization’s culture from nothing, but it is easier to change the existing one. A positive attitude towards knowledge and their exchange is helpful, but also creating a position for internal communication, whose task is to reduce the goals of the management board to the personnel.


2. Technological and organizational infrastructure

It is easier to set up a technological infrastructure. When different skills and means are present in an organization, then the implication of ICM will be also easier. Creating an infrastructure at an organizational level is more difficult. Sometimes it is necessary to create new roles, positions and skills that are used to put the project into practice. Definitely an internal project manager has to be set, who will be responsible for the further activities.

3. The support of top management As every program that involves organizational changes, the ICM also requires the support of top management. To introduce a successful ICM program, the allocation of money is not enough – a clear message is needed, that ICM is one of the critical factors for success in the organization.

4. Direct connection with economic profit ICM can end up as an expensive endurance for the organization; therefore the profitability of it has to be determined. The profit is reflected the clearest from the reduction of costs and earned income.

5. Clear vision

The strategy of ICM is part of organization’s core strategy It also concerns the ICM vision, that has to be part of organization’s general vision. It is also important, that the vision is clearly understandable to everybody in the organization – that they would share a common language. And again, the intermediate for the vision could be the internal communication manager.

6. Well-advised motivation system People are not prone of sharing knowledge. Employees may find that the gain in organizational expertise wherein working is their personal property and that is the only reason why they work in the company. Employees have to be motivated to gather information and to forward it, until it becomes as a natural behavior

7. The structure of knowledge at the base level

From the point of succeeding with the project it is also important to have a structure for knowledge at some level and a system to catalogue it. Creating a handbook, which consists of information about the members of the organization (their previous experience, present tasks and the participation of the clients in projects) might help.

8. Different channels to transmit information

Knowledge can be transmitted through the knowledge storages but also through virtual meeting places- discussion boards. To set off, the use of groupware should be made more effective with the appertaining discussion boards and virtual offices.

To sum up, it should be stated, that leading from the above mentioned ICM ideology, successful companies have built up an organizational model, which takes advantage of the know-how arisen from the company. To enhance the competitive power of the company’s goals are set to implement the experience and know-how in the company by training the personnel.

A.1.7 Cooperation techniques in an organizationEdit

It is difficult, but not impossible to picture a successful company, that has not paid any attention to solving cooperation’s issues. All tasks at present-day are related to communication technologies and are based on mainly solutions that are realized by internet. To ensure qualitative cooperation, internal but also external communications have to be up to date, insuring different ways to the realization of cooperation. To characterize cooperation, the previously discussed ideas are expanded and at the same time making the whole process more effective and adaptable to changes. Communication processes can be studied on the general level of different companies, deriving from supply or purchasing side or observing the internal communication issues.

Sales issues are crucial for every company and the modern development directions show that the more attention is paid to internet sales solutions (the use of e-businesses or e-commerce), if we want it or not. The wide-known and used solutions of e-banking and business chains have helped the development of e-commerce for some time. Differences between Internet and e-commerce have been emerged only in last decade. When evaluating development of Internet and e-business then opposite to drawback of “new economy” at 2000 then raise of investment is considerable. Modest guess gives us tens of thousand times more money in Internet business than ten years ago. The real development is characterized with internet and with the differences between hypertext and multimedia interface that is in the forefront in the development of round-the-clock self-service based Internet sales. Within the company, the main directions of development are more stable, because more traditional solutions are dealt with, analytical functions that are adjusted for navigating, realizing better the demands of consumer. The main problem is how to ensure efficient cooperation between the different systems, before the application of the new technology developed.

In order to better realize the changes in the principles web services have to have an inclusive access and full-scale competition. Then the transparency of the market is required - the ease of comparing offers. Now, if the website does not function properly, when the consumer needs it, then the credibility is lost and the consumer switches to a competitor. The internet solutions are regarded to be very important and hence the reason that there is no different opinions when security issues are discussed. A lot of information with serious problems becomes available, for which the difficult consumer oriented i.e. travel and hotel-booking, credit card services. The complexity of technological solutions – a mistake in one part of the system may cause a mistake in another part of the system.

The competition between companies increases the trust towards the consumers, which is also known as the conflict between marketing channels.

When trying to evaluate the e-business system’s success, then the movement of the system’s nodal points from the operation’s effectiveness to managing direct contacts, generalization of consumer experiences, which should give information about the consumer’s communication channel preferences. The mentioned strategy is aimed to win consumers that enable the provider to tie the consumer with their product.

To ensure the careful and constant monitoring of each consumer, it is necessary to gather and process information, which would be available in the database for every user. That information has an entrepreneurial personality in a technological sense and for e-business..

It was discovered from discussions, that a greater competition to attract a consumer looks like an opposition to cooperation directed commerce. Indeed, in order to balance the opposition, that is partially present, two important aspects have to be kept in mind. The consumer with his own solutions is in this process as one of the parties, who often consciously cooperates with his supplier. The cooperation is also reflected from the market researches that describe the loyalty of consumers, often obtained due to the sellers’ loyalty cards or the registering of the consumers on the homepages. It is a situation, where customers provide their personal data that characterizes their preferences and needs as consumers (age, specialty, etc.). Often in addition to the information it is also pointed out what kind of advertisement is preferred and how and when they wish to be contacted. There is somewhat different approach, where monopoly is dominating or in the case where there is oligopoly and due to the market situation the companies do not communicate with their customers. In this case, the producers are less flexible and often do not take the consumers demands under consideration as fast as needed and are not always interested about developing the market. Nevertheless, the companies’ data communication networks are developing and are connected to each other, thereby being the components of the same supply chain, but fulfilling totally different tasks on different moments; they still create a connection to the clients that have gained the highest rank in the accounting.

When evaluating different fields of productions from the point of computer networks, then it Estonia seems to be well-off. Somewhat less attention is paid to these problems in food industries sale’s side. At the same time, there can be seen a rise of synergy between competitors in the meaning of production, but cooperate in case of issues with sales activities. The movement from strategic levels to the area of somewhat pragmatic problems, the cooperation may benefit to both parties by sharing knowledge about models, information, planning, resource allocation etc. The intra-company information exchange broadens significantly the possibilities of internal information system. Internal information system, intranet, is often the first information system, that is used as a basis to develop an extranet, that is able to fulfill some functions that characterize the Internet. With the help of intranet, it is possible to rearrange planning process, the logistical movement of resources and to optimize the company’s supply related solutions. Before reaching these objectives, the whole level of information system is left as an analogue of coordinating internal operations by internal processes.

Let us look at a short overview of the possibilities and tools to manage work processes. They are mainly systems that enable to coordinate and direct mutual activities, to plan schedules, especially when people work in different subunits. Of course there are several possibilities to arrange teamwork, but the core principles are relatively similar. One of the main features of developing these solutions is to ensure the elaboration of simplification and logical connections that are used to make connections between operations in some process. Also the conditions of every employee, to fulfill tasks, have to be secured in the sense of time and technology, by making all the information reachable by every party. Comparing it with basketball – all the team members have to know, what the coach demands, they have to possess the necessary skills to fulfill the goals set by the coach and they have to consider with their teammates.

The main functions that can be observed as managing work process in a broader sense would be:

- Publicly used communication channels: MSN, e-mail, Skype etc. The use of Skype is spreading and also the development of new features is taking place at the same time. - Tools for document management. A system that determines the movement of documents within the company, their preserving principles and the regulations of written communication. These regulations should be worked out in all the companies. - The system of procedural regulations. The system consists of descriptions of positions, determines the command lines and hierarchy, roles of employees, the entitlements of use of information system (who, has read-only access and who can change data), what data is available to everyone etc. - Internet-based supply and marketing system. This describes the departing company’s managerial operations from the company’s frameworks and possesses a very important role in the economic activities of successful companies. - The system for the use of telecommunication and technological possibilities. Creates possibilities to arrange videoconferences. Etc.

The possibility to work collectively in the same workgroup, despite of the fact that the work does not take place in the same room or geographical location, is considerably far-spread. Present day communication equipment makes thousands of kilometers nonexistent, only big time difference may cause inconveniences. The core idea of this kind of cooperation is to create a feeling of a team; common goals are the basis of this kind of teamwork. The feeling of belongingness and also the internal hierarchy has to be understood by all the workgroup members. Often this kind of creative attitude and the readiness for cooperation is called „team spirit“. Hence, working in a group, the feeling of total independence has to be considered as natural, whereas the degrees of freedom have to be agreed upon beforehand.

When going into more details of the problems of remote working, then it can be mentioned that the administration of the employees’ cooperation might not be an easy task. One of the fields of business communication deals with the cooperation issues between employees with different cultural environments and/or religious background. Additionally to the mentioned, it can happen, that the people working together haven’t met and do not know each other at all. To sum up, it should be stated, that one of the components that ensures success is the system of managing work processes that considers cultural and organizational problems a uses good technological solutions.

A.1.8 Computer-based training and e-studyEdit

Today, computers have found a solid position in all kinds of study forms, starting from high school and college education, finishing with additional trainings. In order to stay on the labor market, people have to start to maintain their work related „shape“ , often it is not possible without the use of internet or a computer. It would be impossible to imagine a professional educational establishment that does not own a computer class nor uses the possibilities of internet to spread the study materials to the students. Internet based trainings are named with a generic name – e-study. Obviously Internet enables to increase the possibilities of the students – distances, which were a hurdle in case of full-time study form for several potential students and people who wanted to improve their knowledge, became less relevant factors. E-study has two sides, the study process side and the pedagogical side. How to prepare the study materials, what should be the communication possibilities, how to arrange forums and what should be the self-testing possibilities and finally – how to ensure the objective conducting of tests/exams. The problem remains, but the possibilities to obtain college education or additional trainings grow. Of course there are specialties, where the direct communication with the lecturer is required – medicine, aviation, naval navigation, etc. (although computer simulations can be used up to some extent). Still, some specializations require a direct experience to gather skills in order to obtain know-how.

As e-study is relatively new way of thinking in the field of education, then the comprehension of its essence and application possibilities are different. Without going into deeply to the different study arrangements offered by different schools, it has to be pointed out that there is no absolute truth i.e. no any best study methodology. Every student/lecturer finds their own best methodology. During previous years, a great attention has been paid to adding simulating elements into study program – learning through activity. Definitely this approach gives a better understanding for the students to get a more realistic understanding of problems, but this is neither absolute truth nor the only proper approach for all specialties and students. Usually e-study is considered to cover a broad range in study process, starting from the use of audio-visual solutions in auditorium and finishing by carrying out courses through universal e-study environments, figuratively, never actually meeting the lecturer. Additionally, the possibilities of the software help to increase the skills and to better fulfill work related tasks (installation procedures, hyperlinks, all kinds of manuals etc.). The distribution of study materials through study information systems in universities is also considered as e-study. During the past years, it has been decided that e-study stands mainly for the study processes that are carried out through the universal e-study environment. There are different e-study environments, because of the fact that there can be several different specialization possibilities and the emphasis are set differently. WebCT is mainly used in Estonia’s high school’s and colleges’ educational systems. (Figure A.1.14), Moodle and IVA.


Figure A.1.09 The title page of organizational economics worked out in e-study system WebCT.

When systemizing the above mentioned approach, then:

  • The possibilities within operation systems (Microsoft, Linux etc.), that enable the users to study and use all kinds of additions and opportunities
  • Study information systems and homepages, where the lecturers put their study materials; in some systems there are some simple functions to test one’s knowledge
  • The systems that enable to upload subject centric study material presentations and logical systems to test knowledge developed by the lecturers. Unfortunately the development is time consuming, and therefore the number of them is rather limited; at the same time, they are the most effective measures to understand the subject.
  • Universal e-study environments that have been developed by big universities or by commercial enterprises (systems like: WebCT, Edutizer, Luvit, Moodle, IVA etc.
  • Supposedly between years 2010 and 2015 internet based social environments usage broadens explosively, especially on social sciences learning. Besides existing Instant Messaging environments (Orkut, all kinds of blogs, Second Life environment, etc.) object oriented internet training environments emerge. These allow students to master topics much more effectively using “learning by doing” principle.

The previous list presents the evolution of study processes due to the development of technology and our own comprehension – from simple to complicated. At the same time, the less there is direct contact between the lecturers and students, the more motivation the student has to possess. Independent work is an inseparable part of e-study, which requires strength of will and concentration. Unfortunately these characteristics are very different among students. When comparing the motivations of students, then it has to be pointed out that, the students are motivated on the average in case of specialized subjects and less on general subjects. In case of additional trainings, where students choose the subjects, that they want to improve themselves, the motivation is higher than of college students’.

A lot of discussions about video-lectures have been held, in order to find out if to use them at all and when to use them. As audio-visual technology develops very quickly, then hearing the video lectures should be one of the possibilities for a student. A lecture material with bad quality or even worse – bad methodological level, will no appeal anybody. Hence the preceding preparation for the lecture and the technical support have to be very professional, additionally the artistic skills of the lecturer are important. All of this should put together a reasonable pedagogic result. The fears that video lectures leave only the top lecturer whose recordings are used is as groundless as the fear of losing theatres when recording technology was invented. The direct presentation will remain always, because the presentational nuances and the discussion of issues are characteristic to every lecturer-personality that cannot be apprehended from a recording.

When comparing different universal e-study environments, then all of them with one or another peculiarity allow the lecturers to:

- present their study materials in form of text or by using multimedia possibilities (audio/video) - Arrange the participation for students in forums (open discussions of different subject based on some certain rules) - To add themselves/ allow for the students to register or allow everybody to register to the courses/forums - To give students the possibility to evaluate their knowledge with tests - To communicate with students through interactive forums or with the assistance of audio-video solutions (Skype) - To check the students’ understanding and learning of the subject by tests, written assignments, etc.

The students at the same time can: - find study materials in the appropriate form - evaluate their knowledge with tests - communicate with the lecturer with the help of forums or audio-video solutions (Skype) - To participate in tests/exams and receiving the results right away or after a while.

Problems may emerge with cheating, when performing the tests how the subject is understood – although this is again a motivational issue. When knowledge is the goal, then the tests are carried out without cheating, but if the aim is to get good grades, then knowledge is left to the background and unfair measures are used to achieve the goals.

To sum up – e-study has positive and negative sides. The positive sides – e-study enables the students to use their time more rationally, to study when they have the possibilities and to pay more attention to these issues that need greater input or that seem to be more interesting. Additionally, new study possibilities for students, whose location were too distant or some other problem impeded the regular participation of lectures. The target group is growing. Today’s lifelong education’s paradigm welcomes this kind of opportunity to increase one’s skills and knowledge to stay in competition on labor market. From the organizational side, the benefits arise from the reduction of costs of training and study activities, by using the same methodology and already elaborated training program repeatedly. The students save also by the reduction of transportation costs and time.

The main downside of e-study is the reduction of direct communication that may result in worsening of social skills. Personal contacts will be reduced to anonymous e-acquaintances, who won’t ever meet face-to-face. Also the loss of the lecturers’ personality, role model, which will be transmitted only directly during a lesson, because it is impossible to transmit emotions through e-channels. Also the expenses of developing courses are underestimated, because it stands for creation with a totally new approach. It has to be always kept in mind, that e-study is not just an automated copy by using new possibilities. E-study demands a totally new approach in the field of education; hence the preparation process is very long. A motion-picture can be used to make a point: it takes tens of millions of Estonian Kroons and a whole year to produce a two hour movie. Producing a good video lecture is analogical activity and far from being an easy task.

Serious attention should be paid to organizing the feedback, as all the students have to get answers to their questions. Obviously there lay additional expenses as the lecturers are not able communicate with everybody, hence the need to use tutors.

A.1.9 Information societyEdit

Without any doubt, it can be stated, that colossal changes in economy and parts of society took place within last decades because of the rapid development of IT. Starting from the Second World War, where the radar technology initiated the development of first computers, the professionals have never doubted in the fact that these field holds the future. Today the IT has connected over internet and changed the whole World, because the discussed globalization processes are not possible without the distribution of internet. Actually there is no field that hasn’t been touched by the influence by IT – economy as a whole, government facilities, and the third sector everything has been influenced.

The former chairman of US central bank FED, Alan Greenspan, who was the most well-known and considerable influence on stock markets in the World, explained the rapid growth of USA’s economic and stock indexes during the nineties only because the growth of productivity in IT due to investments. IT production has been and still is the basis of Finnish and Swedish „economic tigers“.

Why IT is that powerful tool and what is its goal? Plain and simple, the goal of IT is to automate the most complicated tasks of human mind. At the same time a further goal is to create intelligent machines, which would perform all human’ tasks.

At the same time the real AI is very distant future dream, although supercomputers with a professional chess program are smarter than the chess player Garri Kasparov. Nevertheless the present and future computers and software from people are less intelligent compared to animals with higher intelligence.

Computers can do already a lot that exceeds the powers of people. Computer is capable of doing several brainwork requiring routine tasks. With the right commandment, a computer can replace a significant amount of manpower. Additionally computers create new products and services, such as internet, e-commerce, and databases. Technological blending with different fields makes possible the independent cooperation between computer technology and phones, television, photography, etc.

Here we can find explanation to the fast development and production of IT – it is a self powered avalanche like process. The development of new computers and software requires tools that are actually presently available computers and software. The development of equipment enables to produce even better tools. IT is like a self evolving civilization that uses society in its own interests.

The ground for economy and the industrialization of society was set centuries ago. Firstly Machines were used in order to replace manual labor: mills, steam machines, railroads, cars are the keywords of the beginning period of industrialization. All these equipment and technology reformed production processes, created new services and altered considerably economy and society.

The mechanizing office and organizing tasks, started already during last century in form of typewriters, and continued with mechanical card calculation machines. In the first half of 20’th Century new communication technology was born – telephone, radio, television – they were the engine of radical economic and social development during the second half of the century. „Medium is the message“– the heading of the masterpiece written by sociologist Marshall McLuhan.

Communication technology was the basis for the development of modern computing technology that now reforms the former. The pioneer of network systems’ Sun Microsystems’s motto „Network is the computer“ has become true. Computers, network and communication technology cannot be separated any more.

When the society of the twentieth century was the society of cars, phones and television, then the present century’s World has becoming a new radical so called information society. Its main characteristics is the massive use of computers and the wide spread - global, personal communication channels – internet and other structures and services based on it. The people of the information society are able to access a huge amount of databases, sources; they are assisted by powerful PC’s and servers. Communication with every corner in the World is as easy and cheap as communicating to a person next door. Work tasks can be fulfilled in the office, at home or while travelling. Distances are losing their importance.

Communication and information processing technology enables companies to be managed more efficiently – no more are needed the complicated mid-level manager structures. Traditional market structure is changing, because global networking and search engines provide the possibilities to find quickly and cheaply the necessary product, service or a client. The companies that were aside from bigger markets are now visible. New and cheap alternatives are emerging to replace the former advertising agencies with huge costs that have dominated markets and carried out expensive advertising campaigns.

Inevitably the structure of economy is changing in the whole World. Even Sweden has lost hundreds of thousands positions from the firm ground of traditional industry set centuries ago. Analogical process has happened in the agriculture of advanced countries, where the development of technology has lost most of the positions. Now it is time for the light industry, especially textile industry, where the most positions are lost, this is happening in Sweden, Finland, in USA and also in Estonia.

One of the info technological starting lines is the 1980’ies, when the ideology of personal computers found its position. It influenced mostly the industries related to producers of electronic details. Companies that were reluctant to change, disappeared from the market, and the ones who managed to adapt to the new situations evolved into new companies.

The nineties can be considered as the era of mobile phones. The development of mobile connection has been impressive ever since the transition from analogue technology to digital and ending with the implication of all kinds of different applications, that have given an opportunity for a small country like Estonia to gain attention with the innovations.

A very important aspect with the changes and investments to IT is the availability of the basically same solutions and technologies everywhere in the World. These instruments are relatively cheap and due to the vast development of technology, it is easy to catch the old well-know companies on the market. The winner is the one who is capable of using new technology to improve the company.

With the development of IT the overall economic competition toughens and globalizes. Ignoring or opposing the IT wave that wipes the old economic scheme out of the way, leads to definite defeat: the wave would bury and leave us behind from others. At the same time the development of IT cannot be predicted accurately. The best idea would be to surf actively in front of the bore and keeping balance IT enables:

  • to save from labor costs and increase the speed of routine tasks
  • to offer new services and products
  • to make managing more effective and to reduce the mid-layers from the organizational structure
  • distribute tasks between different places
  • Create new marketing channels, including global ones.

E-business. A substantial amount of transactions in internet are done in virtual business environments. Electronic business is a business that operates in virtual business environments. E-business is described by the four business model types (figure A.1.15.): (Business to business, B2B) (Business to consumer, B2C) (Business to administration, B2A) (Consumer to administration, C2A).


E-business influences substantially the following economy’s areas (b-b and b-c models) like marketing, sales, advertisement, supply, wholesale, retail, after sales service, maintenance, financing, insurance, transportation, logistics, digital production, distributed processing. In B-A sector the administration and business cooperation areas are influenced by e-business: customs, taxation, public procurements, licenses, juridical regulation.

The area of electronic business. The main functional areas are e-financing, e-tourism, e-supply, e-commerce, e-media, and e-study.


E-financing. Majority of the broking objects and operations are digital in e-economy: money, securities, leasing transactions and insurance transactions. Virtual activity is becoming dominative in global broking. Financial institutions create integrated virtual service environments, which offer all the important financing services for their customers an also to other virtual- i.e. electronic environments (e-markets, e-stores). Example: Hansabank acts mainly as an e-bank.

E-tourism. This business model consists of tourism object hotels, catering, and transportation. Tourism related companies have their own information systems – in this virtual environment transactions are made between different agencies. Virtual travel agency compiles and sells journeys, arranges accommodation, catering and transportation. Example: a virtual travel agency Expedia.com (http:/ /www.expedia.com). The turnover of the first quarter in 2002 was 1,1 billion US dollars, the growth that year was 64% and the profit was 80 million dollars.

E-marketplace is a virtual environment of e-business, where purchase-sale-deals are made. Public e-marketplace is opened to all the buyers and sellers (osta.ee). A private e-market place has limited functionality and participants. E-marketplace administered by a virtual company, that arranges the operations of e-marketplace, manages the cooperation between market participants, buys-sells e-marketplace’s services (logistics and financing). Based on B2B model the e-marketplaces are operational in the area of e-supply.

E-commerce. It works well based on the business to consumer model. A virtual e-store offers usually all the e-marketplace’s services, the exhibition of goods, advertising, offerings, making transactions, arranging transportation, organizing after sales service, the finance services of transactions (loans, leasing, insurance) – Amazon.com. E-store does not have to have any supplies (EBay). Nevertheless the dominating stores in e-commerce are the traditional stores whose e-commerce is profitable side activity. (Tesco.com)

E-media. There are active huge media conglomerates (Yahoo), but also small media portals (Delfi). Every newspaper-magazine has usually a virtual publication. Where e-commercials and e-exhibitions are developing, science and economy related information has become public in a great extent.

E-study. E-study is a study activity working in a virtual environment that takes place interactively between a student and the environment, independently from the author of the study materials. E-student can freely choose the subject, time and place. E-study’s properties are constantly changing, adaptation, alienable and recordable knowledge from authors, opportunity to attract the World’s knowledge in every school, the rise in quality derived from the competition in global markets, practical (develops skills), consistency (e-study’s products can be integrated. E-study develops quickly at all the platforms of education, intruding to traditional trading markets and business trainings

The characteristics of e-business

  • E-marketplace. Global virtual market combines all the producers and service providers and gives everyone the possibility to join the market. Company enters a global virtual environment of E-business – it creates new e-markets.
  • The speed of e-business. The transactions in e-business take place considerably faster, which creates advantages for virtual companies.
  • E-exchange. Exchange is dominating e-business: commerce, supply, logistics, financial services etc.
  • Outsourcing. The concentration of the company’s primary activity by directing the secondary activity to a specialized company who gets significant support from e-business. The characteristics of e-business – the speed of exchanging business information , directness, mobility, perfection and reliability – allow the company to buy/rent the managerial services (e-financing, e-marketing, e-supply), also all the other IT services and possibilities
  • The resources of E-business- E-business are based on information resources that are generally free or cheap: e-business depends greatly on people and their knowledge. Compared to a usual business, the e-business depends less on material instruments, the dynamics of their prices and availability. Small e-businesses depend less on money, but a big e-business is expensive.
  • E-business’s new possibilities. The possibilities of business ideas and virtual companies are unlimited in e-business. E-business is a new ands big challenge for business men and creates possibilities to the people, who didn’t have any so far.


A company in e-economy. E-business is every company’s possibility to expand the range and thereby amplifying operations. Company expands its operations by entering the environment of e-business, and also increases the number of possible business partners grows on the global e-marketplace. The company amplifies its activities by entering e-business environment, where it possesses the advantages of e-business: the quick and flexible execution of clients’ orders, quick and qualitative supply of products, the reduction of expenses and supplies.

Company’s information system in e-business

The model of company’s information system in e-business is presented on figure A.1.16.


This model divides the company’s information system between intranet and extranet. Intranet is the embedded part of the company’s system that is closed for outside participants. Extranet is the public part of the company’s information system, where all the participants have access through internet.

Company’s e-business. The main managerial fields of a company in e-business are e-marketing, e-supply and e-financing.

1. Company’s e-marketing The main functions of a company’s e-marketing are: -sales and sales-support -CRM -advertisement -supply management -after sales service management.

A sale in e-marketing is a process that operates with the assistance of internet between salespeople and buyers. Product descriptions (qualities, measures, prices) are listed on the extranet, also sales, shipping and payment conditions. Extranet offers the buyer the ordering documentation and supports the salespeople’s sales procedures over the internet.

Sales support includes the financing of the sale (leasing, loans). This service can be outsourced from e-financing company. (Example: an e-wholesaler of medications has the prices and descriptions on the extranet. Pharmacies and e-pharmacies order the medications over the internet and arrange the payment through e-banking.

Pricing in e-marketing is flexible with market situations and clients. Interactive data communication in e-marketing enables for the sales to take place with arranged prices. Example: The ticket price of the flights changes in real-time according to the market situations (lastminute.com)

Customer relationship management – (see section A1.6.) a new direction in marketing is supported significantly in e-business. The core ideas of this marketing strategy – personalizing client relations, direct relations with every client – are effectively applicable in e-business environments. The personalized communication with each customer enables to create a marketing profile for each client, which can be improved in real-time

The result: - Personalized sales offers to customers - The fast and qualitative fulfillment of client’s every demand – the generalization of client profiles to the company’s actual marketing model

CRM works efficiently in e-marketing, where the partners are the clients’ e-supply’s extranet’s models.

Advertisement an e-marketing. Today every company advertises themselves on their websites in the internet; usually the advertisement is related to internet portals. International companies have their own portals with powerful advertisement websites, but they advertise their product also in big advertisement portals (like Yahoo.com). E-commerce as a purchased service, is efficient when the company’s e-marketing updates it constantly (e-commerce as part of company’s extranet)

Shipping management. The shipment of the products to the buyers is a function of e-logistics that connects transportation chains, expedition, storage, handling, the arrangement of customs procedure and the distribution of goods. Company’s e-marketing enables to order transportation from e-logistics, track the shipments, communicate with the e-customs, and deal with e-banking. Example of e-logistics is Maersk Logistics. (http://www.maersk-Iogistics.com).

2. Company’s e-supply The main functions of a company’s e-supply are the monitoring of procurement markets, ordering and managing procurements. In the company’s e-supply the procurement takes place in virtual environments, where the cooperation of e-marketing and e-procurements operates. The company’s suppliers choose and compare the products with the best price and quality from the catalogues on e-markets; the suppliers order and deal with the supplier company over the internet, follow the supply chain from the e-logistic extranet. A bigger corporation might have its own supply portal (example Ford Supp¬lier Portal). Organizing the supply can be also an outsourced service that is offered by Helmes’ e-procurement system MARKIT (http://www.markit.ee). In case of a stable supply chain the company’s e-supply and the suppliers’ e-marketing cooperation can enable an automated supply system.

3. Company’s e-financing The most digitalized fields of activities of any company is financing, that enables to make it virtual it almost totally. The company’s e-financing stands for the operations of company’s monetary system with partners over the internet. Company’s e-financing carries out banking operations with e-banks, securities related transactions with e-stock market, insurance deals with e-insurance, and pays taxes to e-tax office.

E-financing gives the company a possibility to purchase financial services from outside – e-financing service provider, who offers the main e-financing services: accounting, company’s financial management, financial consulting, broking etc. Virtuality and formality have prepared corporate financing to be outsourced.

Virtual company. E-business has evolved a new business model- virtual-business. A virtual business produces, intermediates a digital product and/or operates in virtual environments. Example: Microsoft is a big e-company that produces software, but also digital products, sells it through e-marketing and supplies itself through virtual supply environments. MSMarket is Microsoft’s e-supply system that had purchasing turnover of 5 billion dollars, it is active in 48 countries and it reduces costs by 7,3 million dollars each year.


Information system as an information platform for a real system

Information system is a company’s or an organization’s info- and system-operation’s arrangement, the aggregate of methods and instruments. Information system is created to increase electivity, derived from the company’s core objectives. In a company or in an organization exists a certain arrangement of tasks for the management and the office (often organization’s and its structural units’ core regulations), that include the information- and system operation’s goals, function program and the methodology of the operations). Present-day information system uses the instruments of IT and as a basic element; we realize the information system as a company or organization with the ability to use of a computer.

Estonian State information systems. Previously listed definition applies also in case of state information systems. The activities of state institutions are directly related to gathering, processing, analyzing and publishing information that is now accomplished with (information communication technology’s) tools.

The state information systems compile of different datasets (state’s main registers, nation-wide records etc.), state institution’s document administration systems, internet portals, and all the above mentioned applications are supported by the elements of infrastructural information technology (LAN, servers, workstations)

When observing state information systems also the locale government institutions have to be observed. Local governments are the closest establishments to people that represent public service institutions; it also acts as the first level of state’s data records and information system’s data participation. The national data record will start to operate perfectly when the transformation of all the data to digital data storage becomes an operation in a real-time juridical process (example: registering a birth). The proper functioning of state register is important as Estonia is becoming a part of the EU. There are no peripheries in information society. Therefore Estonia’s advancement to the information society depends on the whole territory’s development, in all the local governments. The state’s information systems development has an important role at determining the country’s information politics priorities that claim among other goals the harmonic cooperation and ensure the optimal development between Estonia and the information communication technology’s development.

The Estonian state register of records http://www.riik.ee/arr/arrindex.html The goal of storing a Estonian state register is to keep calculations over the records. Making suggestions for government, for the responsible personnel in charge of the development of the data record and for the state institution that coordinates the information system related tasks, to avoid keeping repetitive and similar records, broadening them, connecting or getting rid of them, the cross utilization of data and arrangement of data processing or data utilization.

Data that will be inserted to the following datasets: 1. The state’s main registers and the related records 2. National registers 3. The delicate personal data registers that are kept in state institutions and local governments. 4. The datasets of state institutions and local governments, that gather and publish the data from state’s main and national registers.


Estonian e-citizen http://www.riik.ee/ekodanik/ The task of e-citizen project is to enable everyone to actively participate in the public activities on the level of state, region or local government with the help of IT

KIThttp://www.riik.ee/ekodanik/ The Estonian citizens IT-environment (KIT) is for all the citizens to be able to use the set of IT solutions, created to communicate with state institutions, local governments, companies and with the third sector institutions (establishments), through an internet browser. It should be possible to extend the use of the service to non-citizens also. The solutions can be divided into three sections – citizen, systematic and public section.

The portal for citizens – the main parts available to the immediate use are the citizen’s documentation system, electronic mailbox, and secure environment to access the services.

The systematic instruments of services – Rules and systematic instruments are being developed to apply and to ease the accessibility to citizen oriented information systems of different establishments.

Information portal – a website with unlimited access to all the people for acknowledgement about their rights and obligations. This is the gate for citizens’ e-services. The vision of KIT environment supports a broader goal: by 2004 all the state and local governments are able to offer all of their service over the internet. 60% of the citizens are using internet in their daily activities. Information portal makes it easier to manage and access all the public and private sector’s e-services.

Citizen portal http://www.eesti.ee/ and http://www.riik.ee/kodanikuportaal/ Between the relations of a citizen and state, where state institutions would act as service provides in the public. The basis of the creation of citizen portal is a principle – the citizen has to have a possibility to communicate with the state institution, without requiring the knowledge of the structure of the administrative organization.

The citizen portal in development, broadens the general understanding about public administration and its services, helps Estonian citizens to understand administration according to European core ideas, as a system not for an institutional instrument, but an instrument for citizens. The improvement of the citizen’s juridical literacy is fostered by the active supply of information, that replaces the former central approach of law i.e. intermediation the juridical texts with the supply of citizen centric information.

In order for the portal to operate and be up to date, appropriate juridical platforms have to be established, that allow the officials of different levels to directly communicate with citizens, by reducing the pileup of official communication at administrators level.

Estonian X-tee https://portaal.riik.ee/ X-tee is a term taken in use in the beginning stage of the project. Created for state’s different data records service layers, that include soft- and hardware, but also organizational measures to develop and administer. System enables the authorized users to create different inquiries to states information systems and allows within limits to implement changes in data.

X-tee offers different queries that have been technologically realized in three ways: an individual gets a service from a citizen portal; juridical person may get the service from mini–information-system-portal (MISP) or through the institution’s/organization’s information systems special interface. X-tee participants are considered to be the administrative institutions/the personnel and partners. X-tee partners are the subjects, who manage activities of X-tee that provide affiliation services or offer an authentication service to an individual to use Citizen Portal, according to a contract.

X-tee is an intersection of datasets, where the inquirer and data records meet. There are different kinds of inquiries and records, they use different systems and they all look dissimilar. X-tee is a mutual environment for making enquiries to from different data records.

The citizen portal gives every Estonian with identification number an opportunity to perform the X-tee enquiries that are available for public use. At first it gives possibility to overview the data that the state has gathered about the citizen in different records. The service can be used only after the identification of the person that can be done by a valid ID-card or a bank authentication system.

ID-card http://www.pass.ee/ ID card is an identification document for Estonian citizens who are at least 15 years old and aliens who have entered the country with a residence permit. ID-card is a next generation identification document, which enables to give digital signatures. In addition to different security element the card has a chip. Chip is an electronic device that possesses the data seen on the card, but also keys and the certificates used to identify individuals and for giving digital signatures.

State institutions’ document management program http://www.riik.ee/dhp/ State institutions’ document management program (DHP) is a states chancellery’s initialized cooperation program for state institutions, to transmute to digital document management between local governments. The program sees three fields that need mutual development:

  • To rearrangement of bureaucratic procedures for the use of digital documents
  • The development for required juridical acts
  • The development of standards and methods required for digital procedures.

The state institution’s document management program is a cooperation program to the transition to digital document management for the electronic procedures between state’s institutions. The goal of state institution’s document management program is to digitalize states procedures and making them consistent with the demands of information society.

DHP stands for:

  • Mutual methodology: fixed states document management politics, that is part of administrative, information and internet politics, considering the situation in the World and the demands of the state
  • Mutual standards: documents cannot depend on software, networks nor hardware; they have to be usable between officials, information system but also between computer programs
  • The reform of work arrangements, the task of which is to digitalize the procedures, according to the rules of information society.
  • Mutual technological solutions. The state institution’s document management reform will be expanded to national extent, and necessary technological resources are centralized
  • Coordination: The state institutions document management projects and other processes related to the theme are centralized under mutual accordance.

The strategy of DHP. The application of document management system derived from the states regalement’s regulations, because this area is:

  • Organized with laws (government regalement’s, procedural bureaucracy)
  • Mutual with all the state’s institutions
  • Expandable to all the state institutions different document types.

The results and standards are generalized and the demands are processed for institutional document management systems. Conditions are created to be able to start using document management systems in state institutions.

A real improvement to an information society is the application of wireless internet (WIFI and other analogue solutions) and several satellite based services (GPS etc.). Security has been always an issue when discussing about wireless internet, as the ordinary user does not understand the expenditures on security and thereby may suffer from some malicious software. Of course also state institutions and private enterprises may fall under attack, but their security measures are significantly higher. So far the human factor has been left aside, when observing the changes caused by information society, but in reality this can initiate several problems. As all the IT developments change something in our daily lives. Hence the success of IT solutions greatly depends on the adaptation of people. Fear from not understanding and the lack of information often causes opposition even to normal IT solutions. As a rule, the developments of the skills of people are lot slower than the development of technology. People often study the solutions that have been in use for a long time, not the ones that are too fictional for the most.

To sum up, it can be mentioned that the movement towards the information society has been one of the globalization’s bigwigs, but not the only one. Definitely a free communication between people helps to understand each other better, but also may create new problems in the society.

In this section following sources were used: 1. "IT juhtimise käsiraamat.“ Koostanud EBS. Välja andnud Äripäeva kirjastus

2. Schgör, P., Brambilla, R. and Amarilli, F. 2004. “PROFESSIONE INFORMATICA: Vol. I – Pianificazione, uso e gestione dei sistemi informativi. Competenze interdisciplinari per l’applicazione delle tecnologie dell’informazione e della comunicazione nel mondo del lavoro.”. Milan : Edizione F. Angeli. – Translation into English

7. QuestionsEdit

7.1. Can a non-profit organization have profit Yes, but profit making is not an aim of it X No, it can not Non-profit organizations does not exist

7.2. IT aim for an enterprise is Better solution for attaining the business goals X Because all enterprises have it For office personal to send letters To give IT service

7.3. Data is Objective fact from something specific X Data files on hard disks Content of databases Numbers in Excel worksheet


7.4. Why information moves two-way in an organization Decisions go from management to staff and reporting from staff to decision-makers X Orders need to give several times Decisions go to staff verbally, reporting in written form


7.5. Business plan is needed To plan decisions to meet company’s business strategy X To report from field managers to top management to become a public company to organize better work in Financial department

7.6. Business process is Detailed description of activities to achieve certain result X Computer program Sales to existing customer Court trial between two enterprises

7.7. Information system is Enterprise supporting system for information management X Computers and network Bought in software solutions Information about personnel and salaries

7.8. Which cooperation technology is the newest Virtual workgroup X Staff working in the same office Instant messanger group of friends and acquaintances Users with write access to file system

7.9. Major preference of e-learning is Using universal learning environment not depending from location and or time of day X Lack of teacher in a room Wider usage of laptop computers

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