Economic Significance of Databases - Research Paper Example

Logo) and Strategic and Operational Analysis of the Economic Significance of Databases A Case of Tesco Clubcard April 7, Instructor Executive Summary This paper gives an analysis of the significance of databases in the economic sense by doing a strategic and operational analysis of its application in business. An attempt has been made to provide background information on the pros and cons of database systems so as to gain an understanding on why they have to be used anyway. In the literature review, the paper establishes the existing implementations of database systems by focusing on some of the companies that have recorded impressive results consequent of using databases in their operations. In addition, the review enlists some of the common applications of databases and their role in such applications. The main focus of the paper upon which conclusions have been made is the case study of Tesco Clubcard system that is entirely database driven. An introduction to the activities of Tesco has been given first to help understand where the database system comes in handy. Their various operations have been deeply analyzed to attempt to prove how their Clubcard has been key to their success, a technology built upon a database. In conclusion, the enviable long time success of Tesco has been found to have been greatly derived from the collection, storage and eventual analysis of this data about customers. The data stored has been a tool with which Tesco has realized staggering profits both locally and internationally. Although the paper acknowledges that there are few downsides to the use of databases it strongly concludes that due to the predominant benefits that Tesco has realized from use of Clubcard, databases are invaluable tools with immeasurable economic significance. Table of Contents Executive Summary 2 Introduction 4 Literature Review 6 General Applications of Databases 6 Applications in Business 6 Database and Marketing 7 Business Intelligence (BI) 8 Tesco Clubcard Case Study 9 Conclusion 11 References 13 Introduction Many will agree that we live in a society that is hungry for information aka the information era. In this era, the need to access information cannot be divorced from the daily operations of any business be it a manufacturing or service delivery based business. Storage of information about goods produced, supplied, ordered among much more information is of utmost significance to manufactures and so is the need to store data about customers and market trends to service delivery businesses. During the agrarian and industrial ages, information and data storage relied on files of written papers which served as records for future reference. Today, technology has changed this and data can be stored electronically on disks and later be easily accessed whenever need arise. Advancements in technology that have seen the growth of the internet where information can be shared from remote locations have driven businesses to also adopt newer and better ways of storing their data. A form of data storage is therefore required that can collaborate with the existing technologies so as to capture information about and avail information to clients. One such tool that has deemed inevitable towards this end is the database. Over the recent years, the world has experienced an upsurge in the amount of data that is exchanged and stored and hence the talk about big data. All this has and is being facilitated by databases. Companies offering mail services, hosting sites and other online service providers rely on information stored in databases to conduct their operations. Questions do arise on why the widespread use of databases rather than the traditional storage systems? Why dont people stick to the cheaper methods that do not require complex hardware to manage and use? People have genuinely expressed their fears over the use of databases where some cite the additional cost as the reason while others are wary of the additional rigour and cost of maintaining, managing and the obvious security reasons. That notwithstanding, the technology has received global acceptance and subsequent adoption and hardly will one find a business that does not at least use a database. There are a number of factors that make databases not only admirable but also invaluable tools in todays administrative, economic and social activities. First, it worth mentioning that the security mechanisms that databases offer are far much tighter than possible with the traditional files or use of applications like spreadsheets. Complex algorithms can be bound to the data stored that make it hard for unauthorized and unregulated access. Secondly, access to data is improved because with databases, numerous users can access the same data-set at the same time a thing that is impossible with manual records which require duplication. Moreover, it is challenging to access such data from a remote location. Thirdly, data integration is enhanced because with a central pool of data, several arms of an organization can easily coordinate their operations based on this common database. Most importantly is the fact that data stored in a database allows for easier manipulation using other software so as to come up with important conclusions that drive decisions in an organization? It is based on these functional strengths that databases find diverse application and have enabled such platforms as social media, online banking and shopping, and other data management systems (Bleisch, 2007). Based on these, has this paper found its objective of establishing the significance of databases economically by analysing Tesco Clubcard system strategically and operationally. The successes and failures of Tesco as a company heavily reliant on a database have been focused to establish the extent to which the technology can be applied to realize benefits in a business setting. Literature Review General Applications of Databases As mentioned earlier in the introduction, databases form an integral part of many systems in many fields around the globe. Social media sites which arguably handle the largest data are all reliant on databases. Facebook, Twitter, Instagram among others all have a back-end database that stores information about users, their pictures and posts. Social media in itself has proved to be a key tool in marketing and businesses have used it to advertise themselves and their products. Search engines like Google, Bing and Yahoo all utilize databases to store information about the URIs (uniform resource identifiers) to sites that users search. Mail providers operate upon the same systems as they have to store large chunks of data for their users. Institutions also find their operations made easier through databases. Government agencies that manage data about citizens require large storage in forms that facilitate easy access and manipulation. For instance information about criminal records of people and records of the registered citizens of a particular state. Learning institutions also rely heavily on database to store details of students, keep track of their performance and perform analyses on aspects of interest to them (Silberschatz and Sudarshan). Applications in Business Perhaps the most significant application of databases is in business. With the recent paradigm shift in the way data is accessed coupled with the improved security on the internet, many businesses have opted to cloud computing solutions. The reduced cost of accessing software and maintenance that cloud offers have attracted many businesses to go that way. Providers of these cloud services utilize databases to store huge data for their clients and make it available all the time (Indu and Gupta 2012). Online shopping is another technology that has taken the market by a storm and is really spreading roots. Availability of goods can be checked, display of available goods too can be done with the help of databases. Giant online stores like Amazon and eBay all have gigantic data storage that drives all their buying and selling activities (Saranpong, 2005). Online banking is another service that has been made possible through the advent of internet and they too cannot do without means of storing their data and facilitating transactions. Database and Marketing In marketing, it is always important to know some information about the customers. Most of the businesses strive to keep some information about their clients from the basic details like name, mail and home address then from it they can gather more information by tracking these customers. Research indicates that most small businesses are faced with the challenge of knowing their customer in terms of their age, location, lifestyles and their characteristics. However, with a database it becomes very easy to know such information. It details the importance of a database to the business in terms of interacting with the customer. For instance when a customer makes inquiries through Facebook, mail or the website then it is usually a business custom to reply through the same media. At the same time most businesses ask for clients details like their profiles, emails, locations and addresses so that they can better understand the clients. Collecting this information by businesses becomes very key to their marketing strategies as target customers can be identified simply by analysing the stored data. While this paper does not delve into the technical aspects of how database marketing influences the success of a company, further information has been provided by Wagner Kamakura and others (2002) The need for customer information has become a concern for every business and efforts have been seen by companies towards obtaining this data either internally or externally. Melanie May writes about how businesses are in search of information about customers and she compares the cost of companies keeping their own data and that of purchasing from third parties. The underlying point however is that in whichever case, that information is needed for them to better understand their customers. Existence of companies like D&B that collect, aggregate, edit and verify information and then sell it to their clients so that those clients can know what businesses or customers to target. This information upon receiving has to be stored and analysed accordingly into useful facts that can then influence decisions by the organisations requiring it This process is often termed data mining (Nwokah and Nwokah 2011). Business Intelligence (BI) Raw data in a database is usually of little use unless it is processed into useful information. Software exist that aid in this by applying complex algorithms in creating meaningful relationships between the data-sets. Most BI tools are associated with databases because they entail manipulating data stored in such formats. Frank Crouwel writes on how businesses in UK have lately been active in collecting vital business intelligence using network videos and using it to make inferences on buying trends of customers. Cameras have been used to count people in stores, assess the time they spend in stores and also analyse queues at such stores. This information, he says, is then processed by BI software so as to make predictions and important business decisions. BI is being utilised by many companies including Nisa which according to Business Cloud News website moved its BI to the cloud. With BI on the cloud, it intends to pool information from different sources and make analyses on which customers purchase what, where and when. Nandi (2012) indicates that data well stored in a database is used as a predictive tool in many areas business inclusive. BI software provides Expert Systems like the Oracle data mining which can filter though databases and come up with helpful conclusions without human input. Moreover, BI gives businesses Decision support systems whose information acts as sufficient guidance in making informed decisions in organizations. These systems work entirely based on the databases therefore it can be inferred that databases are a requisite in the success of the modern day business. A well-populated database according to Businesszone helps in gaining an understanding of the following: know how much it costs to make a lead, establish the cost per sale, understand your customers habits, trends and location, and know typical customer demographics and lifestyles that they share if any. Tesco Clubcard Case Study Tesco is one of the leading retailers in the world having 4000 stores in Europe, US and South East Asia as reported by Loyalty Square. It began as a grocery store but since then it has diversified to offer other goods and services including financial services like banking. Its success has been driven by their loyalty program where customers accumulate points through their Tesco Clubcard. The company aims at improving customer experience by ensuring that the customer can always get what they want, they can get it at good prices, that they do not queue for purchases and that their staff are great. They also employ qualitative and quantitative research techniques together with tracking research so as to keep tabs on trends and performance relating to their stores. The Clubcard system has been Tescos strong point for a long time since its introduction in 1995. Through it, the retailer has realized enormous increase in customers and consequently profits from the numerous stores in the regions of its operation. Clubcard operates in way that customer details are first captured followed by issuance of a card that tracks their shopping habits and records that data in their database. Customers accumulate a point for every pound they spent on shopping in Tesco stores. These points that they accumulate are then used to purchase other goods or helps customers get some amount deducted from what they have to pay thereby ending up with less expenses. Clubcard relies heavily on Dunnhumby database which Tesco uses to store data about their customers. Dunnhumby, reports Ruddick, provides the company with unprecedented levels of detail about the identity of the shoppers and their shopping trends. Once again the necessity of having a database features as one invaluable aspect of business. According to David Benady, the clubcard has 12million users in the UK alone a fact that points to the size of customer data that the retailer must be holding in their dunnhumby database. Tescos reputation has been built around their dedication towards giving the customer a memorable experience at their stores through this wonderful initiative of offering points to loyal customers through the clubcard. Pundits have contested the whole idea of Tescos clubcard project claiming it is a technology whose relevance is fast becoming obsolete given the declining number of people using the cards around the world. Sophie Christie reports that about 8 million consumers use their cards less today than they did a year ago. David Benady on the same claims that the cards no longer benefit the customer rather they exist to benefit the retailers a fact that customers realize and has become the reason for shunning the cards. These notwithstanding, the fact that databases contribute massively towards economic building cannot be contested. Existing statistics on the number of people using cards and information from database as indicated by Benady is enough proof of the capabilities of database driven business. Clubcard for instance has 15million users in UK and 20 million outside UK with £780m being redeemed in 2010/11. Nectar another loyalty card program that took root in 1996 after Clubcard has 18.5 million users in UK and £1.5bn-worth of points have been redeemed since its launch in 2002. Other cards exist like Boots Advantage Card which has 16.5 million users in UK. These facts further cement the fact that though trends like online shopping are taking over from these loyalty cards, the need for databases might not be done away with soon. Tesco does not only use their database to support their Clubcard program but they have a host of more other business ventures that rely on databases to operate. In their annual report, Tesco enlists some of their projects and thorough them one gets the insight on the extent to which data is relied upon to sustain business. First is the Click & Collect program where customers do not have to go to stores to make purchases rather they place orders online and only go to the stores to pick their commodities. Such a service definitely relies on storage of the purchase information of that particluar client so that they can be identified from any of the Tesco stores worldwide. This information is stored in a database. Tesco have also targeted online buyers by establishing a system called Tesco Direct whose aim is to make available over 200,000 items online for people to see. This is a marketing strategy that enjoys the benefits of having stored data that can be made available to a wide range of customers worldwide at a go. It has also been mentioned that the store has over 4,000 stores worldwide specifically in Europe, the United States of America and South East Asia. All these stores operate as a single entity allowing customers with cards to be identified and thereby enjoy the benefits of their memberships anywhere in the world. To run such coordinated operations surely requires that all data be accessible from all stores irrespective of the location. Databases come in handy to facilitate such availability. Lastly is their new found venture into financial services. Tesco has intoduced banking services to their customers and now they can receive loans and all benefits associated with a banking institution. All their activities are centered on data and their dunnhumby database. Conclusion From the above treatment of Tesco together with the previous assessment of the various areas where databases are applied, it can be inferred with finality that databases are an important part of any business. It has been established too that information about trends of customers and predictions on changes in these trends is key to the success of any economic institution. The enviable success that Tesco has registered consequent of its Clubcard system to its customers is enough proof of the inevitability and therefore significance of database systems in an economic sense. Although the use of loyalty cards might be fast approaching its deathbed, need for data is a thing of a lifetime and as long as such necessity persists then databases will also persist. Current trends in business information systems are also changing with information technology systems shifting from the traditional in-house systems to the cloud. Such moves continue to demonstrate the significance of databases in business. This article also establishes, though shallowly that not only are databases significant in business alone but also in social media which has become such an important tool for almost every person in the world. Public and private institutions that are non-profit organizations also find great use in databases by organizing their information in formats that can be easily made available to vast population within short times. In conclusion, the strategic and operational considerations made in this paper strongly prove that indeed databases are prerequisites for the success of both profit and non-profit organizations. References Bleisch, S. 2007. Databases. GITTA. Available from http://www.elml.org/website/en/download/gitta_databases.pdf Indu, A & Gupta, A. 2012. Cloud databases: a paradigm shift in databases. International Journal of Computer Science. 9(4). Available from http://ijcsi.org/papers/IJCSI-9-4-3-77-83.pdf Kamakura, A, Wedel, M, Rosa, F & Mazzon, A. 2002.Cross-selling through database marketing. International Journal of Research in Marketing 20(2003). Available from wak2.web.rice.edu/bio/My Reprints/Cross-selling through database marketing.pdf Nandi, T. 2012. Maintaining database: business intelligence tool for competitve advantage. Business Intelligence Journal, 5(2). Available from http://www.saycocorporativo.com/saycoUK/BIJ/journal/Vol5No2/Article_17.pdf Nwokah, G & Nwokah, J. 2011. Strategic use of database marketing for marketing decision making. Research Journal of Information Technology 4(2). Available from http://maxwellsci.com/print/rjit/v4-27-37.pdf Saranpong, P.2005. Design and implementation of online shopping center. Assumption University, Thailand. International Journal of the Computer, the Internet and Management, 13(2) Available from http://www.ijcim.th.org/SpecialEditions/v13nSP2/pdf/p11.1-6-Design%20and%20Implementation.pdf Silberschatz, K & Sudarshan. Database System Concepts: Database management systems. Yale University. Available from http://codex.cs.yale.edu/avi/db-book/db4/slide-dir/ch1-2.pdf Tesco. Annual reports and financial statements.[PDF]. Available from http://www.tescoplc.com/files/pdf/reports/tesco_annual_report_2012.pdf Read More