Principles of Information Systems, Eighth Edition 1-1

Chapter 1

An Introduction to Information Systems

At a Glance

Instructor’s Manual Table of Contents

• Overview

• Principles and Objectives

• Teaching Tips

• Quick Quizzes

• Class Discussion Topics

• Additional Projects

• Additional Resources

• Key Terms
Principles of Information Systems, Eighth Edition 1-2

Overview
Chapter 1 focuses on the value of information and how it helps decision makers achieve
organizational goals. Information is derived from data through the use of information
systems, making it possible for organizations to improve the way they conduct business.
Understanding the potential impact of information systems and having the ability to put this
knowledge to work can result in successful personal careers, organizations that reach goals,
and a higher quality of life. System users, business managers, and information system
professionals must work together to build a successful information system. Many types of
information systems are used in business organizations. The most common of these are
transaction processing systems (TPSs), enterprise resource planning systems (ERPs),
management information systems (MISs), decision support systems (DSSs), and group
support systems (GSSs). In addition, some organizations also use specialized information
systems, such as knowledge management systems (KMSs), systems based on artificial
intelligence (AI), and systems based on virtual reality.

Principles and Objectives

Principles Learning Objectives

The value of information is directly linked to • Discuss why it is important to study

how it helps decision makers achieve the and understand information systems.
organization’s goals. • Distinguish data from information and
describe the characteristics used to
evaluate the quality of data.

Computers and information systems are • Name the components of an

constantly making it possible for organizations information system and describe
to improve the way they conduct business. several system characteristics.

Knowing the potential impact of information • List the components of a computer-

systems and having the ability to put this based information system.
knowledge to work can result in a successful • Identify the basic types of business
personal career, organizations that reach their information systems and discuss who
goals, and a society with a higher quality of uses them, how they are used, and what
life. kinds of benefits they deliver.

System users, business managers, and • Identify the major steps of the systems
information systems professionals must work development process and state the goal
together to build a successful information of each.
system.
Principles of Information Systems, Eighth Edition 1-3

• Describe some of the threats to security

Information systems must be applied and privacy that information systems
thoughtfully and carefully so that society, and the Internet can pose.
business, and industry can reap their enormous • Discuss the expanding role and
benefits. benefits of information systems in
business and industry.

Teaching Tips
Why Learn About Information Systems?
Information systems are used in almost every imaginable profession. For example, sales
representatives use information systems to advertise products, communicate with customers,
and analyze sales trends. Managers use them to make all kinds of business decisions.
Corporate lawyers use information systems to develop contracts and other legal documents.
In today’s world, information systems are indispensable tools for helping an individual
achieve his or her career goals. Learning about information systems can help your students
land their first job, earn promotions, and advance their career.

Information Concepts
This section introduces a central concept of this course: information.

Data, Information, and Knowledge

Information is a set of facts organized in such a way that it provides additional value beyond
that of the facts themselves. It is derived from data or raw facts, such as an employee
number, number of hours worked in a week, inventory part numbers, or sales orders. Several
types of data are shown in Table 1.1 on page 5.

Table 1.1: Types of Data

Principles of Information Systems, Eighth Edition 1-4

Turning data into information is a process, or a set of logically related tasks performed to
achieve a defined outcome. The process of defining relationships among data to create useful
information requires knowledge. This is an awareness and understanding of a set of information
and the ways in which it can be made useful to support a specific task or reach a decision.

Teaching As class begins, reassure students that you are here to help them understand
Tip technology. Many less technically-oriented students will feel intimidated by this
course. Help students get off to a good start!

Teaching Develop a class Web site. Maintain a copy of your syllabus, a lecture schedule,
Tip and assignment information.

The Characteristics of Valuable Information

An information system facilitates the transformation of data into information, and in order to
be valuable to a manager, information should contain the characteristics summarized in
Table 1.2 on page 7, which is shown below:

Table 1.2: Characteristics of Valuable Information

Principles of Information Systems, Eighth Edition 1-5

The Value of Information

To be useful for an organization, the collection of information must help the organization
achieve its goals. Examples of common goals for corporations include increasing profits and
cutting costs.

Quick Quiz 1
1. What are two characteristics of valuable information?
ANSWER: Accessible, accurate, complete, economical, flexible, relevant, reliable,
secure, simple, timely, and verifiable

2. Information is a collection of ____________________ organized so that they have

additional value beyond the value of the ____________________ themselves.
ANSWER: facts

3. Which type of data includes noises, sounds, or tones?

ANSWER: Audio data

4. The process of defining relationships among data to create useful information

requires ____________________.
ANSWER: knowledge

System Concepts
A system is a set of elements or components that interact to accomplish specific goals.
These elements are inputs, processing mechanisms, outputs, and feedback. The elements
themselves and the relationships among them determine how the system works.

System Performance and Standards

System performance can be measured in terms of effectiveness, a measure of the extent to

which a system meets its goals, and efficiency, a measure of what is produced divided by
what is consumed. Its evaluation also requires the use of system performance standards,
which are specific objectives of the system. Once standards are established, system
performance is measured and compared. Variances are then used as determinants of system
performance.

Teaching Spend some time talking about the Web. Perform a quick demo showing how to
Tip type in a URL so that students can comfortably reference Web sites in the text
and class.
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Teaching Discuss the system performance evaluation and tracking techniques of any well-
Tip known organization (e.g., Microsoft, Dell). Also discuss the system performance
standards that are used by the organization to evaluate system performance.

Quick Quiz 2
1. What are the four elements of a system?
ANSWER: Input, processing, output, and feedback

2. The extent to which a system meets its goals is called ____________________.

ANSWER: effectiveness

3. A(n) ____________________ is a specific objective of the system.

ANSWER: system performance standard

What is an Information System?

An information system is a set of interrelated elements or components that collect (input),
manipulate (process), and disseminate (output) data and information, and provide a feedback
mechanism to meet an objective.

Input, Processing, Output, Feedback

Input refers to the act of gathering and capturing raw data. It can be a manual or automated
process, but regardless of the method used, the accuracy of the input is critical in order to
achieve the desired output.

Processing involves the conversion or transformation of data into useful outputs while the
term output refers to the production of useful information, usually in the form of documents
and reports. In information systems, the term feedback is used to describe the output used to
make changes to input or processing activities.

Teaching Pass a list around class and ask students to list their experience in information
Tip systems. Does anyone have familiarity with the field? If so, speak with them
about sharing their knowledge with the class. This list will also help you
organize your lectures with a focus specific to your class’s needs.
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Manual and Computerized Information Systems

An information system can be manual or computerized. Both kinds of systems have input,
processing, output, and feedback components, but while a computerized information system
uses a computer, a manual information system does not.

Computer-Based Information Systems

A computer-based information system (CBIS) consists of the following components that are
configured to collect, manipulate, store, and process data into information:

• Hardware
• Software
• Databases
• Telecommunications
• People
• Procedures

The term hardware is used to describe the physical computer equipment used in a CBIS,
while software is defined as the set of programs that govern the operation of the computer. A
database is an organized collection of facts and information, and most managers and
executives believe that it is one of the most valuable and important parts of a CBIS.
Telecommunications is the electronic transmission of signals for communications and
enables organizations to carry out their processes and tasks through effective computer
networks. People are the most important element in a CBIS because they manage, run,
program, and maintain the system. Finally, the term procedures refers to the strategies,
policies, methods, and rules for using the CBIS.

Quick Quiz 3
1. True or False: An information system always includes a computer.
ANSWER: False

2. What is the most important element of a CBIS?

ANSWER: The people

3. What are the strategies, policies, methods, and rules for using a CBIS called?
ANSWER: Procedures

Business Information Systems

Businesses utilize information systems to improve their operations at all levels. Nearly all
workers, from top management to production line employees, come in contact with
computerized systems on a daily basis. This results in a variety of systems functioning in
different areas.
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Electronic and Mobile Commerce

E-commerce involves any business transaction executed electronically between companies

(business-to-business, B2B), companies and consumers (business-to-consumer, B2C),
consumers and other consumers (consumer-to-consumer, C2C), business and the public
sector, and consumers and the public sector.

Mobile commerce (m-commerce) refers to business transactions that are carried out using
wireless communication devices.

Enterprise Systems: Transaction Processing Systems and Enterprise Resource Planning

Another family of business information systems is the transaction processing system (TPS).
TPSs are used to manage and facilitate common business transactions such as sales to
customers and payments to employees and suppliers. Related to the TPS is an enterprise
resource planning (ERP) system. This is a set of integrated programs that is capable of
managing a company’s vital business operations for an entire multisite, global organization.
Although the scope of an ERP system may vary from company to company, most provide
integrated software to support the manufacturing and finance business functions of an
organization.

Information and Decision Support Systems

The information collected using a TPS can be transformed into routine information for
managers and decision makers through the use of a management information system (MIS).
These systems are designed to provide a variety of reports. Decision support systems (DSS)
use the data collected by a TPS to support problem-specific decision-making. A DSS
operates from a managerial perspective and is often designed to take managerial decision-
making styles into consideration. Whereas an MIS helps an organization "do things right," a
DSS helps a manager "do the right thing."

Another type of decision support system supports groups rather than managers. A group
decision support system is also called a group support system. In addition to the DSS
elements, these systems also include software, called groupware, to help groups make
effective decisions.

Specialized Business Information Systems: Knowledge Management, Artificial

Intelligence, Expert Systems, and Virtual Reality

Newer technologies and specialized systems are also used by businesses. Among these are
knowledge management systems (KMSs), artificial intelligence (AI) systems, and virtual
reality. A KMS is an organized collection of people, procedures, software, databases, and
devices to create, store, share, and use the organization’s knowledge and experience. AI
systems attempt to take on the characteristics of human intelligence. The subfields of AI
include robotics, vision systems, natural language processing, learning systems, neural
networks, and expert systems. Virtual reality attempts to place the user into an artificial,
three-dimensional world that is completely generated by a computer.
Principles of Information Systems, Eighth Edition 1-9

Quick Quiz 4
1. A(n) ____________________ is an organized collection of people, procedures,
software, databases, and devices to create, store, share, and use the organization’s
knowledge and experience.
ANSWER: knowledge management system or KMS

2. ____________________ is a field in which the computer system takes on the

characteristics of human intelligence.
ANSWER: Artificial intelligence or AI

3. From what perspective does a DSS operate?

ANSWER: A managerial one

4. What classification can be given to all electronic business transactions?

ANSWER: E-commerce

5. What is a transaction?
ANSWER: Any business-related exchange such as payments to employees, sales to
customers, or payments to suppliers

6. What technology puts a user into a computer-generated world?

ANSWER: Virtual reality

Systems Development
Systems development is the act of creating or modifying existing business systems.
Developing information systems to meet business needs is highly complex, so much so that
it is common for information systems projects to overrun budgets and exceed scheduled
completion dates. System development can be viewed as a series of steps as described in the
following figure (Figure 1.16 on page 26):
Principles of Information Systems, Eighth Edition 1-10

Figure 1.16: An Overview of Systems Development

Systems Investigation and Analysis

The first step of the systems development process is systems investigation. The goal of this
step is to gain a clear understanding of the problem to be solved or opportunity to be
addressed. The next step is systems analysis, which defines the problems and opportunities
of the existing system.

Systems Design, Implementation, and Maintenance and Review

Systems design determines how the new system will work to meet the business needs
defined during systems analysis. Systems implementation involves creating or acquiring the
various system components (hardware, software, databases, etc.) defined in the design step,
assembling them, and putting the new system into operation. The last step of systems
development is systems maintenance and review, which consists of checking and modifying
the system so that it continues to meet changing business needs.

Quick Quiz 5
1. What do information system professionals call the process of building or modifying
existing information systems?
ANSWER: Systems development
Principles of Information Systems, Eighth Edition 1-11

2. What systems development step involves the checking and modification of a system
so that it continues to meet business needs?
ANSWER: Systems maintenance and review

3. What systems development step involves the creation a new system?

ANSWER: Systems implementation

Information Systems in Society, Business, and Industry

Security, Privacy, and Ethical Issues in Information Systems and the Internet

Although information systems can provide enormous benefits, there are a number of
potential negative aspects to their use. Figure 1.17 on page 28 reveals the cost of losses due
to computer attacks during a one-year period of about 250 organizations that responded to a
survey.

Some individuals and companies install firewalls (software and hardware that protect a
computer system or network from outside attacks) to avoid viruses and prevent unauthorized
people from gaining access to the computer system. Identification numbers and passwords
can also be used. Some security experts propose that Web cameras be put in critical areas
and that “citizen spotters” are hired to monitor the Webcams.

Teaching Ask students to discuss the steps they take to protect their home computers from
Tip threats such as viruses, spyware, and worms. Is it possible to provide 100%
protection for a computer? Why or why not?

Computer and Information Systems Literacy

Whatever career path you take, an understanding of information systems will help you cope,
adapt, and prosper in this challenging environment. The Internet is one means for advancing
your knowledge of information systems and other professional study. Increasingly, courses
or entire degrees are being offered over the Internet.

Computer literacy is knowledge of computer systems and equipment and the ways they
function. It stresses equipment and devices (hardware), programs and instructions
(software), databases, and telecommunications. Information systems literacy goes beyond
knowledge of the fundamentals of computer systems and equipment. Information systems
literacy is knowledge of how data and information are used by individuals, groups, and
organizations.

Teaching Encourage the students to use the Web for all of the research topics in the text.
Tip Provide some simple search engine guidelines.
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Information Systems in the Functional Areas of Business

Information systems are used in all functional areas and operating divisions of business. For
example, in finance and accounting, information systems are used to forecast revenues and
business activity, determine the best sources and uses of funds, manage cash and other
financial resources, analyze investments, and perform audits to make sure the organization is
financially sound and all financial reports and documents are accurate.

In sales and marketing, they are used to develop new goods and services (product analysis),
determine the best location for production and distribution facilities (place or site analysis),
determine the best advertising and sales approaches (promotion analysis), and set product
prices to get the highest total revenues (price analysis).

Information Systems in Industry

Information systems are used in almost every industry or field. For example, the airline
industry employs Internet auction sites to offer discount fares and increase revenue.
Investment firms use information systems to analyze stocks, bonds, options, the futures
market, and other financial instruments, as well as to provide improved services to their
customers. Banks use information systems to help make sound loans and good investments.
The transportation industry uses information systems to schedule trucks and trains to deliver
goods and services at the lowest cost.

Quick Quiz 6
1. ____________________ is the knowledge of how data and information are used by
individuals, groups, and organizations.
ANSWER: Information systems literacy

2. What parts of a business benefit from information systems?

ANSWER: All parts

3. What industries utilize information systems?

ANSWER: All industries
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Global Challenges in Information Systems

The use of information systems has led to greater globalization, which refers to an
increase in international trade and cultural exchange. Globalization has created many
new opportunities for businesses, organizations, and individuals. However, globalization
also means that organizations and individuals must deal with some new challenges, such
as:

• Cultural challenges
• Language challenges
• Time and distance challenges
• Infrastructure challenges
• Currency challenges
• Product and service challenges
• Technology transfer issues
• State, regional, and national laws
• Trade agreements

Class Discussion Topics

1. Give an example of a real or fictional corporation and describe the goals of the
corporation. Then, ask students to discuss how a computerized information system can
help the corporation achieve its goals.

2. Why is it important for everyone to be computer literate? Give some examples of how
being computer literate can help an individual in his job and personal life.

Additional Projects
1. Choose a company that has a Web site. By exploring the Web site, determine the goals
of the company. How does the company use the Internet to accomplish these goals?
Report your findings in 1-2 paragraphs.

2. Using the Internet, research the risks that companies face due to the use of their
information systems. What kind of damage can each of these risks cause to a company’s
operations? Summarize your findings in 2-3 paragraphs.

3. Choose a subfield of Artificial Intelligence. Then, research the present and potential
future uses of the technologies in this subfield. Report your findings in 1-2 paragraphs.
Principles of Information Systems, Eighth Edition 1-14

Additional Resources
1. The BizTech Network:
www.brint.com/

2. MISQ Central:
www.misq.org/

3. AISWorld Net:
www.isworld.org

Key Terms
¾ Artificial intelligence (AI) - a field in which the computer system takes on the
characteristics of human intelligence.
¾ Computer-based information system (CBIS) - consists of hardware, software,
databases, telecommunications, people, and procedures that are configured to collect,
manipulate, store, and process data into information.
¾ Computer literacy - knowledge of computer systems and equipment and the ways they
function; it stresses equipment and devices (hardware), programs and instructions
(software), databases, and telecommunications.
¾ Data - raw facts, such as an employee number, number of hours worked in a week,
inventory part numbers, or sales orders.
¾ Database - an organized collection of facts and information.
¾ Decision support system (DSS) - an organized collection of people, procedures,
software, databases, and devices used to support problem-specific decision-making.
¾ E-commerce - any business transaction executed electronically between companies
(business-to-business), companies and consumers (business-to-consumer), consumers
and other consumers (consumer-to-consumer), business and the public sector, and
consumers and the public sector.
¾ Effectiveness - a measure of the extent to which a system achieves its goals; it can be
computed by dividing the goals actually achieved by the total of the stated goals.
¾ Efficiency - a measure of what is produced divided by what is consumed.
¾ Electronic business (e-business) - using information systems and the Internet to
perform all business-related tasks and functions.
¾ Enterprise resource planning (ERP) system - a set of integrated programs capable of
managing a company’s vital business operations for an entire multisite, global
organization.
¾ Expert system - a system that gives a computer the ability to make suggestions and act
like an expert in a particular field.
¾ Extranet - a network based on Web technologies that allows selected outsiders, such as
business partners and customers, to access authorized resources of a company’s
intranet.
¾ Feedback - output that is used to make changes to input or processing activities.
¾ Forecasting - predicting future events to avoid problems.
Principles of Information Systems, Eighth Edition 1-15

¾ Hardware - computer equipment used to perform input, processing, and output

activities.
¾ Information - a collection of facts organized in such a way that they have additional
value beyond the value of the facts themselves.
¾ Information system (IS) - a set of interrelated components that collect, manipulate,
store, and disseminate data and information and provide a feedback mechanism to meet
an objective.
¾ Information systems literacy - knowledge of how data and information are used by
individuals, groups, and organizations.
¾ Input - the activity of gathering and capturing raw data.
¾ Internet - the world’s largest computer network, actually consisting of thousands of
interconnected networks, all freely exchanging information.
¾ Intranet - an internal network based on Web technologies that allows people within an
organization to exchange information and work on projects.
¾ Knowledge - an awareness and understanding of a set of information and ways that
information can be made useful to support a specific task or reach a decision.
¾ Knowledge base - the collection of data, rules, procedures, and relationships that must
be followed to achieve value or the proper outcome.
¾ Management information system (MIS) - an organized collection of people,
procedures, software, databases, and devices used to provide routine information to
managers and decision makers.
¾ Mobile commerce (m-commerce) - transactions conducted anywhere, anytime using
wireless communications.
¾ Networks - computers and equipment that are connected in a building, around the
country, or around the world to enable electronic communications.
¾ Output - production of useful information, usually in the form of documents and
reports.
¾ Procedures - the strategies, policies, methods, and rules for using a CBIS.
¾ Process - a set of logically related tasks performed to achieve a defined outcome.
¾ Processing - converting or transforming data into useful outputs.
¾ Software - the computer programs that govern the operation of the computer.
¾ System - a set of elements or components that interact to accomplish goals.
¾ System performance standard - a specific objective of the system.
¾ Systems development - the activity of creating or modifying existing business systems.
¾ Technology infrastructure - all the hardware, software, databases,
telecommunications, people, and procedures that are configured to collect, manipulate,
store, and process data into information.
¾ Telecommunications - the electronic transmission of signals for communications;
enables organizations to carry out their processes and tasks through effective computer
networks.
¾ Transaction - any business-related exchange, such as payments to employees, sales to
customers, and payments to suppliers.
¾ Transaction processing system (TPS) - an organized collection of people, procedures,
software, databases, and devices used to record completed business transactions.
¾ Virtual reality - the simulation of a real or imagined environment that can be
experienced visually in three dimensions.