Management Information Systems

CHAPTER ONE: INTRODUCTION TO MIS

After completing this chapter, you will be able to:

Define an information system
Distinguish between computer literacy and information system literacy
 Explain why information systems are so important today and how they are
transforming organization and management
 Identify the major management challenges to building and using information systems
in organization

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1.1 Why Information System?

The environment of business has changed from the traditional environment where
management processes are treated as a face-to-face, personal art and not a far-flung,
global coordination process. Information itself is not treated as an important asset for a
firm.
But today, most of the organization recognizes the importance of information.
For individuals, information systems are needed for entertainment and as an enlightment
to their life. Meanwhile for businesses, information systems are mostly needed to help in
decision making and problem solving. Besides that, it is used to gather, store and
manipulate information.
There are three main factors that contribute to the recognition of the importance
of information to any organization.
The first factor is the emergence and strengthening of the global economy.
Globalization of the world’s industrial economies greatly enhances the value of
information to the firm and offers new opportunities to businesses. Information system
provides the communication and analytical power that firms need for conducting trade
and managing businesses on a global scale.
The second factor is due to the transformation of industrial economies and
societies into knowledge and information based service economies. In knowledge based
economies, knowledge and information are key ingredients in creating wealth to an
organization. Knowledge and information are becoming the foundation for many new
services and products. Intensification of knowledge utilization in the production of
traditional products has increased as well. New kinds of knowledge- and information-
intense organizations have emerged that are devoted entirely to the production,
processing, and distribution of information
The third factor is due to the transforming of the business enterprise. Traditional
firms was and still is a hierarchical, centralized, structured arrangement of specialist that
typically relies on a fixed set of standard operating procedures to deliver a mass-produced
product or services. But the business enterprises has change into flattened, decentralized,
flexible arrangement of generalists who rely on nearly instant information to deliver
mass-customized products and services uniquely suited to specific markets or customers

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Besides the above mentioned three main factors, there are also several trends that
have made the use of information systems very important in business:
 Computers’ power has grown tremendously, while their prices have dropped.
 Computer programs’ variety and ingenuity have increased.
 Quick and reliable communication lines and access to the Internet and World Wide
Web have become widely available and affordable.
 The fast growth of the Internet has opened opportunities, as well as competition in
global markets.
 An increasing ratio of the workforce is computer literate.
In this environment, organizations will quickly lag behind if they do not take
advantage of this progress and use the technologies and skills to meet their goals.

1.1.1 What is an Information System?

Information system consists of physical and nonphysical components working
together. A computer alone is not an information system. A computer combines with a
software program may constitute an information system, but only if the program is
designed to produce information that helps an organization or person to achieve a specific
goal. Information system can be further defined as a set of interrelated components that
collect or retrieve, process, store and distribute information to support decision making
and control in an organization. Information systems can also help managers and workers
to analyze problems, visualize complex subjects and create new subjects. It may contain
information about significant people, places and things within the organization or in the
environment surrounding it.
All information systems (IS) operate in the same basic fashion whether they
include a computer or not. However, the computer provides a convenient means to
execute the four main operations of an information system. The four main activities are
entering data into the IS (input), changing and manipulating the data in the IS (data
processing), getting information out of the IS (output) and storing data and information
(storage). Besides the four main operations, feedback is also needed to return the output
to the appropriate people or activities in the organization to evaluate and refine the input.

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Storage

Input Process Output

Feedback

Figure 1.1 Diagram showing the four main operations

The first step in producing information is collecting and introducing data into the
IS, known as input. Input captures or collect raw data from within the organization or
from its external environment. Data are streams of raw facts representing events
occurring in organizations or the physical environment before they have been organized
and arranged into a form that people can understand and use. An input device is the tools
used to enter data into an IS. Input devices include the keyboard, infrared devices that
sense bar codes, and voice recognition systems.
The second step in producing information is processing. This is the step where
computer contributes to the efficiency of the data processing, which is essential to a
robust IS. In this step, computer helps in converting the raw input into a more
meaningful form through various methods like conversion, manipulation and analysis.
The computer’s speed and accuracy let organizations process millions of pieces of data in
several seconds.
Output is the information an IS produces and displays on an output device in the
format most useful to an organization. Information is data that have been shaped into a
form that is meaningful and useful to human beings. A good IS must be able to produce
information that carries the following characteristics:
 Relevant – information must pertain to the problem at hand.
 Complete – partial information is often worst than no information.
 Accurate – erroneous information may lead to disastrous decisions.
 Current – decisions are often based upon the latest information available.

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 Economical – in a business setting, the cost of obtaining information must be

considered as one cost element involved in any decision.
The information needs to be transferred to the people or activities where it will be used.
The most widely used output device is the video display, or video monitor, which
displays output visually. However, computers can communicate output through speakers
in the form of music of speech and can also transmit it to another computer or electronic
device in computer-coded form for later interpretation.
One of the greatest benefits of using computers is their ability to store vast
amount of data and information. Computer stores information on both devices that are
internal to the machine and those that are external.
Feedback is output returned to appropriate people or activities in the organization
to evaluate and refine the input.
The four basic components of the computer system within an IS:
 Input device that introduces data into the IS.
 The computer processes data through the IS.
 Output device that displays the information produces by the IS.
 Storage device to store data and information.
In addition to the above components, communication also occurs between computers.
Communications technology lets users not only access multiple input, output and storage
devices with a single computer, but access data and resources of more than one computer
as well.

1.1.2 A Business Perspective on Information System

From a business perspective, an information system is an organizational and
management solution, based on information technology, to a challenge posed by the
environment. It emphasizes the organizational and management nature of information
system: To understand information system – to be information system literate as opposed
to computer literate – a manager must understand the broader organization, management
and information technology dimensions of systems and their power to provide solutions
to challenges and problems in the business environment

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Organizations Technology

Informatio
n System

Management

Figure 1-2
The key elements of an organization are its people, structure and operating
procedures, politics and culture. An organization coordinates work through a structured
hierarchy and formal standard operating procedures (SOPs). SOPs are formal rules for
accomplishing tasks that have been developed over a long time. These rules guide
employees in variety of procedures. Most of the procedures are formalized and written
down, but many others are informal work practices. Major organizational functions are
like sales and marketing, manufacturing, finance, accounting and human resources
Management’s job is to make sense out of many situations faced by organization
and formulate action plans to solve organizational problems. A substantial part of
management is creative work driven by new knowledge and information. Information
technology can play a powerful role in redirecting and redesigning the organization.
Managerial roles and decisions vary at different levels of the organization.
 Senior managers – make long-range strategic decisions about products and services to
produce.
 Middle managers – carry out the programs and plans senior management.
 Operational managers – responsible for monitoring the firm’s daily activities.

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Information technology is one of many tools available to managers for coping

with change which consists of computer hardware, computer software, storage
technology and communication technology. Computer hardware is physical equipments
used for input, processing and output activities in an information system. Computer
software is detailed, preprogrammed instructions that control and coordinate the work of
computer hardware components in an IS. Storage technology is physical media and
software governing the storage and organization of data for use in an IS. Lastly,
communication technology is physical devices and software that link various computer
hardware components and transfer data for use in an IS. A network links two or more
computers to share data or resources such as printer.

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1.2 Contemporary Approaches to Information Systems

Multiple perspectives on IS shows that the study of information systems is a
multidisciplinary field, where no single theory or perspective dominates. Figure 1.3
shows the major disciplines that contribute problem, issues and solutions. In general, the
field can be divided into technical, behavioral and socio-technical approaches.
Technical approach emphasizes mathematically based, normative models to study
information systems as well as the physical technology and formal capabilities of these
systems. Three disciplines that contribute to this approach are Management Science,
Computer Science and Operation Research.
Behavioral approach is more concern with development and long-term
maintenance of information systems, which emphasizes on issues like strategic business
integration, design, implementation and utilization. Three disciplines that contribute to
this approach are Psychology, Economics and Sociology.

Computer Science
Management
Science Operation
Research
MIS
Psychology
Economics Sociology
Figure 1-3

Socio-technical approach avoids a purely technological approach to information

systems. This approach stress the need to optimize the performance of the system as a
whole where both the technical and behavioral components needs attention, which means
that the technology must be changed and designed in such a way as to fit organizational
and individual needs meanwhile organization and individual must also be changed
through training, learning and planned organizational change in order to allow the
technology to operate and prosper.
1.3 The New Role of Information Systems in Organization

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The new relationship (as illustrated in Figure 1.4) between organization and IS shows that
there is a growing interdependence between organizational business strategy, rules and
procedures on the one hand and information system software, hardware, databases and
telecommunications on the other. The changes in strategy, rules and procedures require
changes in hardware, software, databases and telecommunications. This relationship
becomes critical when management plans for the future.

Hardwar
e

Business
Software Database
Strategy Rules

Procedures
Interdependence

Tele-
communication

Organization Information System

Figure 1-4
A second change in the relationship of IS and organizations results from the growing
complexity and scope of system projects and applications. Over time, information
systems have come to play a larger role in the life of the organization. Early information
systems brought about largely technical changes that were relatively easy to achieve and
accomplish and affects few people. Later systems affected managerial control and
behavior (who has what information about whom, when and how often); ultimately
systems influenced “core” institutional activities (what products and services are
produced, under what conditions and by whom) concerning products, markets, suppliers
and customers.

1.3.1 New Options for Organizational Design: The Networked Enterprise

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The explosive growth in computing power and networks is turning organizations

into networked enterprises, allowing information to be instantly distributed within and
beyond the organization. This capability can be used to redesign and reshape
organizations, transforming their structure, scope of operations, reporting and control
mechanisms, work practices, work flows, products and services. The following describes
the new ways of conducting business electronically.
Flattening organizations will results in fewer levels of management, with lower-
level employees being given greater decision-making authority. Those employees are
empowered to make more decisions than in the past are no longer work standard 8 hours
and no longer necessary work in an office and they can be scattered geographically.
Contemporary information technology makes more information available to line workers
so they can make decisions that previously had been made by managers. Networked
computers have made it possible for employees to work together as a team. Team
members can collaborate closely even from distant locations. These changes mean that
the management span of control has also been broadened, allowing high-level managers
to manage and control more workers spread over greater distances.
Separating work from location is possible as organizing globally while working
locally is made possible through technologies like e-mail, the Internet, video
conferencing. Communication technology eliminates distance as a factor for many types
of work in many situations. Collaborative teamwork across thousands of miles has
become a reality designer’s work on the design of a new product together even if they are
located on different continents. Companies are not limited to physical locations or their
own organizational boundaries for providing products and services. Virtual organization
becomes reality where organization using network linking people, assets and ideas to
create and distribute products and services without being limited by traditional
organizational boundaries or physical location.
Reorganizing work flows as IS have been progressively replacing manual work
procedures with automated work procedures, work flows and work processes. Improved
work flow management enabled many organizations not only to cut cost significantly but
also to improve customer service at the same time.

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Increases flexibility of organization as companies uses communication technology

to organize in more flexible way, increases their ability to respond to changes in the
marketplace and to take advantage of new opportunities. Large organization can use
information technology to achieve some of the agility and responsiveness of small
organizations like mass customization, the use of software and computer networks to
finely control production so that products can be easily customized with no added cost for
small production runs. The result is a dynamically responsive environment in which
products can be turned out in a greater variety.
Information technology is recasting the process of management, providing
powerful new capabilities to help managers plan, organize, lead and control. For
example the use of Enterprise Resource Planning (ERP) is a business management that
integrates all facets of the business, including planning, manufacturing, sales and finance
so that they can become closely coordinated by sharing information with each other.
Reducing organizational boundaries as networked information system enables
transactions to be exchanged electronically among different companies, hence reducing
the cost of obtaining products and services from outside the firm. An inter-organizational
system is a system that automates the flow of information across organizational
boundaries and links a company to its customers, distributors or suppliers.

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