DEFINING INFORMATION SYSTEMS

Almost all programs in business require individuals to have knowledge in something called
information systems. But what exactly does that term mean?

• “Information systems (IS) is the study of complementary networks of hardware and

software that people and organizations use to collect, filter, process, create, and distribute
data.”
• “Information systems are combinations of hardware, software, and telecommunications
networks that people build and use to collect, create, and distribute useful data, typically
in organizational settings.”
• “Information systems are interrelated components working together to collect, process,
store, and disseminate information to support decision making, coordination, control,
analysis, and visualization in an organization.”

THE COMPONENTS OF INFORMATION SYSTEMS

Information systems are made up of five components: hardware, software, data, people, and
process. The first three, fitting under the category technology, are generally what most
individuals think of when asked to define information systems. But the last two, people and
process, are really what separate the idea of information systems from more technical fields, such
as computer science. To fully understand information systems, an individual must understand
how all of these components work together to bring value to an organization.
TECHNOLOGY
Technology can be thought of as the application of scientific knowledge for practical purposes.
From the invention of the wheel to the harnessing of electricity for artificial lighting, technology
is a part of our lives in so many ways that we tend to take it for granted. As discussed before, the
first three components of information systems – hardware, software, and data – all fall under the
category of technology.
HARDWARE
Information systems hardware is the part of an information system you can touch – the physical
components of the technology. Computers, keyboards, disk drives, iPads, and flash drives are all
examples of information systems hardware.
SOFTWARE
Software is a set of instructions that tells the hardware what to do. Software is not tangible – it
cannot be touched. When programmers create software programs, what they are really doing is
simply typing out lists of instructions that tell the hardware what to do. There are several
categories of software, with the two main categories being operating-system software, which
makes the hardware usable, and application software, which does something useful. Examples of
operating systems include Microsoft Windows on a personal computer and Google’s Android on
a mobile phone. Examples of application software are Microsoft Excel and Angry Birds.
DATA
The third component is data. Data is a collection of facts. For example, your street address, the
city you live in, and your phone number are all pieces of data. Like software, data is also
intangible. By themselves, pieces of data are not really very useful. But aggregated, indexed, and
organized together into a database, data can become a powerful tool for businesses. In fact, all of
the definitions presented earlier focused on how information systems manage data. Organizations
collect all kinds of data and use it to make decisions. These decisions can then be analyzed as to
their effectiveness and the organization can be improved.
NETWORKING COMMUNICATION
Besides the components of hardware, software, and data, which have long been considered the
core technology of information systems, it has been suggested that one other component should
be added: communication. An information system can exist without the ability to communicate –
the first personal computers were stand-alone machines that did not access the Internet.
However, in today’s hyper-connected world, it is an extremely rare computer that does not
connect to another device or to a network. Technically, the networking communication
component is made up of hardware and software, but it is such a core feature of today’s
information systems that it has become its own category.
PEOPLE
A focus on the people involved in information systems is the next step. From the front-line help-
desk workers to systems analysts, to programmers, all the way up to the chief information officer
(CIO), the people involved with information systems are an essential element that must not be
overlooked.
PROCESS
The last component of information systems is process. A process is a series of steps undertaken
to achieve a desired outcome or goal. Information systems are becoming more and more
integrated with organizational processes, bringing more productivity and better control to those
processes. But simply automating activities using technology is not enough – businesses looking
to effectively utilize information systems do more. Using technology to manage and improve
processes, both within a company and externally with suppliers and customers, is the ultimate
goal. Technology buzzwords such as “business process reengineering,” “business process
management,” and “enterprise resource planning” all have to do with the continued improvement
of these business procedures and the integration of technology with them. Businesses hoping to
gain an advantage over their competitors are highly focused on this component of information
systems.
THE ROLE OF INFORMATION SYSTEMS
Now that we have explored the different components of information systems, we need to turn our
attention to the role that information systems play in an organization. So far we have looked at
what the components of an information system are, but what do these components actually do for
an organization? From the definitions above, it can be
observed that these components collect, store, organize, and distribute data throughout the
organization. In fact, we might say that one of the roles of information systems is to take data
and turn it into information, and then transform that into organizational knowledge. As
technology has developed, this role has evolved into the backbone of the organization. To get a
full appreciation of the role information systems play, we will review how they have changed
over the years.
The Mainframe Era
From the late 1950s through the 1960s, computers were seen as a way to more efficiently do
calculations. These first business computers were room-sized monsters, with several refrigerator-
sized machines linked together. The primary work of these devices was to organize and store
large volumes of information that were tedious to manage by hand. Only large businesses,
universities, and government agencies could afford them, and they took a crew of specialized
personnel and specialized facilities to maintain. These devices served dozens to hundreds of
users at a time through a process called time-sharing. Typical functions included scientific
calculations and accounting, under the broader umbrella of “data processing.”
In the late 1960s, the Manufacturing Resources Planning (MRP) systems were introduced. This
software, running on a mainframe computer, gave companies the ability to manage the
manufacturing process, making it more efficient. From tracking inventory to creating bills of
materials to scheduling production, the MRP systems (and later the MRP II systems) gave more
businesses a reason to want to integrate computing into their processes.
The PC Revolution
In 1975, the first microcomputer was announced on the cover of Popular Mechanics: the Altair
8800. Its immediate popularity sparked the imagination of entrepreneurs everywhere, and there
were quickly dozens of companies making these “personal computers.” Though at first just a
niche product for computer hobbyists, improvements in usability and the availability of practical
software led to growing sales. The most prominent of these early personal computer makers was
a little company known as Apple Computer, headed by Steve Jobs and Steve Wozniak, with the
hugely successful “Apple II.” Not wanting to be left out of the revolution, in 1981 IBM (teaming
with a little company called Microsoft for their operating system software) hurriedly released
their own version of the personal computer, simply called the “PC.” Businesses who had used
IBM mainframes for years to run their businesses finally had the permission they needed to bring
personal computers into their companies, and the IBM PC took off. The IBM PC was named
Time magazine’s “Man of the Year” for 1982.
Because of the IBM PC’s open architecture, it was easy for other companies to copy, or “clone”
it. During the 1980s, many new computer companies sprang up, offering less expensive versions
of the PC. This drove prices down and spurred innovation. Microsoft developed its Windows
operating system and made the PC even easier to use. Common uses for the PC during this
period included word processing, spreadsheets, and databases. These early PCs were not
connected to any sort of network; for the most part they stood alone as islands of innovation
within the larger organization.
CLIENT-SERVER
In the mid-1980s, businesses began to see the need to connect their computers together as a way
to collaborate and share resources. This networking architecture was referred to as “client-
server” because users would log in to the local area network (LAN) from their PC (the “client”)
by connecting to a powerful computer called a “server,” which would then grant them rights to
different resources on the network (such as shared file areas and a printer). Software companies
began developing applications that allowed multiple users to access the same data at the same
time. This evolved into software applications for communicating, with the first real popular use
of electronic mail appearing at this time.
This networking and data sharing all stayed within the confines of each business, for the most
part. While there was sharing of electronic data between companies, this was a very specialized
function. Computers were now seen as tools to collaborate internally, within an organization. In
fact, these networks of computers were becoming so powerful that they were replacing many of
the functions previously performed by the larger mainframe computers at a fraction of the cost. It
was during this era that the first Enterprise Resource Planning (ERP) systems were developed
and run on the client-server architecture. An ERP system is a software application with a
centralized database that can be used to run a company’s entire business. With separate modules
for accounting, finance, inventory, human resources, and many, many more, ERP systems, with
Germany’s SAP leading the way, represented the state of the art in information systems
integration.

Data, Information, and Knowledge

Data are the raw bits and pieces of information with no context. If I told you, “15, 23, 14, 85,”
you would not have learned anything. But I would have given you data. Data can be quantitative
or qualitative. Quantitative data is numeric, the result of a measurement, count, or some other
mathematical calculation. Qualitative data is descriptive. “Ruby Red,” the color of a 2013 Ford
Focus, is an example of qualitative data. A number can be qualitative too: if I tell you my
favorite number is 5, that is qualitative data because it is descriptive, not the result of a
measurement or mathematical calculation.
By itself, data is not that useful. To be useful, it needs to be given context. Returning to the
example above, if I told you that “15, 23, 14, and 85″ are the numbers of students that had
registered for upcoming classes, that would be information. By adding the context – that the
numbers represent the count of students registering for specific classes – I have converted data
into information. Once we have put our data into context, aggregated and analyzed it, we can use
it to make decisions for our organization. We can say that this consumption of information
produces knowledge. This knowledge can be used to make decisions, set policies, and even spark
innovation. The final step up the information ladder is the step from knowledge (knowing a lot
about a topic) to wisdom. We can say that someone has wisdom when they can combine their
knowledge and experience to produce a deeper understanding of a topic. It often takes many
years to develop wisdom on a particular topic and requires patience.

EXAMPLES OF DATA
Almost all software programs require data to do anything useful. For example, if you are editing
a document in a word processor such as Microsoft Word, the document you are working on is the
data. The word processing software can manipulate the data: create a new document, duplicate a
document, or modify a document. Some other examples of data are: an MP3 music file, a video
file, a spreadsheet, a web page, and an e-book. In some cases, such as with an e-book, you may
only have the ability to read the data.
DATABASES
The goal of many information systems is to transform data into information in order to generate
knowledge that can be used for decision making. In order to do this, the system must be able to
take data, put the data into context, and provide tools for aggregation and analysis. A database is
designed for just such a purpose. A database is an organized collection of related information. It
is an organized collection, because in a database, all data is described and associated with other
data. All information in a database should be related as well; separate databases should be
created to manage unrelated information. For example, a database that contains information
about students should not also hold information about company stock prices. Databases are not
always digital – a filing cabinet, for instance, might be considered a form of database. For the
purposes of this text, we will only consider digital databases.

RELATIONAL DATABASES
Databases can be organized in many different ways, and thus take many forms. The most popular
form of database today is the relational database. Popular examples of relational databases are
Microsoft Access, MySQL, and Oracle. A relational database is one in which data is organized
into one or more tables. Each table has a set of fields, which define the nature of the data stored
in the table. A record is one instance of a set of fields in a table. To visualize this, think of the
records as the rows of the table and the fields as the columns of the table. In the example below,
we have a table of student information, with each row representing a student and each column
representing one piece of information about the student.
In a relational database, all the tables are related by one or more fields, so that it is possible to
connect all the tables in the database through the field(s) they have in common. For each table,
one of the fields is identified as a primary key. This key is the unique identifier for each record in
the table.

NORMALIZATION
When designing a database, one important concept to understand is normalization. In simple
terms, to normalize a database means to design it in a way that: 1) reduces duplication of data
between tables and 2) gives the table as much flexibility as possible. In the Student Clubs
database design, the design team worked to achieve these objectives. For example, to track
memberships, a simple solution might have been to create a member's field in the Clubs table
and then just list the names of all of the members there. However, this design would mean that if
a student joined two clubs, then his or her information would have to be entered a second time.
Instead, the designers solved this problem by using two tables: Students and Memberships. In
this design, when a student joins their first club, we first must add the student to the students
table, where their first name, last name, e-mail address, and birth year are entered. This addition
to the students table will generate a student ID. Now we will add a new entry to denote that the
student is a member of a specific club. This is accomplished by adding a record with the student
ID and the club ID in the Memberships table. If this student joins a second club, we do not have
to duplicate the entry of the student’s name, e-mail, and birth year; instead, we only need to
make another entry in the Memberships table of the second club’s ID and the student’s ID. The
design of the Student Clubs database also makes it simple to change the design without major
modifications to the existing structure. For example, if the design team were asked to add
functionality to the system to track faculty advisors to the clubs, we could easily accomplish this
by adding a Faculty Advisors table (similar to the students table) and then adding a new field to
the Clubs table to hold the Faculty Advisor ID.

DATA TYPES
When defining the fields in a database table, we must give each field a data type. For example,
the field Birth Year is a year, so it will be a number, while First Name will be text. Most modern
databases allow for several different data types to be stored. Some of the more common data
types are listed here:
i. Text: for storing non-numeric data that is brief, generally under 256 characters. The
database designer can identify the maximum length of the text.
 ii. Number: for storing numbers. There are usually a few different number types that can be
selected, depending on how large the largest number will be.
iii. Yes/No: a special form of the number data type that is (usually) one byte long, with a 0
for “No” or “False” and a 1 for “Yes” or “True”.
iv. Date/Time: a special form of the number data type that can be interpreted as a number or
a time.
v. Currency: a special form of the number data type that formats all values with a currency
indicator and two decimal places.
vi. Paragraph Text: this data type allows for text longer than 256 characters.
vii. Object: this data type allows for the storage of data that cannot be entered via keyboard,
such as an image or a music file.
There are two important reasons that we must properly define the data type of a field. First, a
data type tells the database what functions can be performed with the data. For example, if we
wish to perform mathematical functions with one of the fields, we must be sure to tell the
database that the field is a number of data type. So, if we have, say, a field storing birth year, we
can subtract the number stored in that field from the current year to get age.
The second important reason to define data type is so that the proper amount of storage space is
allocated for our data. For example, if the First Name field is defined as a text (50) data type, this
means fifty characters are allocated for each first name we want to store. However, even if the
first name is only five characters long, fifty characters (bytes) will be allocated. While this may
not seem like a big deal, if our table ends up holding 50,000 names, we are allocating 50 *
50,000 = 2,500,000 bytes for storage of these values. It may be prudent to reduce the size of the
field, so we do not waste storage space.

DATABASE MANAGEMENT SYSTEMS

To the computer, a database looks like one or more files. In order for the data in the database to
be read, changed, added, or removed, a software program must access it. Many software
applications have this ability: iTunes can read its database to give you a listing of its songs (and
play the songs); your mobile-phone software can interact with your list of contacts. But what
about applications to create or manage a database? What software can you use to create a
database, change a database’s structure, or simply do analysis? That is the purpose of a category
of software applications called database management systems (DBMS).
DBMS packages generally provide an interface to view and change the design of the database,
create queries, and develop reports. Most of these packages are designed to work with a specific
type of database, but generally are compatible with a wide range of databases.
For example, Apache OpenOffice.org Base (see screen shot) can be used to create, modify, and
analyze databases in open-database (ODB) format. Microsoft’s Access DBMS is used to work
with databases in its own Microsoft Access Database format. Both Access and Base have the
ability to read and write to other database formats as well.
Microsoft Access and Open Office Base are examples of personal database-management
systems. These systems are primarily used to develop and analyze single-user databases. These
databases are not meant to be shared across a network or the Internet but are instead installed on
a particular device and work with a single user at a time.

Enterprise Databases
A database that can only be used by a single user at a time is not going to meet the needs of most
organizations. As computers have become networked and are now joined worldwide via the
Internet, a class of database has emerged that can be accessed by two, ten, or even a million
people. These databases are sometimes installed on a single computer to be accessed by a group
of people at a single location. Other times, they are installed over several servers worldwide,
meant to be accessed by millions. These relational enterprise database packages are built and
supported by companies such as Oracle, Microsoft, and IBM. The open-source MySQL is also
an enterprise database.
As stated earlier, the relational database model does not scale well. The term scale here refers to
a database getting larger and larger, being distributed on a larger number of computers connected
via a network. Some companies are looking to provide large-scale database solutions by moving
away from the relational model to other, more flexible models. For example, Google now offers
the App Engine Datastore, which is based on NoSQL. Developers can use the App Engine
Datastore to develop applications that access data from anywhere in the world. Amazon.com
offers several database services for enterprise use, including Amazon RDS, which is a relational
database service, and Amazon DynamoDB, a NoSQL enterprise solution.

Data Warehouse
As organizations have begun to utilize databases as the centerpiece of their operations, the need
to fully understand and leverage the data they are collecting has become more and more
apparent. However, directly analyzing the data that is needed for day-to-day operations is not a
good idea; we do not want to tax the operations of the company more than we need to. Further,
organizations also want to analyze data in a historical sense: How does the data we have today
compare with the same set of data this time last month, or last year? From these needs arose the
concept of the data warehouse. The concept of the data warehouse is simple: extract data from
one or more of the organization’s databases and load it into the data warehouse (which is itself
another database) for storage and analysis. However, the execution of this concept is not that
simple. A data warehouse should be designed so that it meets the following criteria:
 • It uses non-operational data. This means that the data warehouse is using a copy of data
from the active databases that the company uses in its day-to-day operations, so the data
warehouse must pull data from the existing databases on a regular, scheduled basis.
• The data is time-variant. This means that whenever data is loaded into the data
warehouse, it receives a time stamp, which allows for comparisons between different
time periods.
• The data is standardized. Because the data in a data warehouse usually comes from
several different sources, it is possible that the data does not use the same definitions or
units. For example, our Events table in our Student Clubs database lists the event dates
using the mm/dd/yyyy format (e.g., 01/10/2013). A table in another database might use
the format yy/mm/dd (e.g., 13/01/10) for dates. In order for the data warehouse to match
up dates, a standard date format would have to be agreed upon and all data loaded into
the data warehouse would have to be converted to use this standard format. This process
is called extraction-transformation-load (ETL).
There are two primary schools of thought when designing a data warehouse: bottom-up and top-
down. The bottom-up approach starts by creating small data warehouses, called data marts, to
solve specific business problems. As these data marts are created, they can be combined into a
larger data warehouse. The Topdown approach suggests that we should start by creating an
enterprise-wide data warehouse and then, as specific business needs are identified, create smaller
data marts from the data warehouse.

BENEFITS OF DATA WAREHOUSES

Organizations find data warehouses quite beneficial for several reasons:
i. The process of developing a data warehouse forces an organization to better understand
the data that it is currently collecting and, equally important, what data is not being
collected.
ii. A data warehouse provides a centralized view of all data being collected across the
enterprise and provides a means for determining data that is inconsistent.
iii. Once all data is identified as consistent, an organization can generate one version of the
truth. This is important when the company wants to report consistent statistics about
itself, such as revenue or number of employees.
iv. By having a data warehouse, snapshots of data can be taken over time. This creates a
historical record of data, which allows for an analysis of trends.
v. A data warehouse provides tools to combine data, which can provide new information
and analysis.

WHAT IS A BUSINESS PROCESS?

A process is a series of tasks that are completed in order to accomplish a goal. A business
process, therefore, is a process that is focused on achieving a goal for a business. If you have
worked in a business setting, you have participated in a business process. Anything from a
simple process for making a sandwich at Subway to building a space shuttle utilizes one or more
business processes.
Processes are something that businesses go through every day in order to accomplish their
mission. The better their processes, the more effective the business. Some businesses see their
processes as a strategy for achieving competitive advantage. A process that achieves its goal in a
unique way can set a company apart. A process that eliminates costs can allow a company to
lower its prices (or retain more profit).

MANAGING BUSINESS PROCESS DOCUMENTATION

As organizations begin to document their processes, it becomes an administrative task to keep
track of them. As processes change and improve, it is important to know which processes are the
most recent. It is also important to manage the process so that it can be easily updated! The
requirement to manage process documentation has been one of the driving forces behind the
creation of the document management system. A document management system stores and
tracks document and supports the following functions:
i. Versions and timestamps. The document management system will keep multiple versions
of documents. The most recent version of a document is easy to identify and will be
served up by default.
ii. Approvals and workflows. When a process needs to be changed, the system will manage
both access to the documents for editing and the routing of the document for approvals.
iii. Communication. When a process changes, those who implement the process need to be
made aware of the changes. A document management system will notify the appropriate
people when a change to a document is approved.
Of course, document management systems are not only used for managing business process
documentation. Many other types of documents are managed in these systems, such as legal
documents or design documents.

ENTERPRISE RESOURCE PLANNING SYSTEM

An enterprise resource planning (ERP) system is a software application with a centralized
database that can be used to run an entire company. Let’s consider the definition of each of these
components:
 i. A software application: The system is a software application, which means that it has
been developed with specific logic and rules behind it. It has to be installed and
configured to work specifically for an individual organization.
ii. With a centralized database: All data in an ERP system is stored in a single, central
database. This centralization is key to the success of an ERP – data entered in one part of
the company can be immediately available to other parts of the company.
iii. That can be used to run an entire company: An ERP can be used to manage an entire
organization’s operations. If they so wish, companies can purchase modules for an ERP
that represent different functions within the organization, such as finance, manufacturing,
and sales. Some companies choose to purchase many modules, others choose a subset of
the modules.
An ERP system not only centralizes an organization’s data, but the processes it enforces are the
processes the organization adopts. When an ERP vendor designs a module, it has to implement
the rules for the associated business processes. A selling point of an ERP system is that it has
best practices built right into it. In other words, when an organization implements an ERP, it also
gets improved best practices as part of the deal!
For many organizations, the implementation of an ERP system is an excellent opportunity to
improve their business practices and upgrade their software at the same time. But for others, an
ERP brings them a challenge: Is the process embedded in the ERP really better than the process
they are currently utilizing? And if they implement this ERP, and it happens to be the same one
that all of their competitors have, will they simply become more like them, making it much more
difficult to differentiate themselves?
This has been one of the criticisms of ERP systems: that they commoditize business processes,
driving all businesses to use the same processes and thereby lose their uniqueness. The good
news is that ERP systems also have the capability to be configured with custom processes. For
organizations that want to continue using their own processes or even design new ones, ERP
systems offer ways to support this through the use of customizations.
But there is a drawback to customizing an ERP system: organizations have to maintain the
changes themselves. Whenever an update to the ERP system comes out, any organization that
has created a custom process will be required to add that change to their ERP. This will require
someone to maintain a listing of these changes and will also require retesting the system every
time an upgrade is made. Organizations will have to wrestle with this decision: When should
they go ahead and accept the best-practice processes built into the ERP system and when should
they spend the resources to develop their own processes? It makes the most sense to only
customize those processes that are critical to the competitive advantage of the company. Some of
the best-known ERP vendors are SAP, Microsoft, and Oracle.