Introduction to

UNIT 1 INTRODUCTION TO Information System

INFORMATION SYSTEM

Objectives
After studying this unit, you will be able to:
• Define what an information system is by identifying its major
components.
• Understand the information subsystems which could be defined within a
typical organization.
• Differentiate between various types and levels of information systems.

Structure
1.1 Introduction
1.2 Defining Information System
1.3 Types of Information
1.4 Dimensions of information system:
1.5 Operating Elements of Information Systems:
1.6 Types of Information Systems:
1.7 The Components of Information Systems
1.8 Major processing functions in information systems:
1.9 How to Apply Information Systems in Business?
1.10 Facts of information systems
1.11 Summary
1.12 Self-Assessment Exercises
1.13 Further Readings

1.1 INTRODUCTION
Information systems (IS) are critical to the operation of modern
organizations. They are interconnected networks of hardware, software, data,
people, and procedures designed to collect, process, store, and disseminate
information to aid in decision-making, coordination, and control. The rise of
digital technologies, as well as the increased use of computers and the
internet, has altered how organizations operate and interact with their
stakeholders. In a rapidly changing business environment, information
systems have become critical tools for organizations of all sizes and types to
remain competitive, efficient, and effective. They assist organizations in
achieving their objectives by enhancing internal operations, facilitating
communication and collaboration, and assisting in strategic decision-making.
Information systems study is multidisciplinary, combining elements of
computer science, management, and information technology.

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In today's business, information systems are critical because they allow
Information System organizations to collect, store, and process data to make informed decisions.
These systems can be used to improve internal and external communication
and collaboration, as well as gain insights into customer behavior and market
trends. Furthermore, by providing real-time data and analysis, they can help
businesses become more agile, responsive to market changes, and
competitive. Information systems are critical for businesses to operate
effectively and efficiently in today's fast-paced and data-driven environment.
The combination of hardware, software, data, people, and procedures that
organizations use to collect, process, store, and disseminate information is
referred to as an information system. These systems aid in decision-making,
coordination, and control, and they assist organizations in achieving their
objectives. Simple manual systems to complex computer-based systems that
automate many business processes are examples of information systems.

Activity A
Write down examples of an information system that you know in real-time or
in your real life.
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1.2 DEFINING INFORMATION SYSTEM

“An information system is a set of interrelated components that work
together to collect, process, store, and breakdown the information to support
decision making.”

“Information system (IS) is the study of complementary networks of

hardware and software that people and organizations use to collect, filter,
process, create, and distribute data.” [1]
“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.” [2]
“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.”
[3]

These definitions focus on two distinct aspects of information systems: the

components that comprise an information system and their role in an
organization.
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1.3 TYPES OF INFORMATION Information System

Internal information and external information are the two broad categories of
information. The illustration below depicts the scope of internal and external
information in the context of business organizations.

Internal Information: Internal Information is defined as information

generated by the organization's operations at various management levels in
various functional areas. Internal information is summarized and processed as
it progresses from the lowest to the highest levels of management. Internal
information is always about the organization's various operational units.
Production figures, sales figures, personnel, account, and material
information are all examples of internal information. This type of information
is typically consumed by middle and junior management levels. However,
top-level management consumes summarized internal in format on.

Fig 1.1: Types of information

External Information: External information is typically gathered from the
business organization's surroundings. External information is defined as
information that comes from outside the organization and has an impact on
its performance. External information includes government policies,
competition, economic status, and international market conditions. External
information is typically required by top management cadres and is useful in
developing long-term policy plans for organizations.

1.4 DIMENSIONS OF INFORMATION SYSTEM

The dimensions of information systems can be viewed as a framework for
analyzing and designing information systems. They are:

Organizational Dimension:
Organizations include information systems. The standard operating procedure
and culture of an organization will be embedded in an information system.
Functional specialities, business processes, culture, and political interest
groups are all part of this. This refers to the people, policies, and procedures
that govern how an organization's information system is used and managed.
This refers to how the information system fits into the organizational
structure and how it supports the organization's goals and objectives. A sales
management system, for example, is part of the organizational dimension 11
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because it helps to improve sales performance.
Information System
Management Dimension:
Managers perceive environmental business challenges. Information systems
provide managers with the tools and information they need to allocate,
coordinate, and monitor their work, make decisions, create new products and
services, and make long-term strategic decisions. The policies, procedures,
and rules that govern the use of the information system are referred to as this.
The management dimension includes things like passwords, backup
procedures, and data security policies.

Technology Dimension:
Management makes use of technology to carry out their duties. Computer
hardware/software, data management technology and networking/telecom
technology are all part of it. It is one of many tools used by managers to deal
with change. This includes the hardware, software, data, and network
components that comprise an information system's technical infrastructure. A
server, a personal computer, and database software, for example, are all
examples of technical dimensions.

Strategic Dimension:
This entails aligning information systems with an organization's overall goals
and strategies. This includes decision-making processes as well as the impact
of information systems on the competitiveness and success of the
organization.

User dimension:
This refers to the information system's end users and how they interact with
it. An e-commerce website, for example, is part of the user dimension
because it allows customers to purchase goods and services.

Each of these dimensions is interconnected and has an impact on an

information system's overall performance and effectiveness. To ensure that
an information system meets the needs of the organization and its users, it
should take into account all three dimensions.

1.5 OPERATING ELEMENTS OF

INFORMATION SYSTEMS
The components that allow an information system to function effectively and
efficiently are known as its operating elements. They are as follows:
• Hardware: A system's physical components, such as computer
equipment, peripheral devices, and other supporting equipment.
• Software: A set of instructions that instructs the hardware on what to do.
System software (such as the operating system) and application software
are both included.
• Data: Information that the system stores and processes. It can include
12 both structured (like a database) and unstructured data (such as a text
 Introduction to
document). Information System
• Procedures: The steps and processes that are followed to complete
specific tasks such as data entry, information processing, and report
generation.
• People: Those who use the system as well as those who support and
maintain it.
• Network: The communication channels that connect the various system
components and allow them to work together.
• Policies and security measures: The guidelines and measures that
ensure the system's information's confidentiality, integrity, and
availability.
• The following are the major processing functions in information systems:
• Business transaction processing: Capture, collect, record, store, and
process events of business interest so that their impact is reflected in
organizational performance records.
• Master file updates: The effect of these transactions is carried over to
the organizational performance status files. At any given time, master
files must reflect the status of any entity after incorporating the impact of
current transactions.
• Information report generation: After processing transactions and
updating master files, information reports are generated to assist
managers in making decisions.
• Processing of interactive inquiries: Online information processing
systems allow managers to respond to business queries raised on data
files, both master and transaction files.
• Providing interactive analytical support: Key decision makers require
not only interaction with data files for data extraction using scientific and
planning models but also online processing support to analyze the impact
of some potential actions. A Decision Support System is created when
the system can extract data from relevant files and address it to the
models selected by the user.

1.6 TYPES OF INFORMATION SYSTEMS

Information systems can be classified into several types based on their
functions, organizational level, and nature of data processed:
• Transaction Processing Systems (TPS)
• Management Information Systems (MIS)
• Decision Support Systems (DSS)
• Executive Information Systems (EIS)
• Expert Systems (ES)
• Artificial Intelligence Systems (AI)
• Enterprise Resource Planning Systems (ERP)
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• Supply Chain Management Systems (SCM)
Information System • Customer Relationship Management Systems (CRM)
• Knowledge Management Systems (KMS)

Transaction Processing System (TPS):

A transaction processing system is an information system that processes data
resulting from business transactions. Their goals are to provide transactions
so that records can be updated, and reports can be generated, i.e., to perform
storekeeping functions. The transaction is carried out in two stages: batch
processing and online transaction processing.

Examples: Bill system, payroll system, Stock control system.

Management Information System (MIS):

A Management Information System is intended to take relatively raw data
available through a Transaction Processing System and summarize and
aggregate it for the manager, usually in the form of a report. Middle
management and operational supervisors are likely to use its reports. MIS
generates a wide range of report types. A summary report, an on-demand
report, an ad-hoc report, and an exception report are among the reports
available.

Examples: Sales management systems, Human resource management

systems.

Decision Support System (DSS):

A Decision Support System (DSS) is an interactive information system that
provides information, models, and data manipulation tools to assist decision-
making in semi-structured and unstructured situations. The end user is more
involved in creating DSS than an MIS because DSS includes tools and
techniques to assist in gathering relevant information and analyzing options
and alternatives.

Examples: Financial planning systems, Bank loan management systems.

Experts System:
Experts systems include expertise to assist managers in diagnosing and
solving problems. These systems are based on artificial intelligence research
principles. Experts Systems is a data-driven information system. It acts as an
expert consultant to users by applying its knowledge of a specific area. An
expert system's components are a knowledge base and software modules.
These modules perform knowledge inference and provide answers to user
questions.

Office Automation System:

An office automation system is a type of information system that automates
various administrative processes such as documenting, data recording, and
office transactions. The administrative and clerical activities are separated in
14 the office automation system. Email, voice mail, and word processing are
 Introduction to
some of the business activities performed by this type of information system. Information System

Executive Support System:

An Executive Support System (ESS) assists top-level executives in planning
and controlling workflow as well as making business decisions. It is similar
to the Management Information System (MIS).

• It provides great telecommunication, better computing capabilities, and

effective display options to executives, among other things.
• It provides information to them in the form of static reports, graphs, and
textual information on demand.
• It helps monitor performance, track competitor strategies, and forecast
future trends, among other things.

1.7 THE COMPONENTS OF INFORMATION

SYSTEMS
An information system is a collection of hardware, software, and
telecommunication networks that people construct to collect, create, and
distribute useful data, usually within an organization. It defines the
information flow within the system. An information system's goal is to
provide appropriate information to the user, gather data, process data, and
communicate information to the system's user.

Fig 1.2: Components of Information Systems

The components of the information system are as follows:

• Computer Hardware:
Physical equipment is used for input, output, and processing. The
hardware structure depends upon the type and size of the organization. It
consists of an input and an output device, an operating system, a
processor, and media devices. This also includes computer peripheral
devices.
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• Computer Software:
Information System
The programs/ application program is used to control and coordinate the
hardware components. It is used for analyzing and processing the data.
These programs include a set of instructions used for processing
information.

1.8 MAJOR PROCESSING FUNCTIONS IN

INFORMATION SYSTEMS
In information systems, processing functions refer to the operations
performed on data, such as data input, manipulation, storage, and retrieval, to
produce meaningful information. It entails converting raw data into a format
that can be used for decision-making, reporting, or analysis. The goal is to
support an organization's information needs by making data accessible,
accurate, and useful.
The following are the primary functions of information systems:

• Input and capture of data: It is the process of entering data into a

computer system. This can be accomplished through a variety of
methods, including manual entry, scanning, and electronic transfer.
• Data Storage and retrieval: This is the process of storing data in a
system for later use. The data can be saved in a database, a file system,
or in the cloud.
• Data processing and analysis: This is the process of converting raw
data into useful information. Data validation, sorting, and calculation is
examples of such tasks.
• Decision-making and problem-solving: The process of selecting the
best option from a set of alternatives. The process of identifying and
resolving a problem or issue is known as problem-solving. Both
processes necessitate gathering information, weighing options, making a
decision, and putting a solution in place. Critical thinking and clear,
logical reasoning are required for effective decision-making and
problem-solving.
• Information output and dissemination: This is the process of
presenting processed data in a meaningful way, such as by creating
reports, visualizations, or sending notifications.
• Data Maintenance: This is the process of updating and managing data
in a system. Backups, data archiving, and data deletion are examples of
such tasks.
• Data security and protection: This refers to the process of preventing
unauthorized access to and modification of data stored in a system.
Encryption, authentication, and access control are examples of such
tasks.

These functions collaborate to ensure that data is collected, processed, stored,

and presented in a way that meets an organization's needs.
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1.9 HOW TO APPLY INFORMATION SYSTEMS Information System

IN BUSINESS?
Here are some of the business activities that require the intervention of an
information system.

Enterprise resource planning (ERP):

Enterprise Resource Planning (ERP) is a type of software that integrates
different functions of an organization into a single system. The purpose of
ERP is to streamline and automate business processes, such as financials,
human resources, procurement, supply chain management, and customer
relationship management. The goal of ERP is to provide a single source of
truth for an organization's data and to improve decision-making by giving
executives and managers real-time access to accurate information. ERP
systems can vary in complexity and scope, ranging from basic systems that
handle simple tasks to complex, multi-module systems that can manage the
entire operations of a large enterprise.
Many ERP systems are web-based and can be accessed from anywhere with
an internet connection. ERP implementation can be a complex and time-
consuming process, but it can bring many benefits to an organization,
including increased efficiency, reduced errors, better visibility into business
operations, and improved decision-making. However, it is important to
carefully evaluate an organization's needs and choose an ERP system that is
appropriate for the organization's size, budget, and goals.

Supply chain management (SCM):

Supply Chain Management (SCM) is the coordination and management of
activities involved in the production and delivery of products and services to
customers. It involves managing the flow of materials, information, and
financial capital from suppliers, through the organization, and out to
customers. SCM encompasses a wide range of activities, including
procurement, production planning, inventory management, transportation,
warehousing, and customer service. The goal of SCM is to optimize the flow
of goods and services, improve the efficiency of the supply chain, and
enhance the overall customer experience.

Effective SCM requires collaboration and communication between all

participants in the supply chain, including suppliers, manufacturers,
distributors, and customers. This can be achieved through the use of
technologies such as electronic data interchange (EDI), RFID (Radio
Frequency Identification), and cloud-based collaboration tools. In today's
fast-paced business environment, managing the supply chain is becoming
increasingly complex and challenging. Companies must be able to respond
quickly to changes in demand, minimize the risk of supply chain disruptions,
and meet the evolving needs of customers. A well-designed and efficiently
managed supply chain can help companies to improve their bottom line and
achieve a competitive advantage in their markets.

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Customer relationship management (CRM):
Information System
Customer Relationship Management (CRM) is a strategy that organizations
use to manage their interactions with customers and potential customers. The
goal of CRM is to create and maintain strong, lasting relationships with
customers by understanding their needs and behaviors and by delivering the
products, services, and experiences that they value. CRM is typically
achieved through the use of software and technology. CRM systems can
collect and store data about customers, including demographic information,
purchase history, and interaction history with the organization. This
information can be used to inform business decisions, such as which products
to develop or which customers to target with marketing campaigns.

CRM can encompass a wide range of activities, including sales management,

marketing, customer service and support, and customer analytics. By
centralizing customer data and automating many of the processes involved in
managing customer interactions, organizations can improve the efficiency of
their customer-facing operations and provide a better customer experience. In
today's business environment, the effective management of customer
relationships is critical to success. With the increasing competition and the
rise of digital channels, companies must be able to effectively manage their
interactions with customers to build strong, long-lasting relationships and
stay ahead of the competition.

Activity B
What is the role of information systems in business and society?
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1.10 FACTS OF INFORMATION SYSTEMS

The products of information technology are part of our daily lives. Here are
some of the facts about information systems.

• Necessary for businesses to grow

Every organization has computer-related operations that are critical to
getting the job done. In a business, there may be a need for computer
software, implementation of network architecture to achieve the
company’s objectives, or designing apps, websites, or games. So, any
company that is looking to secure its future needs to integrate a well-
designed information system.
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• Better data storage and access Information System
Such a system is also useful for storing operational data, documents,
communication records, and histories. As manual data may cost a lot of
time, information systems can be very helpful in it. Information system
stores data in a sophisticated manner, making the process of finding the
data much easier.
• Better decision making
Information system helps a business in its decision-making process. With
an information system, delivering all the essential information is easier to
make better decisions. In addition, an information system allows
employees to communicate effectively. As the documents are stored in
folders, sharing and accessing them with the employees is more
accessible.

1.11 SUMMARY
In this unit, you have been introduced to information systems. First, we have
reviewed several definitions, focusing on the components of information
systems: technology, people, and process. Next, we have studied how the
business use of information systems has evolved over the years, from the use
of large mainframe computers for number crunching, through the
introduction of the PC and networks, all the way to the era of mobile
computing. Software and technology innovations allowed businesses to
integrate technology more deeply during each phase.
We are now to a point where every company uses information systems and
asks: Does it bring a competitive advantage? So, in the end, that is really
what this course is about what every businessperson should understand, what
an information system is and how it would use to bring a competitive
advantage.

1.12 SELF-ASSESSMENT EXERCISES

1. Of the five primary components of an information system (hardware,
software, data, people, process), which do you think is the most
important to the success of a business organization? Write a one-
paragraph answer to this question that includes an example from your
personal experience to support your answer.

2. The Walmart case study introduced you to how that company used
information systems to become the world’s leading retailer. Walmart has
continued to innovate and is still looked to as a leader in the use of
technology. Do some original research and write a one-page report
detailing a new technology that Walmart has recently implemented or is
pioneering.

3. "Internal information is used for day-to-day decision making whereas

external information is crucial for long-term planning." Comment.

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Management 1.13 FURTHER READINGS
Information System
1. “Does IT Matter?” by Nicholas Carr
2. "Information Systems: A Manager's Guide to Harnessing Technology"
by John Gallaugher
3. Wikipedia entry on "Information Systems," as displayed on August 19,
2012. Wikipedia: The Free Encyclopedia. San Francisco: Wikimedia
Foundation.
4. Information Systems Today - Managing in the Digital World, fourth
edition. Prentice-Hall, 2010.
5. Management Information Systems, twelfth edition, Prentice-Hall, 2012.

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