INTRODUCTION TO INFORMATION SYSTEMS

1.0 Definition, Purpose, Objectives and Role of MIS

A management information system is a set of systems that helps management at
different levels to make better decisions by providing the necessary information to
managers.
A management information system is not a monolithic entity but a collection of
systems that provide the user with a monolithic feel as far as information delivery,
transmission and storage are concerned.
The different subsystems working in the background have different objectives but
work in concert with each other to satisfy the overall requirement of managers for
good quality information. Management information systems can be installed by either
procuring off the self-systems or by commissioning a completely customized
solution. Sometimes, management information systems can be a mix of both, i.e., an
‘off the self-system but customized as per the need of the organization.
Managers are the key people in an organization who ultimately determine the destiny
of the organization. They set the agenda and goals of the organization, plan for
achieving the goals, implement those plans and monitor the situation regularly to
ensure that deviations from the laid down plan are controlled. This set of activities
ensures the smooth functioning of the organization and helps it attain its objectives.
Hence, these managers are vital for a successful organization. The managers in turn
conduct these activities collectively management functions. They decide on all such
issues that have relevance to the goals and objectives of the organization. The
decisions range from routine decisions taken regularly to strategic decisions, which
are sometimes taken once in the lifetime of an organization. The decisions differ in
the following degrees,
a. Complexity
b. Information requirement for taking the decision
c. Relevance
d. Effect on the organization
e. Degree of structured behaviour of the decision-making process.

Functions of MIS
a. To improve decision-making: MIS helps management by providing
background information on a variety of issues and helps to improve the
decision-making quality of management. The fast and accurate information
supplied by MIS is leveraged by the managers to make quicker and better
decisions thereby improving the decision-making quality and adding to the
bottom line of the company.
 b. To improve efficiency: MIS helps managers to conduct their tasks with greater
ease and with better efficiency. This reflects better productivity for the
company.
c. To provide connectivity: MIS provides managers with better connectivity with
the rest of the organization.

Characteristics of MIS
An MIS has the following characteristics:

a. System approach - The information system follows a System’s approach. The

system’s approach implies a holistic approach to the study of the system and
its performance to achieve the objective for which it has been formed.
b. Management oriented - For designing of MIS top-down approach should be
followed. The top-down approach suggests that system development starts
from the determination of the management needs and overall business
objectives. Management oriented characteristic of MIS also implies that the
management actively directs the system development efforts.
c. Need-based - MIS design and development should be as per the information
needs of managers at different levels that are strategic planning level,
management control level and operational control level.
d. Exception based - MIS should be developed on the exception-based reporting
principle, which means an abnormal situation, that is the maximum, minimum
or expected values vary beyond the limits. In such cases, there should be
exceptions reporting to the decision-maker at the required level.
e. Future-oriented - Besides exception-based reporting, MIS should also look at
the future. In other words, MIS should not merely provide past or historical
information, rather it should provide information based on projections based
on which actions may be initiated.
f. Integrated - Integration is significant because of its ability to produce more
meaningful information. For example, to develop an effective production
scheduling system, it is necessary to balance such factors as set-up costs,
workforce, overtime rates, production capacity, inventory level, capital
requirements and customer services. Integration means taking a
comprehensive view of the subsystems that operate within the company.
g. Common data flows - Because of the integration concept of MIS, there is an
opportunity to avoid duplication and redundancy in data gathering, storage
and dissemination. System designers are aware that a few key source
documents account for much of the information flow. For example, customer’s
orders are the basis for billing the customer for the goods ordered, setting up
accounts receivables, initiating production activity, sales analysis, sales
forecasting etc.

Benefits of MIS
MIS increases productivity
 ▪ MIS reduces time, errors and costs associated with processing information.
▪ To increase productivity, MIS follows Online Transaction Processing (OL TP).
OLTP is the gathering of data as input, processing that input data and updating
the data to create valuable information from this processed data.
▪ Another area in which modern MIS improves productivity is by allowing
customers to process their transactions through the use of a Customer-
Integrated System (CIS).

MIS enhances the quality of decision-making

▪ MIS helps top management to do business in a better way, find solutions to

problems/opportunities, or help them in decision-making by providing the
relevant information.
▪ MIS support for decision-making falls into two categories:
✓ When MIS helps you analyze a situation by providing all the relevant
information about the situation and then expecting you to make the
decision.
✓ When MIS makes some sort of recommendation or gives some insight
into what decision to take.
MIS improves communication and helps develop teamwork

▪ MIS helps to manage information and facilitates communication between

diverse teams.
▪ A collaborative management information system is a specific system to
improve teamwork.
▪ One aspect of EDI is Electronic Funds Transfer (EFT) which allows for
payment without physically sending money.
MIS can facilitate organizational transformation

▪ MIS helps organizations to remain competitive or enter new markets and

transform the way business is done.

1.1 System Concepts

A definition for a System According to Efrem G. Mallach: A system is a group of
interacting components with a purpose. The keywords in this definition are:
a. Group. A system must consist of more than one item. A piece of paper, unless
one cares about its molecular structure, is not a system.
b. Interacting. The components must operate in some relation to each other. A
collection of components that are not connected, such as a piece of paper in
one room and a pencil in another, is not a system. These same components
would comprise a writing system, however, if they were brought together.
c. Components. The components may be elementary items, incapable of (for our
purposes) further subdivision. Alternatively, they may be systems in their own
right: smaller systems, to be sure, but systems nonetheless. Small systems that
 are components of a larger system are called subsystems of the larger system.
What is the System Approach?
The system approach is a method or framework, which helps us to analyze and
explore the operation and interactions that exist in the system around us. There are
many definitions of the term ‘system’.
A system is an assembly of parts where:

a. The parts or components are connected in an organized way.

b. The parts or components are affected by being in the system (and are changed
by leaving it).
c. The assembly does something.
d. The assembly has been identified by a person as being of special interest.
The definition contains the essential elements of parts, relationships and objectives. It
is very broad and can apply to any of the systems around us; examples are:
a. The railway system
b. A hospital
c. An accounting system
d. A manufacturing companies
e. An information system
f. A Local Authority
g. A central heating system

In effect, an arrangement that involves the handling, processing or manipulation of

resources of whatever type can be represented as a system. Thus, a typical
manufacturing company or service organization can be viewed as a system whereby
people are grouped into sections and departments, process inputs to produce outputs
of goods and/or services to fulfil the objectives of the organization.
The system approach – also known as system thinking or General System Theory
(GST) does not provide a readymade list of answers to organization problems.
Instead, it recognizes that organizations, as one example of a system, are complex
entities with multiple relationships and helps to avoid taking a narrow, mechanistic
view of their problem.

Systems Elements
A system is made up of three elements which are the Transformation, Boundary, and
Environment.
The transformation processes o All systems are composed of the

same basic elements; inputs, processes

o The usual procedure when analyzing systems are:

1. Choose those outputs which we are concerned, which are usually those
outputs most relevant to the system objectives
2. Choose those inputs for examination and control that are considered
important. In all systems other than physical or mechanical ones, the
transformation process is controlled by information.

System Boundaries
This is the feature, which defines the extent of a system. In mechanical, physical and
biological systems, are readily identifiable, as they tend to arise naturally.
With any form of social organization, boundaries are not obvious and often change to
meet differing demands. Within organizations, boundaries are determined by
management and vary from the organization.

The Environment of System

In the widest sense, a system’s environment is all those elements not in the system.
However, this is a very broad notion and more appropriately for our purposes, the
environment can be defined as those external elements whose changes in attitudes,
behaviors or properties affect the state of the system and those external elements
which are changed by the system’s behavior. In effect, this means that the relevant
environment of any system comprises those elements with which it has some
connection or relationship. Thus,

a. All elements are not in the system. i.e., on the ‘outside of the system”.
b. External elements whose changes in attitudes, behavior or properties
affect the state of the system.
c. External elements are changed by the system’s behavior.
d. The environment is diverse and is rarely static.
e. Although some factors in the environment cannot be controlled, for
example, the weather, organizations do attempt to influence their
 environment. For example, companies advertise their products to
create and maintain demand.

Although some factors in the environment cannot be controlled, for example, the
weather, organizations do attempt to influence their environment. For example.
a. Charities lobby MPs and the Government in an attempt to change
legislation or to alter funding levels.
b. Commercial companies advertise their products to create and maintain
demand.

Types of Systems Closed Systems and Open Systems

A closed system is isolated from its environment. Closed systems are self-contained
so that the external environment does not influence the behavior of the system, nor
does the system influence its environment. The idea can only be strictly applied to
mechanical and physical systems as all social systems have some interaction with
their environment. Nevertheless, within organizations, attempts are made to limit or
prescribe the exchanges with the environment for particular sub-systems.
An open system is a system that interacts with its environment. It receives inputs and
influences from the environment and, in turn, passes back outputs and influences to
the environment. All social organizations are open systems. The way that
organizations adapt to changes in the environment is the key element in an
organization’s success and indeed its very survival.

Deterministic and Probabilistic Systems

A deterministic system is one in which the occurrence of all events is known with
certainty. If the description of the system state at a particular point of time of its
operation is given, the next state can be perfectly predicted.
A probabilistic system is one in which the occurrence of events cannot be perfectly
predicted. Though the behavior of such a system can be described in terms of
probability, a certain degree of error is always attached to the prediction of the
behavior of the system.
REVIEW QUESTIONS

1. What are the key features of the systems’ approach?

2. What is the relevant environment for any system?
3. What are the key features of a closed system?
4. What is an open system and what is the main strength?

1.2 Organization and Management

Information systems have become crucial to the functioning of modern organizations
and businesses. Firms are using information systems technology to gain competitive
advantages over their rivals. Many basic business processes are now being redesigned
to take advantage of the productivity increases that are available through the use of
information systems. In this section, we are going to look at information systems and
discuss their impact on businesses.
Managers and business firms invest in information technology and systems because
they provide real economic value to the business. The decision to build or maintain an
information system assumes that the returns on this investment will be superior to
other investments in buildings, machines, or other assets. These superior returns will
be expressed as increases in productivity, as increases in revenues (which will
increase the firm’s stock market value), or perhaps as the superior long-term strategic
positioning of the firm in certain markets (which produce superior revenues in the
future).
There are also situations in which firms invest in information systems to cope with
governmental regulations or other environmental demands. In some cases, firms are
required to invest in information systems simply because such investments are
required to stay in business. For instance, some small banks may be forced to invest
in automatic teller machine (ATM) networks or offer complex banking services
requiring large technology investments simply because it is a “cost of doing
business.” Nevertheless, it is assumed that most information systems investments will
be justified by favourable returns.
Every business has an information value chain, illustrated in Figure 1.1, in which raw
information is systematically acquired and then transformed through various stages
that add value to that information. The value of an information system to a business,
as well as the decision to invest in any new information system, is, in large part,
determined by the extent to which the system will lead to better management
decisions, more efficient business processes, and higher firm profitability. Although
there are other reasons why systems are built, their primary purpose is to contribute to
corporate value.
 Figure 1.1: The business information value chain
From a business perspective, information systems are part of a series of value-adding
activities for acquiring, transforming, and distributing information that managers can
use to improve decision making, enhance organizational performance, and, ultimately,
increase firm profitability.
The business perspective calls attention to the organizational and managerial nature of
information systems. An information system represents an organizational and
management solution, based on information technology, to a challenge posed by the
environment.
To fully understand information systems, a manager must understand the broader
organization, management, and information technology dimensions of systems (see
Figure 1.2) and their power to provide solutions to challenges and problems in the
business environment. We refer to this broader understanding of information systems,
which encompasses an understanding of the management and organizational
dimensions of systems as well as the technical dimensions of systems, as information
systems literacy. Information systems literacy includes a behavioural as well as a
technical approach to studying information systems. Computer literacy, in contrast,
focuses primarily on knowledge of information technology.
 Figure 1.2: Information systems are more than computers
Using information systems effectively requires an understanding of the organization,
management, and information technology shaping the systems. An information
system creates value for the firm as an organizational and management solution to
challenges posed by the environment.

Dimensions of Information Systems

Let’s examine each of the dimensions of information systems—organizations,
management, and information technology.

a. Organizations
The key elements of an organization are its people, structure, business processes,
politics, and culture. Organizations are composed of different levels and specialities.
Their structures reveal a clear-cut division of labour. Experts are employed and
trained for different functions. The major business functions, or specialized tasks
performed by business organizations, consist of sales and marketing, manufacturing
and production, finance and accounting, and human resources (see Table 1-1).
TABLE 1-1 Major Business Functions
An organization coordinates work through a structured hierarchy and through its
business processes, which we defined earlier. The hierarchy arranges people in a
pyramid structure of rising authority and responsibility. The upper levels of the
hierarchy consist of managerial, professional, and technical employees, whereas the
lower levels consist of operational personnel.

b. Management
Management’s job is to make sense out of the many situations faced by organizations,
make decisions, and formulate action plans to solve organizational problems.
Managers perceive business challenges in the environment; they set the
organizational strategy for responding to those challenges, and they allocate the
human and financial resources to coordinate the work and achieve success.
Throughout, they must exercise responsible leadership. The business information
systems described in this book reflect the hopes, dreams, and realities of real-world
managers. But managers must do more than manage what already exists. They must
also create new products and services and even re-create the organization from time
to time. A substantial part of management responsibility is creative work driven by
new knowledge and information. Information technology can play a powerful role in
redirecting and redesigning the organization.
It is important to note that managerial roles and decisions vary at different levels of
the organization. Senior managers make long-range strategic decisions about what
products and services to produce. Middle managers carry out the programs and plans
of senior management. Operational managers are responsible for monitoring the
firm’s daily activities. All levels of management are expected to be creative, to
develop novel solutions to a broad range of problems. Each level of management has
different information needs and information system requirements.

c. Technology
Information technology is one of many tools’ managers use to cope with change.
Computer hardware is the physical equipment used for input, processing, and output
activities in an information system. It consists of the following: the computer
processing unit; various input, output, and storage devices; and physical media to link
these devices together. Computer software consists of detailed, preprogrammed
instructions that control and coordinate the computer hardware components in an
information system. Storage technology includes both the physical media for storing
data, such as magnetic disk, optical disc, or tape and the software governing the
organization of data on these physical media.
Communications technology, consisting of both physical devices and software, links
the various pieces of hardware and transfers data from one physical location to
another. Computers and communications equipment can be connected in networks for
sharing voice, data, images, sound, or even video. A network links two or more
computers to share data or resources such as a printer.
The world’s largest and most widely used network is the Internet. The Internet is an
international network of networks that are both commercial and publicly owned. The
Internet connects hundreds of thousands of different networks from more than 200
countries around the world. More than 900 million people working in science,
education, government, and business use the Internet to exchange information or
business transactions with other organizations around the globe.
The Internet is extremely elastic. If networks are added or removed, or if failures
occur in parts of the system, the rest of the Internet continues to operate. Through
special communication and technology standards, any computer can communicate
with virtually any other computer linked to the Internet using ordinary telephone
lines.
The Internet has created a new “universal” technology platform on which to build all
sorts of new products, services, strategies, and business models. This same
technology platform has internal uses, providing the connectivity to link different
systems and networks within the firm. Internal corporate networks based on Internet
technology are called intranets. Private intranets extended to authorized users outside
the organization are called extranets, and firms use such networks to coordinate their
activities with other firms for making purchases, collaborating on design, and other
inter-organizational work.
Because it offers so many new possibilities for doing business, the Internet service is
known as the World Wide Web and is of special interest to organizations and
managers. The World Wide Web is a system with universally accepted standards for
storing, retrieving, formatting, and displaying information in a networked
environment. Information is stored and displayed as electronic “pages” that can
contain text, graphics, animations, sound, and video. These Web pages can be linked
electronically to other Web pages, regardless of where they are located, and viewed
by any type of computer. By clicking on highlighted words or buttons on a Web page,
you can link to related pages to find additional information, software programs, or
still more links to other points on the Web.
All of the Web pages maintained by an organization or individual are called a Web
site. Businesses have created Web sites with stylish typography, colourful graphics,
push-button interactivity, and sound and video to disseminate product information
widely, to “broadcast” advertising and messages to customers, to collect electronic
orders and customer data, and, increasingly, to coordinate far-flung sales forces and
organizations on a global scale.
All of these technologies represent resources that can be shared throughout the
organization and constitute the firm’s information technology (IT) infrastructure. The
IT infrastructure provides the foundation, or platform, on which the firm can build its
specific information systems. Each organization must carefully design and manage its
information technology infrastructure so that it has the set of technology services it
needs for the work it wants to accomplish with information systems.
REVIEW QUESTIONS

1. Managers do not do any creative work. T/F

2. List the 3 dimensions of the information system and explain any two of
them.
3. The world’s largest and most widely used network is the
______________
4. What is the difference between a web page and web site?

1.3 Information Concepts

Information systems pervade almost every aspect of our lives. Whether we are
withdrawing money from a bank’s automatic teller machine or surfing the World
Wide Web, hardly a day goes by without our feeding of data into, or using
information generated by an information system. In this section, we talk about data
and information and discuss how relevant they are to us.
Data The term ‘data’ and ‘information’ are used interchangeably in everyday speech
as meaning the same thing. However, for managers and information specialists the
terms have distinct meanings:
a. Data are facts, events, transactions and so on which have been recorded. They
are the input raw materials from which information is produced.
b. Information is data that have been processed in such a way as to be useful to
the recipient.

Data Characteristics
Data are facts obtained by reading, observation, counting, measuring, and weighing
etc. which are then recorded. Frequently they are called raw or basic data and are
often records of the dayto-day transactions of the organization. For example; the date,
amount and other details of an invoice or cheque, payroll details of pay, national
insurance and tax for a person, the output for a machine or shift, the number of
vehicles passing a road monitoring point and so on.
Data are derived from both external and internal sources and whilst most external data
are in readily usable and concrete form – for example, bank statements, purchase
invoices – internal activities require appropriate measuring and recording systems so
that facts can be captured.
The pool of data available to an organization, from both external and internal sources,
is effectively limitless. This abundance causes problems and means that organizations
have to be selective in the data they collect. Also, they must continually monitor their
data gathering procedures to ensure that they continue to meet the organization's
specific needs.
Information
The concept of information in an organizational sense is more complex and difficult
than the frequent use of this common word would suggest. Information is data that
has been interpreted and understood by the recipient of the message. It will be noted
that the user, not just the sender is involved in the transformation of data into
information. There is a process of thought understanding involved and it follows that
a given message can have different meanings to different people. It also follows that
data that have been analyzed, summarized or processed in some other fashion to
produce a message or report which is conventionally deemed to be ‘management
information’ only becomes information that is understood by the recipient.
In summary, information is knowledge and understanding that is usable by the
recipient. It reduces uncertainty and has surprise value. It must be something the
recipient has not already known which could not be predicted. If a message or report
does not have these attributes, as far as the recipient is concerned, it contains merely
data, not information.

The Value of Information

Information has no value in itself; its value derives from the value of the change in
decision behavior caused by the information being available minus the cost of
producing the information. It may be better information but if it improves the
resulting decisions, otherwise it has no value.
It will be seen that once again the user is all-important. Data capture, handling,
recording and processing – by whatever means – incur costs and do not produce
value. It is only when data are communicated and understood by the recipient and are
thus transformed into information, that value may arise – provided that the
information is used to improve decision making. A typical relationship between costs
and values is shown in fig. 1.3

Fig. 1.3: Information – cost and value

Characteristics of Good Information
Good information is that which is used and which creates value. Experience and
research shows that good information has numerous qualities as follows:
Good information is
a) relevant for its purpose

b) sufficiently accurate for its purpose

c) complete enough for the problem

d) from a source in which the user has confidence

e) communicated to the right person

f) communicated in time for its purpose

g) that which contains the right level of details

h) communicated by appropriate channel of communication

i) that which is understandable by the user

Information and Management

In all but the smallest organizations management rarely observe operations directly.
They attempt to make decisions, prepare plans and control activities by using what
information they can obtain from formal sources – for example the organization’s
MIS or informal means, such as face to face conversation, telephone calls, through
social contacts and so on.
Management is faced by an accelerating rate of change, and even more complex
environment and at higher levels, by considerable uncertainty.
Ideally, the manager should be able to define the type of information he/she requires
and the MIS should be able to supply it. In practice, of course, it does not happen like
this and managers have to use whatever information is available, from whatever
source. Despite the difficulties of producing it, managers need relevant information to
assist them to plan, control, and make decisions. Relevant information is information
which:
a. Increase knowledge
b. Reduce uncertainty
c. Is usable for the intended purpose.
Although managers need information, they do not all need the same type of
information. The type of information required is dependent on many factors
including;
▪ the level of management,
▪ the task at hand,
▪ ▪ confidentiality,
 ▪ ▪ urgency etc.

Understandability
Understandability is what transforms data into information. If the information is not
understood it cannot be used and thus cannot add value. Many factors affect
understandability including:
a. Preference of the user - Some people prefer information in the form of
pictures and graphs, others prefer narrative. Some are happy with statistical
and numeric presentations whilst others do not understand them.
b. Remembered knowledge - Although the working of memory is not well
understood there is no doubt that all extent of remembered knowledge,
including technical knowledge, influences understanding - Understanding is
thus a result of the association of memory and the received message.
c. Environmental factors - As well as the individual characteristics mentioned
above several environmental factors influence understanding. These include;
group pressures, the time available, trust in the information system and so on.
d. Language - Information is conveyed employing signals or messages. These
may be in a code (for example, mathematical notation) or a natural language,
such as English or Spanish.

1.4 Types of Information Systems and their

Relationship Major Types of Systems in
Organizations
Because there are different interests, specialties, and levels in an organization, there
are different kinds of systems. No single system can provide all the information with
an organization needs. Figure 1.4 illustrates one way to depict the kinds of systems
found in an organization. In the illustration, the organization is divided into strategic,
management, and operational levels and then is further divided into functional areas,
such as sales and marketing, manufacturing and production, finance and accounting,
and human resources. Systems are built to serve these different organizational
interests.
 Figure 1.4: Types of Information Systems

Different Levels of Systems

Three main categories of information systems serve different organizational levels:
operational-level systems, management-level systems, and strategic-level systems.
o Operational-level systems support operational managers by keeping track of
the elementary activities and transactions of the organization, such as sales,
receipts, cash deposits, payroll, credit decisions, and the flow of materials in a
factory. The principal purpose of systems at this level is to answer routine
questions and to track the flow of transactions through the organization. How
many parts are in inventory? What happened to Mr Williams’s payment? To
answer these kinds of questions, information generally must be easily
available, current, and accurate. Examples of operational-level systems
include a system to record bank deposits from automatic teller machines or
one that tracks the number of hours worked each day by employees on a
factory floor.
o Management-level systems serve the monitoring, controlling, decision-
making, and administrative activities of middle managers. The principal
question addressed by such systems is this: Are things working well?
Management-level systems typically provide periodic reports rather than
instant information on operations. An example is a relocation control system
that reports on the total moving, house-hunting, and home financing costs for
employees in all company divisions, noting wherever actual costs exceed
budgets. o Strategic-level systems help senior management tackle and
address strategic issues and long-term trends, both in the firm and in the
external environment. Their principal concern is matching changes in the
external environment with existing organizational capability. What will
 employment levels be in five years? What are the long-term industry cost
trends, and where does our firm fit in? What products should we be making in
five years?
Information systems also serve major business functions, such as sales and marketing,
manufacturing and production, finance and accounting, and human resources. A
typical organization has operational-, management-, and strategic-level systems for
each functional area. For example, the sales function generally has a sales system on
the operational level to record daily sales figures and to process orders. A
management-level system tracks monthly sales figures by sales territory and reports
on territories where sales exceed or fall below anticipated levels. A system to forecast
sales trends over a five-year period serves the strategic level. We first describe the
specific categories of systems serving each organizational level and their value to the
organization. Then we show how organizations use these systems for each major
business function.

Four Major Types of Systems

The organization has executive support systems (ESS) at the strategic level;
management information systems (MIS) and decision-support systems (DSS) at the
management level; and transaction processing systems (TPS) at the operational level.
Systems at each level in turn are specialized to serve each of the major functional
areas. Thus, the typical systems found in organizations are designed to assist workers
or managers at each level and in the functions of sales and marketing, manufacturing
and production, finance and accounting, and human resources. Apart from the four
information systems mentioned above, organizations rely upon Office Automation
System (OAS) and Groupware to enable information flow among the staff of the
various sections as they perform their duties.
 Figure 1.5: The four major types of information systems
This figure provides examples of TPS, DSS, MIS, and ESS, showing the level of the
organization and business function that each supports.
Table 2 summarizes the features of the four types of information systems.
1. Transaction Processing Systems
Transaction processing systems (TPS) are the basic business systems that serve the
operational level of the organization. A transaction processing system is a
computerized system that performs and records the daily routine transactions
necessary to conduct business. Examples are sales order entry, hotel reservation
systems, payroll, employee record keeping, and shipping.
At the operational level, tasks, resources, and goals are predefined and highly
structured. The decision to grant credit to a customer, for instance, is made by a
lower-level supervisor according to predefined criteria. All that must be determined is
whether the customer meets the criteria.
Transaction processing systems are often so central to a business that TPS failure for a
few hours can lead to a firm’s demise and perhaps that of other firms linked to it.
Managers need TPS to monitor the status of internal operations and the firm’s
relations with the external environment. TPS are also major producers of information
for the other types of systems. For example, the payroll system illustrated here, along
with other accounting TPS, supplies data to the company’s general ledger system,
which is responsible for maintaining records of the firm’s income and expenses and
for producing reports such as income statements and balance sheets.

Figure 1.6: A symbolic representation for a payroll TPS

A payroll system is a typical accounting TPS that processes transactions such as
employee time cards and changes in employee salaries and deductions. It keeps track
of money paid to employees, withholding tax, and paychecks.

2. Management Information Systems

A management information system is the study of information systems in business
and management. The term management information systems (MIS) also designate a
specific category of information systems serving management-level functions.
Management information systems (MIS) serve the management level of the
organization, providing managers with reports and often online access to the
organization’s current performance and historical records.

MIS summarize and report on the company’s basic operations. The basic transaction
data from TPS are compressed and are usually presented in long reports that are
produced on a regular schedule. Figure1.7 shows how a typical MIS transforms
transaction-level data from inventory, production, and accounting into MIS files that
are used to provide managers with reports.

Fig. 1.7: How MISs obtain their data from the organization’s TPS
In the system illustrated by this diagram, three TPS supply summarized transaction
data to the MIS reporting system at the end of the time period. Managers gain access
to the organizational data through the MIS, which provides them with the appropriate
reports. MIS usually serve managers primarily interested in weekly, monthly, and
yearly results, although some MIS enable managers to drill down to see daily or
hourly data if required.

3. Decision-Support Systems
Decision-support systems (DSS) also serve the management level of the organization.
DSS help managers make decisions that are unique, rapidly changing, and not easily
specified in advance. They address problems where the procedure for arriving at a
solution may not be fully predefined in advance. Although DSS use internal
information from TPS and MIS, they often bring in information from external
sources, such as current stock prices or product prices of competitors.
Clearly, by design, DSS have more analytical power than other systems. They use a
variety of models to analyze data, or they condense large amounts of data into a form
in which they can be analyzed by decision-makers. DSS are designed so that users
can work with them directly; these systems explicitly include user-friendly software.
DSS are interactive; the user can change assumptions, ask new questions, and include
new data.
4. Executive Support Systems
Senior managers use executive support systems (ESS) to help them make decisions.
ESS serves the strategic level of the organization. They address non-routine decisions
requiring judgment, evaluation, and insight because there is no agreed-on procedure
for arriving at a solution.
ESS is designed to incorporate data about external events, such as new tax laws or
competitors, but they also draw summarized information from internal MIS and DSS.
They filter, compress, and track critical data, displaying the data of greatest
importance to senior managers. ESS employ the most advanced graphics software and
can present graphs and data from many sources. Often the information is delivered to
senior executives through a portal, which uses a Web interface to present integrated
personalized business content from a variety of sources.
Questions ESS assists in answering include the following: In what business should we
be? What are the competitors doing? What new acquisitions would protect us from
cyclical business swings? Which units should we sell to raise cash for acquisitions? It
consists of workstations with menus, interactive graphics, and communications
capabilities that can be used to access historical and competitive data from internal
corporate systems and external databases such as Dow Jones News/Retrieval or
Standard & Poor. Because ESS is designed to be used by senior managers who often
have little, if any, direct contact or experience with computer-based information
systems, they incorporate easy-to-use graphic interfaces.

Model of a typical executive support system

This system pools data from diverse internal and external sources and makes them
available to executives in an easy-to-use form.
Relationship of Systems to One Another
TPS are typically a major source of data for other systems, whereas ESS are primarily
a recipient of data from lower-level systems. The other types of systems may
exchange data with each other as well. Data may also be exchanged among systems
serving different functional areas. For example, an order captured by a sales system
may be transmitted to a manufacturing system as a transaction for producing or
delivering the product specified in the order or to an MIS for financial reporting.

Interrelationships among systems

The various types of systems in the organization have interdependencies. TPS are
major producers of information that is required by the other systems, which, in turn,
produce information for other systems. These different types of systems have been
loosely coupled in most organizations.
It is definitely advantageous to integrate these systems so that information can flow
easily between different parts of the organization and provide management with an
enterprise-wide view of how the organization is performing as a whole. But
integration costs money, and integrating many different systems is extremely time-
consuming and complex. This is a major challenge for large organizations, which are
typically saddled with hundreds, even thousands of different applications serving
different levels and business functions. Each organization must weigh its needs for
integrating systems against the difficulties of mounting a large-scale systems
integration effort.

1.5 Information Systems and Application to Business Process

Information systems can be classified by the specific organizational function they
serve as well as by the organizational level. We now describe typical information
systems that support each of the major finance and accounting system functions and
provide examples of functional applications for each organizational level.
Sales and Marketing Systems
The sales and marketing function is responsible for selling the organization’s products
or services. Marketing is concerned with identifying the customers for the firm’s
products or services, determining what customers need or want, planning and
developing products and services to meet their needs, and advertising and promoting
these products and services. Sales are concerned with contacting customers, selling
products and services, taking orders, and following up on sales. Sales and marketing
information systems support these activities.
At the strategic level, sales and marketing systems monitor trends affecting new
products and sales opportunities, support planning for new products and services, and
monitor the performance of competitors. At the management level, sales and
marketing systems support market research, advertising and promotional campaigns,
and pricing decisions. They analyze sales performance and the performance of the
sales staff. At the operational level, sales and marketing systems assist in locating and
contacting prospective customers, tracking sales, processing orders, and providing
customer service support.

Table 2-1 Example of Sales and Marketing Information Systems

Human Resources Systems

The human resource’s function is responsible for attracting, developing, and
maintaining the firm’s workforce. Human resources information systems support
activities, such as identifying potential employees, maintaining complete records on
existing employees, and creating programs to develop employees’ talents and skills.
Delphia Consulting’s ABRA Suite software for human resources and payroll
management includes online tools to view and change employment and payroll
information. Human resources information systems reduce administrative costs,
provide faster service to employees, and help firms manage their workforce.

Finance and Accounting Systems

The finance function is responsible for managing the firm’s financial assets, such as
cash, stocks, bonds, and other investments, to maximize the return on these financial
assets. The finance function is also in charge of managing the capitalization of the
firm (finding new financial assets in stocks, bonds, or other forms of debt). To
determine whether the firm is getting the best return on its investments, the finance
function must obtain a considerable amount of information from sources external to
the firm.

The accounting function is responsible for maintaining and managing the firm’s
financial records—receipts, disbursements, depreciation, payroll—to account for the
flow of funds in a firm. Finance and accounting share related problems—how to keep
track of a firm’s financial assets and fund flows. They provide answers to questions
such as these: What is the current inventory of financial assets? What records exist for
disbursements, receipts, payroll, and other fund flows?
Strategic-level systems for the finance and accounting function establish long-term
investment goals for the firm and provide long-range forecasts of the firm’s financial
performance. At the management level, information systems help managers oversee
and control the firm’s financial resources. Operational systems in finance and
accounting track the flow of funds in the firm through transactions such as pay-
checks, payments to vendors, securities reports, and receipts.
 Table 2-4 Examples of Finance and Accounting Information Systems

Business Processes and Information Systems

The new digital firm business environment requires companies to think more
strategically about their business processes. Business processes refer to sets of
logically related activities for accomplishing a specific business result. Business
processes also refer to the unique ways in which organizations and management
coordinate these activities. A company’s business processes can be a source of
competitive strength if they enable the company to innovate better or to execute better
than its rivals. Business processes can also be liabilities if they are based on outdated
ways of working that impede organizational responsiveness and efficiency.

Table 2-6 Examples of Functional Business Processes

Many business processes are cross-functional, transcending the boundaries between

sales, marketing, manufacturing, and research and development. These cross-
functional processes cut across the traditional organizational structure, grouping
employees from different functional specialities to complete a piece of work. For
example, the order fulfilment process at many companies requires cooperation among
the sales function (receiving the order, entering the order), the accounting function
(credit checking and billing for the order), and the manufacturing function
(assembling and shipping the order). Figure 2-12 illustrates how this cross-functional
process might work. Information systems support these cross-functional processes as
well as processes for the separate business functions.

The order fulfilment process