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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW

INFORMATION SYSTEM
People require information for many and varied reasons. For instance, you probably
seek information for entertainment and enlightenment by watching television,
seeing movies, browsing the Internet, listening to the radio, and reading newspaper
and book. In business, however, people and organization seek and use information
specifically for the purposes of sound decision making and problem solving.
What is a problem? A problem is any undesirable situation. When you are stuck in
the middle of nowhere with a flat tire, you have a problem. If you know that some
customers do not pay their debts on time, but you dont know who or how much
they owe, you have a problem. You can solve both problems with the aid of
information.
An organization or individual that finds more than one way to solve problems must
make decisions. As a manager for example you may face a problem of promoting
new car?
There are many potential ways to promote new cartelevision
advertising, radio advertising, newspaper advertising, Web advertising, auto shows,
direct mail, or any combination of these methods. This case calls for decision
making.

DATA, INFORMATION, AND SYSTEMS

Data vs. Information


The term data and information do not mean the same thing. Data is the plural of
the Latin datum, literally given fact, which may take the form of a number, a
statement, or a picture. Data are the raw materials in the production of information.
Information, on the other hand, is data that have meaning within a context.

Generating Information
A process is any manipulation of data, usually with the goal of producing
information. Some processes, however, produce yet another set of interim data.
Hence while data are raw materials, information is output. Just as raw materials
are processed in manufacturing to create final useful products, so raw data is
processed in information systems to create final useful information.

Information in Context

BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


Information is an extremely important resource for both individuals and
organizations, but not all information is useful. Consider the following story. Two
people who took a tour in a hot-air balloon encountered unexpected wind that soon
blew then off course. When they managed to lower their balloon, they shouted to a
farmer on the ground, Where are we? You are right above a corn field! he
answered.
The balloonist looked at each other, and one groaned, Some
information! Highly accurate and totally useless! To be useful, information must
be relevant, complete, accurate, and current.
1.

2.

3.

4.

5.

RelevantInformation must pertain to the problem at hand. For example,


the total number of years of education may not be relevant to a persons
qualification for a new job. Relevant information might be that the person
has so many years of education in mechanical engineering and many years of
experience
Completepartial information is often worse than no information. For
example, marketing data about household incomes may lead to bad decisions
if not accompanied by vital information on the consumption habits of
targeted population.
AccurateErroneous information may lead to disastrous decisions.
For
example, an inaccurate record of a patients reaction to penicillin may lead a
doctor to harm the patient while believing that she is helping him.
Currentdecision are often based upon the latest information available, but
what was a fact yesterday may no longer be one today. For example, a shortterm investment decision to purchase a stock today based on yesterdays
stock prices may be a costly mistake if the stock price has risen on the
interim.
EconomicalIn business settings, the cost of obtaining information must be
considered as one element involved in any decision. For example, demand
for a new product must be researched to reduce risk of marketing failure, but
if market research is too expensive, the cost of obtaining the information may
diminish profit from sales.

What is a System?
Simply put, a system is an array of components that work together to achieve a
common goal, or multiple goals, by accepting input, processing it, and producing
output in an organized manner.
A sound system consists of many electronic and mechanical parts, such as laser
head, amplifier, an equalizer, and so on. This system , uses input in the form of
electrical power and sound recorded on tape or CD, and processes the input to
reproduce music and other sounds. The components work together to achieve this
goal.

BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


Systems and Subsystems
Often, a system consists of several subsystemscomponents of a larger system
with subgoals all contributing to meeting the main goal. Subsystem can receive
input from, and transfer output to, other systems or subsystems.
Consider the different departments of a manufacturing business. The marketing
department tries to promote sales of the organizations products; the engineering
department tries to design new products and improve existing ones; the finance
department tries to plan a clear budget and earn interest on every unused penny at
the end of the day. Each department is a subsystem with its own goal, which is a
subgoal of a larger system (the company), whose goal is to maximize profit.

Closed vs. Open Systems


Systems are closed or open, depending upon the nature of information that flows
within an organization. A closed system stands alone, with no connection to
another system: nothing flows in from another system, nothing flows out to another
system. An open system interface and interacts with other systems For example,
an accounting system that records account receivable, accounts payable, and cash
flow is open if it receives its payroll figures from the payroll system. Subsystems, by
definition, are always open, because as components of a bigger system, they must
receive information from, and give information to, other susbsystems.

Information and Systems


With an understanding of the words information and system is almost intuitive: an
information system (IS) is all components that work together to process data and
produce information.

Information and Managers


Thinking of an organization in terms of its suborganizations or subsystemscalled
system thinkingis a powerful management approach because it creates a
framework for both excellent problem solving and excellent decision making. To
solve problems, managers need to isolate them, which they do by recognizing the
subsystems in which the problems occur and solving the problems within those
subsystems constraints and strengths.
System thinking served well by information technology (IT), a term that refers to
all technologies that collectively facilitate construction and maintenance of
information system.
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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW

The Benefits of Human-Computer Synergy


It is important to remember that computers can only carry out instructions that
humans give. Computers can process data accurately at far greater speeds than
people can, yet they are limited in many respectsmost importantly they lack
common sense. However, combining the strengths of these machines with human
strengths creates synergy.
Some people call synergy 2+2=5 rule. Synergy (from the Greek work together)
occurs when combined resources produce output that exceeds the sum of the
outputs of the same resources employed separately. A computer works quickly and
accurately; humans work relatively slowly and make mistakes. A computer cannot
make independent decisions, however, or formulate steps for solving problems.
Thus, a human-computer combination allows the results of human thought to be
translated into efficient processing of large amount of data.

Qualities of humans and computers that contribute to synergy


Humans
Think

Computer
Calculate and perform programmed
logical operations extremely rapidly

Have common sense

Store and retrieve data and information


extremely rapidly

Can make decisions

Perform complex logical and arithmetical


functions accurately

Can instruct the computer what to Execute long, tedious operations


do
Perform routine tasks less expensively
Can
learn
new
methods
and than humans
techniques
Are adaptable (can be programmed and
Can accumulate expertise
reprogrammed)
What are Information System?
In an organization, an information system consist of data, hardware, software,
telecommunications, people, and procedures.
Generally defined, the term
information system does not have to include electronic equipment. However
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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


information system, has become synonymous with computer-based information
system, a system with a computer at its center to which peripheral equipment is
connected. In a computer-based information system, computers collect, store, and
process data into information, according to instructions people provide via computer
programs.
Components of an information system
Data
Hardware
Software
Telecommunicat
ions
People

Procedures

Input that the system takes to produce information.


A computer and its peripheral equipment: input, output and
storage device. Hardware also includes data communication
equipment.
Sets of instructions that tell the computer how to take data in,
how to process it, how to display information, and how to store
data and information.
Hardware and software that facilitate fast transmission and
reception of text, pictures, sound, and animation in the form of
electronic data.
Information system professionals and users who analyze
organizational information needs, design and construct
information systems, write computer programs, operate the
hardware, and maintain software.
Rules for achieving optimal and secure operations in data
processing. Procedures includes priorities in dispensing software
applications and security measures.

Several trends have made the use of ISs very important in business:

Computers power have grown tremendously while their prices have dropped.
Computer programs variety and ingenuity have increased.
Quick and reliable communication lines and access to the Internet and World
Wide Web have become widely available and affordable.
The fast growth of the Internet has opened opportunities and encouraged
competition in the global markets.
An increasing ration of workforce is computer literate.

Remember that in a broad sense an information system consists of physical and


nonphysical components working together. A computer alone is not an information
system. A computer combined with software may constitute an information system,
but only if the program is designed to produce information that helps an
organization or person achieve a specific goal.

The Four Stages of Processing

BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


All information systems operate in the same basic fashion whether they include a
computer or not. However, the computer provides a convenient means to execute
the four main operations of an information system:

Entering data into the IS (input)


Changing and manipulating the data in the IS (data processing)
Getting information out of the IS (output)
Storing data and information (storage)

Computer Equipment for Information System

Input devices introduce data into the IS


The computer processes data through IS
Output devices display information
Storage devices store data and information

In addition to communication that takes place between computer components,


communication occurs between computers over great distances (called
telecommunications). Communication technology lets users not only access
multiple input, output and storage devices with a single computer but access data
and resources of more than one computer as well.

ISS: FROM RECORDING TRANSACTIONS TO PROVIDING EXPERTISE


ISs can be generally categorized based on the level of systems complexity and the
type of functions it serves.

Transaction Processing Systems


The earliest electronic information system in business consisted of computers and
programs used to record and report transactions. Called transaction processing
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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


systems, or TPSs, they are the most widely used information systems. TPSs
predominant function is to record data collected at the boundaries of organizations,
in other words, at the point where the organization transacts business with other
parties. TPSs include cash registers, which record sales; automatic teller machines,
which record cash withdrawals, deposits and transfers; and purchase order system,
which record purchases. After these data are collected, the IS either automatically
processes the data into information or stores it for later processing on demand.

Management Information Systems


A computer-based information system for planning, control, decision making and
problem solving is called management information system, or MIS. MISs
complexity levels vary. To some degree, the type of MIS one uses depends on ones
management level.
Probably one of the greatest improvements in using MISs was in the reportingor
outputpart of the system.
Early management information systems were
programmed to automatically produce only periodic reports (weekly, monthly,
bimonthly, and so on). Additional reporting could be quite expensive. Now
managers can obtain current standings online, while on-screen readouts often
eliminate the need for printouts. In fact, many organizations stopped distributing
paper reports altogether. Modern MISs require only simple instructions to generate
prescribed reports. With the click of a mouse, managers can instruct computers to
produce reports tailored to their needs at virtually any time.
There is still a place for periodic reportsto allow an organization to coordinate the
analysis of its operations. However, managers may also request unplanned, special
reports to help solve specific problems, called on-demand reports, or ad hoc
reports. Periodic or ad hoc reports that flag facts or numbers that deviate from
preset standards are called exception reports. They allow managers to save time
by focusing on exceptions and take care of a situation that caused an unplanned
event.

Decision Support Systems


Middle and senior mangers often need to select one course of action from many
alternatives. Because managers have neither the time nor the resources to study
and absorb long, detailed reports of data and information, organizations started to
build information systems specifically designed to help managers make decisions.
These systems are called decision support system (DSSs) and executive
information system. Executive information systems are specific types of DSSs,

BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


serving the highest level of decision making.
knowledge-intensive decision-making process.

Expert systems support the most

Decision support systems help find the optimal course of action and answer What
if questions. DSSs are programmed to process raw data, make comparisons, and
generate information to help managers glean the best alternatives for financial
investments, marketing strategy, credit approval, and the like. However, it is
important to understand that a DSS is only a decision aid, not an absolute
alternative to human decision making.
Often, a group of managers must make a decision. To reach consensus, the
managers may use group decision support systems (GDSSs), programs that
help a group rather an individual, make decisions. GDSSs help managers work
collaboratively to brainstorm, generate ideas, prioritize various suggested actions,
and reach a decision acceptable to all, or most, decision makers.

Executive Information Systems


Executive information systems (EISs) or executive support systems (ESSs),
help high-ranking officers direct an organization. Often programmed to integrate
thousands of pieces of data and produce summary reports, these systems evolved
in the mid-1970s to help executive focus on long-range strategic planning within an
organization.

Expert Systems
Although powerful decision-making tools, DSSs and EISs only include quantitative
formulas, or models, that process data. Often, however, managers or other workers
may need expertise to make certain decisions, not just formulas. In the past, only
human experts in a specific line of work could provide advice to decision makers.
Now, ISs can be developed that incorporate human expertise. These systems are
called expert systems (ESs). Highly structured decision making makes it easy to
choose one alternative from many that will yield the best results, thanks to a
previously proven set of steps. Expert systems, on the other hand, are used when
decision making is not structured.
Many environments are not sufficiently structured to let an IS use data to provide
one best answer. For instance, stock portfolio management takes place in a highly
uncertain environment. No single method exists to determine which securities
portfolio is best, that is, which one yield the highest return. Medical care is another
unstructured environment. There may be many methods of diagnosing a patient
on the basis of his or her symptoms.
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Using expert systems saves a company the high cost of employing human experts.
After gathering expertise from experts and building a program, the program can be
distributed and used repeatedly. The expertise resides in the program in the form of
a knowledge consisting of facts and relationship among the facts.

Geographic Information Systems


In some cases, the information decision makers need is related to a map. In such
cases, special ISs called geographic information systems (GISs) can be used to
tie data to physical locations. A GIS application accesses a database that contains
data about part of a city, a city, a country, a state, a country, or even the entire
world. By representing data on a map in different graphical forms, a user is able to
promptly understand a situation taking place in that part of the world and act upon
it.
Examples of such information include population levels, the number of police
officers deployed, probabilities of finding minerals, transportation routes, and
vehicle allocation for transportation or distribution systems.

INFORMATION SYSTEMS IN BUSINESS


Without exception, every business function in every business sector uses
information systems.
From government agencies to manufacturing, from
accounting to marketing, information systems are key tools in transaction
processing, decision making, problem solving, and operations of all organizations.

Information Systems in Functional Business Area


Different types of ISs serve different purposes throughout an organization in what
are known as functional business areasin houses services that support an
organizations main business. Funvtional business areas include, but are not limited
to, accounting, finance, marketing, and human resources; they exist in most
companies in one form or another.

Accounting
In accounting, information systems help record business transactions, produce
periodic financial statements, and create reports required by law, such as balance
sheets and profit-and-loss statements. They also help create reports that may not

BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


be required by law but help managers understand changes in an organizations
finances.

Finance
The purpose of financial systems is to facilitate financial planning and business
transactions. In finance, information systems help organize budgets, manage cash
flow, analyze investments, and make decisions that could reduce interest payments
and increase reveneues from financial transactions.
Marketing
Marketings purpose is to pinpoint the people most likely to purchase what the
organization sells and to promote the appropriate products and services to those
people. For instance marketing information systems help analyze demand for
various products in different regions and population groups, to more accurately
market the right product to target consumers. Marketing MISs provide information
that helps management decide how many sales representative to assign to a
specific products in specific geographical areas. The systems identify trends in the
demand for the companys products and services. The Web has created excellent
opportunities both to collect marketing data and to promote products and services
by displaying information about them. That is why organizations conduct so much
of their marketing efforts through ISs linked to the Web.

Human Resources
Human resource management systems help mainly in record keeping and employee
evaluation. Every organization must maintain accurate employee records. Human
resource managements maintain records, including employees pictures, employee
status and tax information, and other data that other systems such as payroll may
use.
Performance evaluation systems provide essential checklists that managers can use
to assess their subordinates. These systems also offer a scoring utility to quantify
workers strengths and weaknesses.

Information Systems in Different Business Sectors


A business sector is defined by the general activity that takes place or by the type
of organizations in which the activity takes place. Different business sectors use
information systems of all types. Also, systems are often adapted for specific needs
of the sector in which they are used.
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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


Manufacturing
Information systems are throughout a manufacturing operation, from inventory
control to paying suppliers. ISs help allocate resources, such as personnel, raw
material, and time, to optimize productivity. Inventory control systems help plan
optimal reorder quantities of raw materials so that the company does not pay too
much for materials it will not use for a long time, while ensuring that materials are
available when required. Manufacturing operations use information systems to
process customer orders, prepare production schedules, perform quality assurance,
and prepare shipping documents.
Warehouses are now managed by computers. Specialized information systems
automatically report every items whose quantity reaches re-order level. These ISs
also automatically report each item s economic order quantity (EOQ), which the
quantity sufficient to prevent an out-of-stock situation, while minimizing the value of
warehoused products and the cost of warehousing. The item is then ordered
immediately to avoid production stoppage. More sophisticated systems connect
directly to suppliers systems, o suppliers keep an eye on inventory and ship lowlevel items without much effort by the clients warehouse employees.

Service
Information systems play such a central role in the service sector that they are
often the backbone of service organizations.
Imagine an airline without an
information systemit would be unable to reserve seats for passengers and
schedule flights. Think for a moment what banks would do without ISs. We could
argue that the only thing banks manufacture is information. Bank information
systems inputs include the type of account as well as dates and quantities of
deposits and withdrawals; their output onsist of statements, which show interest
paid or owed, balances and other information. People even make cash withdrawals,
in most cases through information systems called automated teller machines
(ATMs). Banks give less and less information to customers in paper form. Clients
can now receive information about their accounts directly from information systems
over the phone and through their home computers. In fact, the home banking
phenomenon owes its growth to information systems.

Retail
Because ISs enable large retail chain to run as a single big store, retail chains gain
significant economies of scale using ISs; that is, they could cut costs thanks to their
overall size. Retail chains invested billions of dollars in information systems in the
past decade. The major purpose of this systems is to minimize understocking and
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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


overstocking in any of the chains stores. Getting chainwide information is done
mainly by linking stores systems to combine their data and by connecting the
chains systems to suppliers system. For example, Wal-Mart and Kmart stores link
to communication networks by satellite. Management can promptly determine
which items sell quickly and which do not. Using this information, stores can
remove slow-moving items from inventory and stock popular items in greater
quantities to improve profit. Because of the availability of online information, the
manager of a store that has sold out a certain item can quickly restock with
inventory from a nearby store. Interfacing cash registers and databases enables
managers to receive information for decision-making daily, rather than weekly or
monthly. Retail experts argue that Wal-Mart became the worlds largest and most
efficient retail chain almost solely because it utilized innovative IS.

New Businesses
ISs impact on business goes beyond mere automation. Many firms implemented ISs
to provide new products and services that are economical only with the
development of information technology. Credit history firms, such as Experian,
Equifax, and TransUnion, use ISs to record important credit information on millions
credit-holders and borrowers.
They sell information to banks and financial
institutions. Some airline sell reservation system services to travel agencies.
Shipping companies provide tracking services to their clients to locate parcels.
These are just three examples of services that would not be available without ISs.
And the Internet has spawned thousands of small businesses and home-based,
information systemsbased businesses as well as some of the worlds largest
corporations.Amazon.com, ebay, and Yahoo exist thanks to development in
information technology and telecommunications. The entire phenomenon of online
businesses would not exist without information systems.
Government
Over the past four decades governmental and commercial organizations have
installed computer-based ISs to automate processes and replace human labor. The
business of government depends heavily on ISs for collecting taxes, paying social
security, and purchasing goods and services for various departments.

SHARED DATA RESOURCES


Most organizations depend on multiple information systems, many of which share
data. The most effective way to operate is for different systems to actually share
the same data from the same pool. For instance, TPSs collect information about

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BUSINESS INFORMATION SYSTEMS: AN OVERVIEW


sales or inventory levels or cash withdrawals; the MISs receive and manipulate data
to help managers; and executives make decisions and run organization.
Organizations often use ISs to create large pools of data, called databases and
data warehouses. A companys databases is one of its most powerful resources
for running its operations. If all its datasales, returns, inventory values, interest
payments, and so onwere simply recorded n one long list, the organization could
not harness the datas power. But categorized and structured data can be
manipulated to produce useful information. Data from transactions can also be
archived in a data warehouse, a large database that serves as a mine where
managers can, for example, find relationships among buying habits and other
valuable information that can help market to potential buyers and serve existing
customers more efficiently and effectively.

E-COMMERCE
The most exciting intersection of IT and business in recent years is electronic
commerce, or as it is popularly called e-commerce. It is a business activity that is
electronically executed between parties, such as two businesses or a business and a
consumer.
E-commerce is not a new business concept; it has existed between businesses for
years but was limited in scope and restricted to business-to-business activities for a
number of reasons. For instance, complicated and costly dedicated communication
lines were required for business activities to conduct computer-to-computer
operations over large distances.
In addition, early e-commerce required a
significant investment in special software. And because of the high costs, many
smaller businesses resisted the adoption of e-commerce. The development of the
World Wide Web and the opening of the Internet to commercial activities spawned a
huge surge in business-to-business and business-to-customer electronic trade.
Suddenly, electronic data interchange was no longer the privilege of large and rich
corporations that could pay for private and third-party managed computer
networks. Now, every individual and small business can afford to use a network for
business: the Internet.
Many businesses use their powerful database management systems to engage in ecommerce in order to better serve customers and improve their own internal
operations.
Database management systems are powerful tools for data
manipulation and storage. They are the core technology in practically every
business. By taking in key company data and making other data and information
accessible over the Internet, databases have new value with the growth of online
business operations.

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WHY STUDY INFORMATION SYSTEMS?
The view that professionals should specialize in their domains, such as finance or
marketing, and that information systems are the domain of IS specialists only is no
longer valid. Managers and professionals in virtually every field use information
systems daily to facilitate their work. Many go beyond the call of duty to learn
about new hardware, software, and methods to improve their performance.
The proliferation of ISs has helped knowledge workers work better. Knowledge
workers main function is to generate information based on knowledge in their
respective fields. These people include professionals such as scientist, budget
planners, project leaders, and marketing directors.
To take advantage of
information technology, you must be familiar with, and know how to use, different
types of information systems. Without this knowledge, you will lag behind your
peers who can work more efficiently using less time and effort to accomplish more.
Increasingly, organization expect personnel to solve many efficiency problems on
their own, using friendly IS oftware.
Demand for computer literacy is especially great among knowledge workers.
College graduates in any filed find obtaining rewarding positions almost to
impossible without minimal knowledge of information systems. And employers no
longer settle for word-processing and electronic spreadsheet skills.
Their
expectations of new hires command of software applications grow steadily.

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