CHAPTER 1

INTRODUCTION TO MANAGEMENT INFORMATION SYSTEM (MIS)

1.1. Definition and Importance of MIS

The subject of management information system (MIS) has different meaning for different
people. The concept of MIS has evolved over a period of last two decades or so. The initial
management information systems were built to process transactional data of an organization and
to produce regular reports. The reports were not targeted and individuals picked the required data
from the report.

The information systems evolved further and produced different reports according to
requirements. Instead of user looking through the report for required data, the system generated a
report in a suitable format that created an impact on its user and provoked an action, a decision
or an investigation. Today, an information system has evolved to the stage where they handle
databases and facilitate decision-making.

Accordingly, definition of MIS has also evolved. There are many closely related definitions in
use. The terms MIS is synonymously used with terms the Information System (IS), the
Information and Decision System and the Computer based Information System.

 MIS is defined as an integrated system of man and machine for providing the
information to support the operations, the management, and the decision-making
functions in organizations.

 Management information system: It is a collection of people, procedures, software,

hardware and databases designed to generate information for managers.

An MIS deals with information that is systematically and routinely collected in accordance
with a well-defined set of rules. In other words, data collection is a planned activity for which
resources are allocated and rules are defined.

1
The information provided by an MIS assists managers in planning, organizing, staffing,
coordinating, directing and controlling the operations of an organization. The management
experts have viewed these steps as Management Control system.

In any organization that has planned activities leading to the achievement of the stated goals,
there is always a control process in place that measures progress towards these goals and enables
the manager to deduct the deviations from the original plan in time. It is the responsibility of the
management to take corrective actions before it is too late. The deviations may be due to
environmental changes or due to the mistakes made by people. An MIS is concerned with
planning and control. An MIS has large amount of data as its integral part that is stored and
managed by a data base management system.

 An MIS must have the following features:

1. It must be capable of handling voluminous data. The data as well as transactions must be
validated.

2. It must be able to perform operations on the data irrespective of the complexity of the
operations. Often time multi-dimensional analysis is required. As MIS can’t be developed
without making use of the various theories, principles, formulae, So MIS is viewed as
Multi-Disciplinary Subject.

3. An MIS should facilitate quick search and retrieval of information. An MIS must support
mass storage of data and information.

4. The information must be communicated to the recipient in time. Moreover, the

communicated information must be relevant.

5. Because of the integration concepts of MIS, there is an opportunity to avoid duplication

and redundancy in data gathering, storage and dissemination.

The five elements of a useable MIS system

 MIS must be "useable." The five elements of a useable MIS system are: timeliness,
accuracy, consistency, completeness, and relevance. The usefulness of MIS is hindered
whenever one or more of these elements are compromised.

2
  Timeliness

To simplify prompt decision making, MIS should be capable of providing and

distributing current information to appropriate users. Information systems should be designed to
expedite reporting of information. The system should be able to quickly collect and edit data,
summarize results, and be able to adjust and correct errors promptly.

 Accuracy

A sound system of automated and manual internal controls must exist throughout all
information systems processing activities. Information should receive appropriate editing,
balancing, and internal control checks. A comprehensive internal and external audit program
should be employed to ensure the adequacy of internal controls.

 Consistency

To be reliable, data should be processed and compiled consistently and uniformly.

Variations in how data is collected and reported can distort information and trend analysis. In
addition, because data collection and reporting processes will change over time, management
must establish sound procedures to allow for systems changes. These procedures should be well
defined and documented, clearly communicated to appropriate employees, and should include an
effective monitoring system.

 Completeness

Decision makers need complete and pertinent information in a summarized form. Reports
should be designed to eliminate clutter and voluminous detail, thereby avoiding "information
overload."

 Relevance

Information provided to management must be relevant. Information that is inappropriate,

unnecessary, or too detailed for effective decision making has no value. MIS must be appropriate
to support the management level using it. The relevance and level of detail provided through
MIS systems directly correlate to what is needed by the board of directors, executive
management, departmental or area mid-level managers, etc. in the performance of their jobs.

3
Information adds to relevant Knowledge, reduces uncertainty, and supports the decision making
process in an organization. However, to be useful information must have the above mentioned
attributes.

1.2. Subsystems of MIS

MIS is viewed as a federation of sub-system, developed, & implemented as needed but

conforming to an overall plan. For example, each organization will consist of sub-systems like
production, inventory, finance, marketing etc. There could be functional sub systems as well as
activity subsystems.

The two approaches to defining the subsystems of MIS are according to the organizational
functions which they support and according to the managerial activities for which they are used.

A). Organizational functions subsystems

Because organizational functions are somewhat separable in terms of activities and are
defined managerially as separate responsibilities, MIS may be viewed as a federation of
information system-one for each major organizational function. There may be common support
systems used by more than one subsystem, but each functional system is unique in its
procedures, programs, models, etc.

Table 1.1 Typical MIS subsystems for a business organization are:

Major functional Some typical uses

subsystem

Marketing information Sales forecasting, sales planning, customer and sales analysis

Personnel information Planning personnel requirements, analyzing performance,

salary administration
Operation information Production planning and scheduling, cost control analysis

Finance information Financial analysis, cost analysis, capital requirements

planning

4
B). Organizational Activities Subsystem

Another approach to understanding the structure of an information system is in terms of the

activities subsystems which are performed by various levels of management. An organization
must respond to market forces, competition, to socio-cultural environment and to technological
changes. The scope of business is wide, touching many fronts. A business, among other
activities, must do a long-term strategic planning management/tactical control and operational
control.

 Strategic Planning is the process of deciding objectives of the organization, determining

the possible shift in objectives, deciding on the resources used to attain the objectives and
the policies that govern the acquisition, use and disposition of the resources.

 Management Control is the process by which managers assure that the resources are
obtained and used effectively and efficiently to attain the objectives of the organization.

 Operational Control is the process of assuming that specific tasks are carried out
effectively and efficiently.

 The activities subsystems are useful for various functional subsystems. The relationship
of activities subsystems to functional subsystems is illustrated in the following table 1.2.

1.2Table The relationship of activities subsystems to functional subsystems

Function/Activity Operations Tactics Strategy

5
Production • Machine settings • Rearrange work area • New factory

• Worker schedules • Schedule new products • New products

• Maintenance sch. • Change inventory • New industry

method

Finance • Categorize assets • Inventory valuation • New GL system

• Assign expenses • Depreciation method • Debt vs. equity

• Produce reports • Finance short/long term • International taxes

Marketing • Reward salespeople • Determine pricing • Monitor

competitors
• Survey customers • Promotional campaigns
• New products
• Monitor • Select marketing media
promotions • New markets

Some examples of Inputs, process and outputs of MIS at all levels of management

Inputs Process Outputs

Strategic National Plans, competitors Summarize, Key ratios, ad hoc

information, overall market market analysis,
Investigate,
information strategic plans
Compare, Forecast

Tactical Historical, & budget data Compare Variance analysis

Classify, summarize Exception report

Operational Customer orders, programmed Update files Updated files

stock control levels, cash
Output reports listings, invoices
receipts/payments

6
 Rearranging

Calculating

1.3. Types of Information System

There are various types of information systems in a business as listed below.

1. Transaction Processing Systems (TPS)

A TPS is used primarily for record keeping which is required in any organization to conduct the
business. Examples of TPS are sales order entry, payroll, and shipping records etc. TPS is used
for periodic report generation in a scheduled manner. TPS is also used for producing reports on
demand as well as exception reports.

2. Decision Support System (DSS)

DSS serves the management of an organization. A decision support system has sophisticated data
analysis tools, which support and assist all aspects of problem specific decision-making. DSS
may use data from external sources such as current stock prices to enhance decision-making.

DSS is used when the problem is complex and the information needed to make the best decision
is difficult to obtain and use. DSS is developed with the help of decision makers. DSS helps in
decision-making process and does not make any decision.

3. Executive Information System (EIS)

An Executive Information System is also called Executive Support System. Senior managers of
an organization use the EIS. Therefore, it must be easy to use so that executives can use it
without any assistance. EIS can do trend analysis, exception reporting and have drill down
capabilities. The results are usually presented in a graphical form tailored to executive’s
information needs. EIS has on-line analysis tools and they access a broad range of internal and
external data.

4. Management Information Systems (MIS)

7
MIS provides the management routine summary of basic operations of the organization. The
basic operations are recorded by the TPS of the organization and MIS consolidates the data on
sales, production etc. MIS provides routine information to managers and decision makers. The
main objective behind installing an MIS in the organization is to increase operational efficiency.
MIS may support marketing, production, finance etc.

5. Work Flow System

A workflow system is a rule based management system that directs, coordinates, and monitors
execution of an interrelated set of tasks arranged to form a business process. A workflow system
is also known as a document image management system. For example, a workflow system is
used by banks for loan sanction process. An applicant fills out an electronic application form for
a bank loan at a bank’s web site. The application is then upload to the bank loan officer’s site.
The loan officer conducts an interview and fills in his feedback and passes the application form
to the credit check unit. The credit unit checks the credit limit and fills in the details. The
application is now complete and a final decision is made.

There are three types of workflow software. Administrative workflow systems focus on the
tracking of expense reports, travel requests, massages. An Ad-hoc workflow system deals with
the shaping of product, sales proposals, and strategic plans. Production workflow systems are
concerned with mortgage loans and insurance claims. A workflow system may be Internet based
and may be combined with e-mail. A workflow system may be based on client/server
architecture that may use a database/file server.

6. Enterprise Resource Planning (ERP)

ERP system is a set of integrated programs capable of managing a company’s vital business
operations for an entire multi-site, global organization.

7. Expert Systems

The system has the ability to make suggestions and act like an expert in a particular field. An
expert system has an extensive knowledge base.

1.4The Evolution and Characteristics of the Information Age

8
As far as history of computing is concerned, people tried to invent a computing machine as early
as 800 BC. Abacus is one of the oldest computing devices that are still in use. Every child in
China learns to use abacus in school. Our ancestors had built various other mechanical machines
using gears. All these efforts laid foundation for better computing machines. The diode tubes,
transistors, integrated circuits (ICs) and now very large integrated circuits (VLSI) are the electro-
mechanical devices that have been invented over a period of time.

The technology has improved since World War II many folds. The improved technology has
been the key factor in making better computing devices. Along with improvement in computing
technology, the communication technology has also improved in parallel. The software also
improved and became user friendly. The spreadsheets, the word processing packages, database
packages, simulation software packages, and decision support systems made IT popular among
managers as well. The terms Information Systems (IS) and Information Technology (IT) are used
synonymously. IS has evolved considerably since 1960.

Short summary of the Evolution of Computer Based Information Systems

1. Data Processing (DP) during the first half the twentieth century

2. Management Information Systems (MIS) 1964

 The MIS concept recognized that computer applications should be implemented

for the primary purpose of producing management information.

 MIS come to play a much larger role in the organizational life, as compared to the
1950’s. It has moved into managerial control and further into influencing the
“core” institutional activities.

3. Decision Support Systems (DSS) 1971

 A DSS is an information-producing system aimed at a particular problem that a

manager must solve and at decisions that the manager must make.

 Notes distinction: MIS: Organizational/group – general

 DSS: Individual - specific

4. Office Automation (OA) 1974

9
  Facilitates communication

 Increases productivity among managers and office workers through the use of
electronic devices.

 Includes a variety of applications such as video conferencing, voice mail,

electronic mail, desktop publishing...etc.

5. Artificial Intelligence (AI)/ Expert Systems (ES) - 1990s

 AI is an application that enables the computer system to perform some of the

same logical reasoning tasks as humans.

 An expert system is a special subclass of AI that functions as a specialist in a

certain field. For example, it can provide management consultancy.

 Limitation of ES: It doesn’t improve its intelligence over time. One way to
overcome this limitation is to use neural networks, electronic and mathematical
analogs of the human brain.

1.4. What Is Information Technology?

An Information System/ Information Technology is an arrangement of people, data,

processes, interfaces, networks and technology that interact for the purpose of supporting &
improving both day-to-day operations in a business (sometimes called data processing) as well
as supporting the problem solving and decision making needs of management (sometimes called
information services).

Information Technology (IT) has become a strategic necessity. Unless we believe in IT and act
on it, there is every chance of becoming a footnote in the records of history. IT has become a
vital component of successful businesses and organizations. Managers are expected to identify
opportunities to implement information systems to improve the business processes. Managers are
also required to lead IS projects in IT. Information Technology has become a major facilitator of
business activities. It is also a catalyst of fundamental changes in the structure, operations and
management of organizations.

IT can be used to:

10
 1. Perform high-speed, high-volume, numeric computations.

2. Provide fast, accurate and inexpensive communication within and between

organizations.

3. Store huge amounts of data in an easy-to-access yet small space and allow quick and easy
access.

4. Automate semiautomatic business processes and manually done tasks.

IT has been used for improving productivity, reducing cost, enhancing decision making process,
enhancing customer relationships, and developing new strategic applications. The business
paradigm has completely shifted from being sellers market to buyers market.

Customers have become the focal point of any business. The business environment is no more as
stable as it used to be and has become much more competitive. It became mandatory on the part
of the organizations to make full use of IT to survive. IT has become one of the standard
components of an organization.

The individuals are supported by IT to fulfill their roles. The management and the business
processes have become IT oriented. Organization structure and strategy are also supported by IT.
Whenever an external or internal pressure is felt by an organization, IT helps the organization to
plan critical response activities. The changed government policy may create a pressure on an
organization. But such a pressure is distributed over a long period as government gives enough
time to organizations to respond to changed policies. But if there is a change in the behavior of
consumers, the organization should be able to identify the change. Moreover, they should be able
to come up with a solution fast. IT helps an organization to anticipate and stay ahead of
problems. The organization can take proactive measures rather than firefighting measures.

An organization can use an IT supported strategic system to increase their market share. IT can
help an organization negotiate better with their suppliers. Maintaining and improving quality of
products and processes in an organization needs regular support, vigilance, and innovation. IT
has been used extensively for productivity improvement, reducing inventory and maintaining
quality. Management Information System (MIS) and decision support system (DSS) have been
used to help management in decision-making process.

11
Business process reengineering (BPR) has become the need to the day for every business; BPR
involves changing business processes in an innovative way. IT plays a major role in BPR.
Internet and Intranet help an organization in changing its business processes to reduce cycle time
and time to market a product. IT makes information available to employees with different level
of access. As a result, employees can be given more independence to make decisions. The ERP,
a strategic tool, heavily uses IT to integrate business processes of an organization.

The Emergence of Information Technology as a Strategic Issue

Although information systems of some form or another have been around since the beginning of
time, information technology (IT) is a relative newcomer to the scene. The facilities provided by
such technology have had a major impact on individuals, organizations and society. There are
few companies that can afford the luxury of ignoring IT and few individuals who would prefer to
be without it . . . despite its occasional frustrations and the fears it sometimes raises.

An organization may regard IT as a ‘necessary evil’, something that is needed in order to stay in
business, while others may see it as a major source of strategic opportunity, seeking proactively
to identify how IT-based information systems can help them gain a competitive edge. Regardless
of the attitude taken, once an organization embarks on an investment of this kind there is little
opportunity for turning back.

As IT has become more powerful and relatively cheaper, its use has spread throughout
organizations at a rapid rate. Different levels in the management hierarchy are now using IT
where once its sole domain was at the operational level.

The aim now is not only to improve efficiency but also to improve business effectiveness and to
manage organizations more strategically.

As the managerial tasks become more complex, so the nature of the required information
systems (IS) changes – from structured, reutilized support to ad hoc, unstructured, complex
enquiries at the highest levels of management.

IT, however, not only has the potential to change the way an organization works but also the
very nature of its business. Through the use of IT to support the introduction of electronic

12
markets, buying and selling can be carried out in a fraction of the time, disrupting the
conventional marketing and distribution channels (Malone et al., 1989; Holland, 1998).

Electronic data interchange (EDI) not only speeds up transactions but allows subscribers to be
confident in the accuracy of information being received from suppliers/buyers and to reap the
benefits of cost reductions through automated reordering processes.

On a more strategic level, information may be passed from an organization to its suppliers or
customers in order to gain or provide a better service (Cash, 1985). Providing a better service to
its customers than its competitors may provide the differentiation required to stay ahead of the
competition in the short term. Continual improvements to the service may enable the
organization to gain a longer-term advantage and remain ahead.

The rapid change in IT causes an already uncertain business environment to be even more
unpredictable. Organizations’ ability to identify the relevant information needed to make
important decisions is crucial, since the access to data used to generate information for decision
making is no longer restricted by the manual systems of the organization.

IT can record, synthesize, analyze and disseminate information quicker than at any other time in
history. Data can be collected from different parts of the company and its external environment
and brought together to provide relevant, timely, concise and precise information at all levels of
the organization to help it become more efficient, effective and competitive.

Information can now be delivered to the right people at the right time, thus enabling well
informed decisions to be made. Previously, due to the limited information-gathering capability of
organizations, decision makers could rarely rely on up-to-date information but instead made
important decisions based on past results and their own experience.

This no longer needs to be the case. With the right technology in place to collect the necessary
data automatically, up-to-date information can be accessed whenever the need arises. This is the
information quality of IT about which Zuboff (1988) writes so eloquently.

 With the use of IT, as with most things, comes the possibility of abuse. Data integrity and
security is of prime importance to ensure validity and privacy of the information being

13
 held. Managing the information involves identifying what should be kept, how it should
be organized, where it should be held and who should have access to it.

 The quality of this management will dictate the quality of the decisions being taken and
ultimately the organization’s survival. With the growth in the usage of IT to support
information provision within organizations, the political nature of information has come
into sharper focus. Gatekeepers of information are powerful people; they can decide
when and if to convey vital information, and to whom. They are likely to be either highly
respected, or despised for the power that they have at their fingertips.

 Such gatekeepers have traditionally been middle managers in organizations. Their role
has been to facilitate the flow of information between higher and lower levels of
management. With the introduction of IT such information can now be readily accessed
by those who need it (if the right IT infrastructure is in place) at any time.

It is not surprising then that there is resistance to the introduction of IT when it has the
potential of changing the balance of power within organizations. Unless the loss in power,
through the freeing up of information, is substituted by something of equal or more value to
the individuals concerned then IT implementations may well be subject to considerable
obstruction.

Developments in IT have caused revolutionary changes not only for individual organizations but
for society in general. In order to understand the situation we now find ourselves in with respect
to IT, it is as well to reflect on their developments.

1.5. The Career Side of Information Technology

Information Technology means the collection, storage, processing, dissemination, and use of
Information. IT is not confined to hardware and software but acknowledges the importance of
man and the goals he sets for his technology, the values employed in making these choices, the
assessment criteria used to decide whether he is controlling the technology and is being enriched
by it.

14
The above definition clearly states that IT is an important tool, which must be used properly. At
one time, 60% people used to work in agriculture. Nowadays, in a developed country, about 10%
people work in agriculture and 40% people work in information related fields.

In a developed country such as US, 50% households have computers and Internet connection. In
India, only about 8 people out of every 1000 have access to computers. Ethiopia is presently
showing progress in usage of IT.

Both Information and the myriad of information systems it supports have created interesting,
challenging, and lucrative career opportunities for millions of men and women all over the globe.

For example: 55% of US labor force consists of knowledge and information workers and 60%
the gross domestic product comes from the Knowledge and information sectors. Present days,
the major source of wealth and prosperity is the production and distribution of information and
knowledge. Firms increasingly rely on digital technology to enable business processes.

Employment opportunities in the information systems field are strong with more new and
existing jobs emerging each day as organizations continue to expand their wide-scale use of
information technology.

In addition, these new jobs pose constant human resource management challenges to all
organizations since there are frequent shortages of qualified information systems personnel.

The constantly changing job requirements in information systems due to the dynamic
developments in business and information technologies will ensure that the long term job
outlook in IT remains both positive and exciting.

One major recruiter is the IT industry itself. Thousands of companies develop, manufacture,
market, and service computer hardware, software, data, and network products and services, or
provide e-business and commerce applications and services, end user training, or business
systems consulting.

However, the biggest need for qualified people comes from the millions of businesses,
government agencies, and other organizations that use information technology. They need many
types of IS professionals such as systems analysts, software developers, and network managers

15
to help them plan, develop, implement, and manage today's internet-based and web-enabled
business/IT applications.

CHAPTER 2
FOUNDATIONAL CONCEPTS IN MANAGEMENT
INFORMATION SYSTEM
Contents
 Introduction
 Objectives
 Business and Management Functions
 Data, Information, Knowledge and Wisdom
 The Information Needs and Sources
 System Concept
 A Framework for Information Systems
 E-Business
 Summary
 Review Questions

2.1. Objectives
After reading this unit, you should be able to:
 Define data, information and knowledge;
 Explain organizational information needs and sources;
 Explain the characteristics and importance of system concept and E-Business; and
 Explain the framework for understanding MIS.

2.2. Introduction

16
Management has been defined in a verity of ways, but for our purposes it comprises the
processes and activities that describe what managers do in the operation of their organization;
plan, organize, initiate, and control operations. Because decision making is such a fundamental
prerequisite to each of the foregoing processes, the role of MIS becomes that of facilitating
decisions necessary for planning, organizing, and controlling the work and functions of the
business. From the manager’s point of view, information serves the purpose of reducing
uncertainty regarding the alternative course of action, in the process of decision making.
Availability of information regarding the alternatives improves the odds in favor of making a
correct decision. Information is recognized as one of the most important corporate resources.
Activity B

What would you suggest to make the system more efficient?

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

Business management function

Business Areas

Managers are found in various business areas of the firm. The three traditional business areas are
marketing, manufacturing, and finance in addition to other two areas that have gained major
importance-human resources and information services.

What managers do?

According the French management theorist, Henri Fayol, managers perform five major
functions.
• They plan what they are to do.
• They organize to meet the plan.
• They staff their organization with the necessary resources.
• They direct the available resources to execute the plan.
• Finally, they control the resources, keeping them on course.
All managers perform these functions, however with varying emphasis as shown below.

17
 Figure-2.1: Management Functions

2.4. Data, Information, Knowledge and Wisdom

Data – raw facts about people, places, events, and things that are of importance in an
organization.
Information – data that has been processed or reorganized into a more meaningful form for
someone.
Knowledge – data and information that is further refined based on the facts, truths, beliefs,
judgments, experiences, and expertise of the recipient.
Wisdom-good sense: the ability to make sensible decisions and judgments based on
personal knowledge and experience.

The information makes a person more knowledgeable. Knowledge is an awareness and

understanding of a set of information that help decision-making. Knowledge makes a person
wise. The sequence is the following-data is processed to get information; information makes a
person knowledgeable, knowledge adds to the wisdom.

Activity A

What would you suggest the difference between data and information?

………………………………………………………………………………………………

………………………………………………………………………………………………

18
2.5. The Information Needs and Sources

MIS starts from an appraisal of management needs and overall business objectives.
Who are the information users?
• Managers
From the managers’ point of view, information serves the purpose of reducing uncertainty
regarding the alternative course of action, in the process of decision making. Information is
recognized as one of the most important corporate resources. The idea of using the computer as a
management information system was a breakthrough because it recognized managers’ need for
problem solving information. Embracing the MIS concept made several firms develop
applications specifically aimed at management support.
• Non-managers
Non-manages and staff specialists also use the MIS output.
• Persons & organizations in the firm’s environment
Information generated by an organization can be valuable to many different people. Users
outside the company benefit from the MIS as well. They can be customers receiving invoices,
stockholders getting dividend checks, and the federal government checking tax reports.

What are the sources of information?

An organizations information needs are met through gathering information from both internal
and external environment. Internal information can be generated by maintaining and processing
business transactional data and overall organizational data or information. To this end
information system such as TPS & internal database systems play a critical role. While external
information can be generated from the following diverse sources:
 Various publications of the central, state, or local government
 Various publications of international bodies or their subsidiaries or foreign governments
 Technical or trade journals
 Books, magazines and news papers
 Reports and publications of various organizations
 Reports of research scholars in different fields

19
  Public records and statistics, historical documents and other sources of published
information.

In modern days, Internet is used as a base for information retrieval. One can have access to any
kind of information amounting to any quantity through Internet.

2.6. System View

Simply put, a system is an organized collection of parts (or subsystems) that are highly integrated
to accomplish an overall goal. The system has various inputs, which go through certain processes
to produce certain outputs, which together, accomplish the overall desired goal for the system.
So a system is usually made up of many smaller systems, or subsystems. For example, an
organization is made up of many administrative and management functions, products, services,
groups and individuals. If one part of the system is changed, the nature of the overall system is
often changed, as well -- by definition then, the system is systemic, meaning relating to, or
affecting, the entire system. (This is not to be confused with systematic, which can mean merely
that something is methodological. Thus, methodological thinking -- systematic thinking -- does
not necessarily mean systems thinking.)

Systems range from simple to complex. There are numerous types of systems. For example,
there are biological systems (for example, the heart), mechanical systems (for example, a
thermostat), human/mechanical systems (for example, riding a bicycle), ecological systems (for
example, predator/prey) and social systems (for example, groups, supply and demand and also
friendship). Complex systems, such as social systems, are comprised of numerous subsystems, as
well. These subsystems are arranged in hierarchies, and integrated to accomplish the overall goal
of the overall system. Each subsystem has its own boundaries of sorts, and includes various
inputs, processes, outputs and outcomes geared to accomplish an overall goal for the subsystem.
Complex systems usually interact with their environments and are, thus, open systems.

A high-functioning system continually exchanges feedback among its various parts to ensure that
they remain closely aligned and focused on achieving the goal of the system. If any of the parts

20
or activities in the system seems weakened or misaligned, the system makes necessary
adjustments to more effectively achieve its goals.

A pile of sand is not a system. If you remove a sand particle, you have still got a pile of sand.
However, a functioning car is a system. Remove the carburetor and you no longer have a
working car.

Not all systems have the same combination of elements, but a basic configuration is illustrated in
the figure.2.2. below:

Input resources are transformed into output resources. The resources flow from the input
element, through the transformation element, and to the output element. A control mechanism
monitors the transformation process to ensure that the system meets its objectives. The control
mechanism is connected to the resource flow by means of a feedback loop, which obtains
information from the system output and makes it available to the control mechanism. The control
mechanism compares the feedback signals to the objectives and directs signals to the input
element when it is necessary to change the system operation.

Open and Closed Systems

 Open system: Connected to its environment by means of resource flows (e.g., heating
system)
 Closed system: Not connected to its environment. They usually exist in tightly controlled
laboratory systems.

21
What is a subsystem?
A subsystem is simply a system within a system. This means that systems exist on more than
one level and can be composed of subsystems or elemental parts.

What is interface?
An interface is a connection at system or subsystems boundaries. Example two typical business
systems that interface with each other are inventory control and purchasing.

What is a Super System?

When a system is part of a larger system, the larger system is the super system.

Physical and Conceptual Systems

 Physical system: The business firm is a physical system, composed of physical resources
 Conceptual system: It’s a system that uses conceptual resources-information and data-
to represent a physical system.
Example: The Computer is a physical system, but the data and information stored in it

can be viewed as a conceptual system.

The Importance of a System View

A systems view regards business operations as systems embedded within a larger environmental
setting. It’s an abstract way of thinking, but it has potential value to the manager. The systems
view:

– reduces complexity
– requires good objectives
– emphasizes working together
– acknowledges interconnections
– values feedback

Activity B

What would you suggest to make the system more efficient?

……………………………………………………………………………………………… 22
………………………………………………………………………………………………
2.7. A Framework for Information Systems

There is too much data and information in an organization. In order to design a MIS successfully,
we need a framework to structure the information so that the data and information relevant for
decision-making can be separated from rest of the data. For the successful designing of MIS in
business, we should understand well about the type of information required by managers of the
business.

Management can also be seen as structured into three hierarchical levels namely, top level,
middle level and bottom level or strategic, tactical and operational levels, respectively. Although
lines of demarcation are not absolute and clear-cut, one can usually distinguish certain layers
within the organization, which are characterized by, the classical pyramidical type of structures
as shown in Figure 2.1

Figure 2.3: Hierarchy of management

23
Management Levels
Strategic Planning Level
The strategic planning level involves mangers at the top of the organizational hierarchy. The
term strategic indicates the long-term impact of top managers’ decisions on the entire
organization. The term executive is often used to describe a manager on the strategic planning
level.

Management Control Level

Middle-level managers include regional managers, product directors, and division heads. Their
level is called “management control level” due to their responsibility of putting plans into action
and ensuring the accomplishment of goals.

Operational Control Level

Lower level managers are persons responsible for carrying out the plans specified by managers
on upper levels. Their level is called the “operational control level” because this is where the
firm’s operations occur.

Influence of Management Level on Information Source and Form

When designing information systems, it is important to consider the manager’s level. Such levels
can influence both the source of information and how it is presented. Managers on the strategic
level place greater emphasis on environmental information than do managers on the lower levels.
Managers on the operational control level regard internal information as vital. In addition,
strategic planning-level managers prefer information in a summary format, whereas operational
control-level managers prefer detail.

2.8. E-Business

What is E-Business?
Electronic business, or e-business, means using the Internet and the web to perform business
processes. Although the terms e-business and e-commerce are used interchangeably, e-
commerce refers to selling online, while e-business encompasses all business transactions—
marketing, accounting, operations, procurement and supply management. E-business is about
using web technology to enhance your business practices. E-business is not a new concept.

24
Banks have been using electronic fund transfers to move money around the world for decades.
Large businesses have used electronic data interchange to place orders and send invoices since
the 1960s. What is new is the current accessibility of e-business to small businesses due to
reduced costs and simpler set-up.

Why Get Into E-Business?

Like electronic tools developed earlier, including the telephone, fax and calculator, e-
business is simply a tool that can enable you to broaden your customer service approach,
increase productivity and reduce costs. Consider the top five reasons to use e-business in
your organization:
1. Extend your customer base
E-business provides an easy, low-cost mechanism to market and sell your products and
services to customers anywhere. A carefully planned web site and a targeted marketing
strategy can enable you to develop new niche markets, become an instant exporter and
provide product and service information 24 hours a day, 7 days a week.
2. Respond to new customer and competitive demands
A growing number of customers prefer the shopping and communication convenience,
wider product selection (including customized products) and lower costs that e-business
offers. Your competitors may be embracing e-business. Therefore, you may want to
consider e-business to compete effectively.
3. Enhance your productivity
Companies use e-business to be more productive by reducing duplication, improving
communication and streamlining processes. E-mail, for example, facilitates quick, efficient
communication with clients, staff and suppliers. And it’s very inexpensive to set up. You
might also consider setting up a web site to answer frequently asked questions, save money
on printing and paper handling costs and coordinate your supply chain.

4. Lower your procurement and inventory costs

Your e-business activity can help you to buy supplies efficiently. You can research
supplier catalogues online and easily compare product features and prices from many
competing suppliers. E-business can also help you forecast and monitor inventory levels.

25
 Also, you can use e-business to compete on electronic procurement tenders. Many
government tenders are now posted on web sites so businesses can access these
opportunities electronically.
5. Improve your customer service
Many people prefer to research product information, download software updates, pay bills
and check warranty information online—all examples of enhanced customer service. You
can use your web site to gather customer feedback that helps you tailor your products and
services to your customers’ needs.

Web-based business models

The array of business relationships which have emerged in recent times:
1. E-mail and Internet
You can easily get connected to the Internet and set up an e-mail address. E-mail can
enhance your communication with partners, suppliers, and customers in many ways:
A. Marketing
a. Promote products and services to specific client groups and respond to
customer enquiries
b. Bid on tender opportunities
B. Communication
a. Keep partners and business associates informed about projects and
meetings
b. Transfer documents for development, review, or revision
c. Exchange order forms and invoice
d. Send permission-based e-mail such as subscription newsletters
C. Research/intelligence gathering
a. Compare supplier prices and product specifications online
b. Access electronic databases to gain market intelligence
c. Seek advice from similar businesses outside your competitive market
2. Web site

26
Consider creating a web site for your business. Web sites range from very simple online
brochures to very complex electronic storefronts or marketplaces. You can use a web site
to:
a. Promote your products or services
b. Sell products directly to your customers
c. Generate greater awareness of your business
d. Distribute business information to customers and company stakeholders
e. Gather client information and feedback

Figure-2.4: An Electronic Commerce Storefront

27
3. E-Commerce
Once you market your products and services online, the next step is to buy and sell online
either business to business (B2B) or business to consumer (B2C).

i.) Business-to-Business E-Commerce (B2B)

B2B e-commerce is about electronic transactions between companies. For example, B2B
marketplaces enable suppliers to access new customers, track sales more efficiently, reduce
paperwork, and improve order accuracy. Buyers normally register free of charge to
compare products and prices more easily. These marketplaces can also help reduce
purchasing costs. B2B opportunities online account for most e-business examples of B2B
e-commerce and how you can use it:
 Product catalogues, bill payment, order tracking, warranty information, and/or
purchasing tools on a seller’s web site.
 online B2B marketplaces that are focused on a specific industry (e.g., steel,
agriculture, oil and gas) or maintenance, repair, and operations products that are
 Useful across various industries (e.g., tires, cleaning supplies, paper and pens).
 Request for quotation (RFQ) or request for proposal sites (e.g., Alberta Purchasing
Connection, Merx).
 Online project management tools that improve collaboration between companies.

B2B e-commerce can be approached from a sell-side or a buy-side perspective. There are
companies that set up web sites to sell products (sell-side). Conversely, some cities,
governments and large companies set up sites to post tender online (buy-side). Either way,
it is easy to compare prices, set up delivery schedules, purchase products and track
information. Some B2B sites also include auction, collaboration and project management
capabilities. Virtually all goods and services can be sold online.

ii.) Business-to-Consumer E-Commerce (B2C)

B2C e-commerce incorporates businesses selling their products or services to consumers
online. Virtually all goods and services can be sold online. Online retailers, sell more than

28
books, music, collectibles, clothe and consumer electronics online. They also sell financial
products, airline tickets, health information, digital goods and real estate.

E-business has the potential to increase the scope and profits of your business. Used
effectively, you and your staff will be more productive as you serve greater numbers of
customers in a wider marketplace at lower costs. At the same time, effective use of e-
business requires considerable thought and planning combined with a readiness to invest in
technical and human resources to do it right.

29
30
 CHAPTER 3

INFORMATION TECHNOLOGY (IT)

Learning Objectives
After reading this unit, you should be able to:
 Explain how hardware, software, data, people, and procedures are combined to form an
information system
 Identify the main reasons for using IT by organizations.
 Describe the benefits of computer networking and discuss about components communication
technologies.

3.1. Introduction
The technology plays an important role in delivering timely and error free information to its
recipients. Technology includes hardware, software, databases, and communication system.
Hardware is a set of devices such as processor, monitors, keyboard, and printer that accept
data, process them, and display them. Software is a set of programs that enable the hardware
to process data. Database is also an integral part of IT system, which is a collection of
related files, tables, relation etc. that stores data and the association among them. Network
connects computing resources of an organization and facilitates sharing of hardware and
software. The organization processes and people are integral part of an IT System.
Figure.3.1: IT Components/ Resources

31
 3.2. Hardware: Computing, Storing and communicating
3.2.1. Basic Computer Operations
A computer as shown in Figure.3.2 performs basically five major operations or functions. These
are 1) it accepts data or instructions by way of input, 2) it stores data, 3) it can process data as
required by the user, 4) it gives results in the form of output, and 5) it controls all operations
inside a computer. We discuss below each of these operations.
 1. Input: This is the process of entering data and programs in to the computer system. You
should know that computer is an electronic machine like any other machine which takes as
inputs raw data and performs some processing giving out processed data. Therefore, the input
unit takes data from us to the computer in an organized manner for processing.
Figure. 3.2: Basic computer Operations

32
 2. Storage: The process of saving data and instructions permanently is known as storage. Data
has to be fed into the system before the actual processing starts. It is because the processing
speed of Central Processing Unit (CPU) is so fast that the data has to be provided to CPU with
the same speed.
 Therefore the data is first stored in the storage unit for faster access and processing. This
storage unit or the primary storage of the computer system is designed to do the above
functionality. It provides space for storing data and instructions.
 The storage unit performs the following major functions:
 All data and instructions are stored here before and after processing.
 Intermediate results of processing are also stored here.
3. Processing: The task of performing operations like arithmetic and logical operations is called
processing. The Central Processing Unit (CPU) takes data and instructions from the storage unit
and makes all sorts of calculations based on the instructions given and the type of data provided.
It is then sent back to the storage unit

4. Output: This is the process of producing results from the data for getting useful information.
Similarly the output produced by the computer after processing must also be kept somewhere
inside the computer before being given to you in human readable form. Again the output is also
stored inside the computer for further processing.

5. Control: The manner how instructions are executed and the above operations are performed.
Controlling of all operations like input, processing and output are performed by control unit. It
takes care of step by step processing of all operations inside the computer

Central Processing Unit

The ALU and the CU of a computer system are jointly known as the central processing unit. You may call
CPU as the brain of any computer system. It is just like brain that takes all major decisions, makes all
sorts of calculations and directs different parts of the computer functions by activating and controlling the
operations.

 Arithmetic Logical Unit (ALU)

After you enter data through the input device it is stored in the primary storage unit. The actual
processing of the data and instruction are performed by Arithmetic Logical Unit. The major

33
 operations performed by the ALU are addition, subtraction, multiplication, division, logic and
comparison. Data is transferred to ALU from storage unit when required. After processing the
output is returned back to storage unit for further processing or getting stored.

 Control Unit (CU)

The next component of computer is the Control Unit, which acts like the supervisor seeing
that things are done in proper fashion. The control unit determines the sequence in which
computer programs and instructions are executed. Things like processing of programs stored
in the main memory, interpretation of the instructions and issuing of signals for other units of
the computer to execute them. Cu also acts as a switch board operator when several users
access the computer simultaneously. Thereby it coordinates the activities of computer’s
peripheral equipment as they perform the input and output. Therefore it is the manager of all
operations mentioned in the previous section.

 3.2.3. Storage Unit

There are two kinds of computer memory: primary and secondary. Primary memory is
accessible directly by the processing unit. RAM is an example of primary memory. As soon
as the computer is switched off the contents of the primary memory is lost. You can store and
retrieve data much faster with primary memory compared to secondary memory. Secondary
memory such as floppy disks, magnetic disk, etc., is located outside the computer. Primary
memory is more expensive than secondary memory. Because of this the size of primary
memory is less than that of secondary memory. We will discuss about secondary memory
later on.

Primary Memory
 Computer memory is used to store two things:
1) instructions to execute a program and
 ii) data. When the computer is doing any job, the data that have to be processed are stored in
the primary memory. This data may come from an input device like keyboard or from a
secondary storage device like a floppy disk.
 As program or the set of instructions is kept in primary memory, the computer is able to follow
instantly the set of instructions. For example, when you book ticket from railway reservation
counter, the computer has to follow the same steps: take the request, check the availability of

34
 seats, calculate fare, wait for money to be paid, store the reservation and get the ticket printed
out. The program containing these steps is kept in memory of the computer and is followed for
each request.
The primary memory as you know in the computer is in the form of IC’s (Integrated Circuits).
These circuits are called Random Access Memory (RAM). Each of RAM’s locations stores one
byte of information. (One byte is equal to 8 bits). A bit is an acronym for binary digit, which
stands for one binary piece of information. This can be either 0 or 1. You will know more about
RAM later. The Primary or internal storage section is made up of several small storage locations
(ICs) called cells. Each of these cells can store a fixed number of bits called word length.
Each cell has a unique number assigned to it called the address of the cell and it is used to
identify the cells. The address starts at 0 and goes up to (N-1). You should know that the
memory is like a large cabinet containing as many drawers as there are addresses on memory.
Each drawer contains a word and the address is written on outside of the drawer.

Capacity of Primary Memory

You know that each cell of memory contains one character or 1 byte of data. So the capacity is
defined in terms of byte or words. Thus 32 kilobyte (KB) memory is capable of storing 32
kilobyte = 32,768 bytes. (1 kilobyte is 1024 bytes). A memory size ranges from few kilobytes in
small systems to several thousand kilobytes in large mainframe and super computer. In your
personal computer you will find memory capacity in the range of 64 KB, 4 MB, 8 MB and even 16
MB (MB = Million bytes).

The following terms related to memory of a computer are discussed below:

1. Random Access Memory (RAM): The primary storage is referred to as random access
memory (RAM) because it is possible to randomly select and use any location of the
memory directly store and retrieve data. It takes same time to any address of the memory as
the first address. It is also called read/write memory. The storage of data and instructions
inside the primary storage is temporary. It disappears from RAM as soon as the power to the
computer is switched off. The memories, which loose their content on failure of power
supply, are known as volatile memories .So now we can say that RAM is volatile memory.

2. Read Only Memory (ROM): There is another memory in computer, which is called Read
Only Memory (ROM). Again it is the ICs inside the PC that form the ROM. The storage of
program and data in the ROM is permanent. The ROM stores some standard processing

35
 programs supplied by the manufacturers to operate the personal computer. The ROM can
only be read by the CPU but it cannot be changed. The basic input/output program is stored
in the ROM that examines and initializes various equipment attached to the PC when the
switch is made ON. The memories, which do not loose their content on failure of power
supply, are known as non-volatile memories. ROM is non-volatile memory.
3. PROM There is another type of primary memory in computer, which is called Programmable
Read Only Memory (PROM). You know that it is not possible to modify or erase programs
stored in ROM, but it is possible for you to store your program in PROM chip. Once the
programs are written it cannot be changed and remain intact even if power is switched off.
Therefore programs or instructions written in PROM or ROM cannot be erased or changed.
4. EPROM: This stands for Erasable Programmable Read Only Memory, which over come the
problem of PROM & ROM. EPROM chip can be programmed time and again by erasing the
information stored earlier in it. Information stored in EPROM exposing the chip for some
time ultraviolet light and it erases chip is reprogrammed using a special programming
facility.
5. Cache Memory: The speed of CPU is extremely high compared to the access time of main
memory. Therefore the performance of CPU decreases due to the slow speed of main
memory. To decrease the mismatch in operating speed, a small memory chip is attached
between CPU and Main memory whose access time is very close to the processing speed of
CPU. It is called CACHE memory. CACHE memories are accessed much faster than
conventional RAM. It is used to store programs or data currently being executed or
temporary data frequently used by the CPU. So each memory makes main memory to be
faster and larger than it really is. It is also very expensive to have bigger size of cache
memory and its size is normally kept small.
6. Registers: The CPU processes data and instructions with high speed, there is also movement
of data between various units of computer. It is necessary to transfer the processed data with
high speed. So the computer uses a number of special memory units called registers. They
are not part of the main memory but they store data or information temporarily and pass it
on as directed by the control unit.
 Secondary memory

36
 You are now clear that the operating speed of primary memory or main memory should be as
fast as possible to cope up with the CPU speed. These high-speed storage devices are very
expensive and hence the cost per bit of storage is also very high. Again the storage capacity of
the main memory is also very limited. Often it is necessary to store hundreds of millions of bytes
of data for the CPU to process. Therefore additional memory is required in all the computer
systems. This memory is called auxiliary memory or secondary storage. Most widely used
secondary storage devices are magnetic tapes and magnetic disk.
 Magnetic Tape: Magnetic tapes are used for large computers like mainframe computers where
large volume of data is stored for a longer time. In PC also you can use tapes in the form of
cassettes. The cost of storing data in tapes is inexpensive. Tapes consist of magnetic materials
that store data permanently. It can be 12.5 mm to 25 mm wide plastic film-type and 500 meter
to 1200 meter long which is coated with magnetic material. The deck is connected to the central
processor and information is fed into or read from the tape through the processor. It is similar
to cassette tape recorder.

Advantages of Magnetic Tape:

 Compact: A 10-inch diameter reel of tape is 2400 feet long and is able to hold 800, 1600 or 6250
characters in each inch of its length. The maximum capacity of such tape is 180 million
characters. Thus data are stored much more compactly on tape.
 Economical: The cost of storing characters is very less as compared to other storage devices.
 Fast: Copying of data is easier and fast.
 Long term Storage and Re-usability: Magnetic tapes can be used for long term storage and a
tape can be used repeatedly without loss of data.
 Magnetic Disk: You might have seen the gramophone record, which is circular like a
disk and coated with magnetic material. Magnetic disks used in computer are made on
the same principle. It rotates with very high speed inside the computer drive. Data is
stored on both the surface of the disk. Magnetic disks are most popular for direct access
storage device.

 Each disk consists of a number of invisible concentric circles called tracks. Information
is recorded on tracks of a disk surface in the form of tiny magnetic spots. The presence of
a magnetic spot represents one bit and its absence represents zero bit.

37
  The information stored in a disk can be read many times without affecting the stored data.
So the reading operation is non-destructive. But if you want to write a new data, then the
existing data is erased from the disk and new data is recorded.

 Floppy Disk: It is similar to magnetic disk discussed above. They are 5.25 inch or 3.5
inch in diameter. They come in single or double density and recorded on one or both
surface of the diskette. The capacity of a 5.25-inch floppy is 1.2 mega bytes whereas for
3.5 inch floppy it is 1.44 mega bytes. It is cheaper than any other storage devices and is
portable. The floppy is a low cost device particularly suitable for personal computer
system.

 Optical Disk: With every new application and software there is greater demand for
memory capacity. It is the necessity to store large volume of data that has led to the
development of optical disk storage medium.

Optical disks can be divided into the following categories:

 Compact Disk/ Read Only Memory (CD-ROM): CD-ROM disks are made of reflective
metals. CD-ROM is written during the process of manufacturing by high power laser
beam. Here the storage density is very high, storage cost is very low and access time is
relatively fast. Each disk is approximately 4 1/2 inches in diameter and can hold over 600
MB of data. As the CD-ROM can be read only we cannot write or make changes into the
data contained in it.

 Write Once, Read Many (WORM): The inconvenience that we can not write any thing in
to a CD-ROM is avoided in WORM. A WORM allows the user to write data permanently
on to the disk. Once the data is written it can never be erased without physically
damaging the disk. Here data can be recorded from keyboard, video scanner, OCR
equipment and other devices. The advantage of WORM is that it can store vast amount of
data amounting to gigabytes (109 bytes). Any document in a WORM can be accessed
very fast, say less than 30 seconds.

 Erasable Optical Disk: These are optical disks where data can be written, erased and re-written.
This also applies a laser beam to write and re-write the data. These disks may be used as

38
 alternatives to traditional disks. Erasable optical disks are based on a technology known as
magnetic optical (MO). To write a data bit on to the erasable optical disk the MO drive's laser
beam heats a tiny, precisely defined point on the disk's surface and magnetizes it.

3.2.4. Input Output Devices

 A computer is only useful when it is able to communicate with the external environment. When
you work with the computer you feed your data and instructions through some devices to the
computer. These devices are called Input devices. Similarly computer after processing gives
output through other devices called output devices.
 For a particular application one form of device is more desirable compared to others. We will
discuss various types of I/O devices that are used for different types of applications. They are
also known as peripheral devices because they surround the CPU and make a communication
between computer and the outer world.

 Input Devices

Input devices are necessary to convert our information or data in to a form which can be
understood by the computer. A good input device should provide timely, accurate and useful data
to the main memory of the computer for processing followings are the most useful input devices

1. Keyboard: - This is the standard input device attached to all computers. The layout of
keyboard is just like the traditional typewriter of the type QWERTY. It also contains some
extra command keys and function keys. It contains a total of 101 to 104 keys. A typical
keyboard used in a computer is shown in Figure. 3.4. You have to press correct combination
of keys to input data. The computer can recognize the electrical signals corresponding to the
correct key combination and processing is done accordingly.

2. Mouse: - Mouse is an input device shown in Figure. 3.4 that is used with your personal
computer. It rolls on a small ball and has two or three buttons on the top. When you roll the
mouse across a flat surface the screen censors the mouse in the direction of mouse
movement. The cursor moves very fast with mouse giving you more freedom to work in any
direction. It is easier and faster to move through a mouse.
 Figure. 3.4: Keyboard & mouse

39
3. Scanner: The keyboard can input only text through keys provided in it. If we want to input a
picture the keyboard cannot do that. Scanner is an optical device that can input any graphical
matter and display it back. The common optical scanner devices are Magnetic Ink Character
Recognition (MICR), Optical Mark Reader (OMR) and Optical Character Reader (OCR).
Magnetic Ink Character Recognition (MICR): - This is widely used by banks to process large
volumes of cheques and drafts. Cheques are put inside the MICR. As they enter the reading unit
the cheques pass through the magnetic field which causes the read head to recognize the
character of the cheques.

Optical Mark Reader (OMR): This technique is used when students have appeared in objective
type tests and they had to mark their answer by darkening a square or circular space by pencil.

These answer sheets are directly fed to a computer for grading where OMR is used.

Optical Character Recognition (OCR): - This technique unites the direct reading of any
printed character. Suppose you have a set of hand written characters on a piece of paper. You put
it inside the scanner of the computer. This pattern is compared with a site of patterns stored
inside the computer. Whichever pattern is matched is called a character read. Patterns that cannot
be identified are rejected. OCRs are expensive though better the MICR .

Output Devices

1. Visual Display Unit: The most popular input/output device is the Visual Display Unit (VDU).
It is also called the monitor. A Keyboard is used to input data and Monitor is used to display
the input data and to receive massages from the computer. A monitor has its own box which
is separated from the main computer system and is connected to the computer by cable. In
some systems it is compact with the system unit. It can be color or monochrome.

40
2. Terminals: It is a very popular interactive input-output unit. It can be divided into two types:
hard copy terminals and soft copy terminals. A hard copy terminal provides a printout on
paper whereas soft copy terminals provide visual copy on monitor. A terminal when
connected to a CPU sends instructions directly to the computer. Terminals are also classified
as dumb terminals or intelligent terminals depending upon the work situation.
3. Printer: It is an important output device which can be used to get a printed copy of the
processed text or result on paper. There are different types of printers that are designed for
different types of applications. Depending on their speed and approach of printing, printers
are classified as impact and non-impact printers. Impact printers use the familiar typewriter
approach of hammering a typeface against the paper and inked ribbon. Dot-matrix printers
are of this type. Non-impact printers do not hit or impact a ribbon to print. They use electro-
static chemicals and ink-jet technologies. Laser printers and Ink-jet printers are of this type.
This type of printers can produce color printing and elaborate graphics.

3.3. Programs: In Charge of the Hardware

 What Is Software?
As you know, computer cannot do anything without instructions from the user. In order to do
any specific job you have to give a sequence of instructions to the computer. This set of
instructions is called a computer program. Software refers to the set of computer programs,
procedures that describe the programs, how they are to be used. We can say that it is the
collection of programs, which increase the capabilities of the hardware. Software guides the
computer at every step where to start and stop during a particular job. The process of software
development is called programming.
 You should keep in mind that software and hardware are complementary to each other. Both
have to work together to produce meaningful result. Another important point you should know
that producing software is difficult and expensive.

Computer software is normally classified into two broad categories.

 Application Software

 System software

1. Application Software: Application Software is a set of programs to carry out operations for a
specific application. For example, payroll is an application software for an organization to
produce pay slips as an output. Application software is useful for word processing, billing

41
 system, accounting, producing statistical report, analysis of numerous data in research, weather
forecasting, etc. In later modules you will learn about MS WORD, Lotus 1-2-3 and dBASE III Plus.
All these are application software. Another example of application software is programming
language. Among the programming languages COBOL (Common Business Oriented Language) is
more suitable for business application whereas FORTRAN (Formula Translation) is useful for
scientific application.
2. System Software: You know that an instruction is a set of programs that has to be fed to the
computer for operation of computer system as a whole. When you switch on the computer the
programs written in ROM is executed which activates different units of your computer and
makes it ready for you to work on it. This set of program can be called system software.
Therefore system software may be defined as a set of one or more programs designed to
control the operation of computer system.
System software are general programs designed for performing tasks such as controlling all
operations required to move data into and out of the computer. It communicates with printers,
card reader, disk, tapes etc. monitor the use of various hardware like memory, CPU etc. Also
system software are essential for the development of applications software. System Software
allows application packages to be run on the computer with less time and effort. Remember that

it is not possible to run application software without system software .

 Development of system software is a complex task and it requires extensive

knowledge of computer technology. Due to its complexity it is not developed in
house. Computer manufactures build and supply this system software with the
computer system. DOS, UNIX and WINDOWS are some of the widely used system
software. Out of these UNIX is a multi-user operating system whereas DOS and
WINDOWS are PC-based.
 So without system software it is impossible to operate your computer. The
following picture is shown in Figure. 3.6. Relation between hardware, software
and you as a user of computer system.

3.4. People: The Most Important Element

42
The effectiveness of an IT infrastructure is a function of the type of IT personnel available to it.
In fact, best of computer hardware, software and data may be spoiled and may cause havoc if
human resources are not competent, honest or reliable. Qualities like competence, honesty and
reliability are critical to any work environment.

People resources include IS specialists and end users.

 IS Specialists – systems analysts, programmers, computer operators etc.
 End users – anyone else who uses information systems.

Information System Specialists

Those are the ones who have full-time responsibility for developing and maintaining
computer based systems. There are five categories of information specialists:
 System analysts work with users to define the requirements for developing new systems and
improving existing ones.
 Database administrator’s work with users and system analysts to create databases that contain
the data needed to produce the user’s information.
 Network specialists work with system analysts and users to establish the data communication
networks that tie together widespread computing resources.
 Programmers use the documentation prepared by the systems analysts to encode the
instructions that cause the computer to transform the data into information needed by the user.
 Operators handle the large-scale computing equipment such as mainframe computers and mini-
computers.

3.5. Procedures: The Way It Goes

The procedures play an important role in a smooth and effective utilization of information
resource. They also protect the information resource and maintain its quality. Thus the
procedures as element of information system refer to the instructions to users regarding the use
of IT infrastructure for normal day to day activity and also for handling special situations such as
system failure and crushes. They include user access permissions and disaster recovery
procedures as well.

Examples of procedures:

43
 1. User instructions (for users of the application to record data, employ a terminal to enter or
retrieve data, or use the result.)
2. Instruction for preparation of input by data preparation personnel.
3. Operating instructions for computer operations personnel.

3.6. Information: The Reasons for Using Information Technology

 No matter how they may be classified, information systems have the following business values
in an organization by supporting business operations, decision-making, and strategic
management:
 Support of business operations.
 Support of managerial decision-making.
Support of strategic competitive advantage
 Let’s take a retail store as an example to illustrate this importance.
As a consumer, you have to deal regularly with information systems used to support business
operations at the many retail stores where you shop. For example, most department stores use
computer-based information systems to help them record customer purchases, keep track of
inventory, pay employees, buy new merchandise, and evaluate sales trends. Store operations
would grind to a halt without the support of such information systems

Information systems also help store managers make better decisions and attempt to gain a
strategic competitive advantage. For example, decisions on what lines of clothing or
appliances need to be added or discontinued, or what kind of investments they require, are
typically made after an analysis provided by computer-based information systems.
 This not only supports the decision making of store managers but also helps them look for ways
to gain an advantage over other retailers in the competition for customers.

 For example, store managers might make a decision to invest in a computerized touch-
screen catalog ordering system as a strategic information system. This might attract
customers away from other stores, based on the ease of ordering merchandise provided
by such a computer-based information system. Thus, strategic information helps provide
strategic products and services that given an organization a comparative advantage over

its competitors.

Business values of IT

44
The impact of IT on a business has been tremendous. One of the advantages of IT systems for a
business is the cost-performance ratio, which is better in case of computers. The labor cost
increases every year but the cost of computer does not increase. A better and more powerful
computer can be bought for the same price after a year. It is better to use computers for routine
jobs as far as possible. The IT has been used in every business and for every function of a
business. Some of the applications are as follows.

Finance and Accounting: IT has been used for forecasting revenues, determining the best
sources and uses of funds and managing cash and other financial resources. IT has also been used
to analyze investments and perform audits.

Sales and Marketing: IT has been used to develop new services, which may not exist without
IT. IT has helped management of various organizations to determine the best location for
production and distribution facilities. The operational data has been analyzed using IT to
determine the best advertising and sales approaches. The product prices have been set using IT to
get the highest total revenues. In other words, IT has been used for product analysis and price
analysis.

Manufacturing: IT has been extensively used for processing customer orders, controlling
inventory levels, developing production schedules and for monitoring product quality. A whole
new discipline— Computer Aided Design and Computer Aided Manufacturing has evolved due
to application of IT to design and manufacturing. The manufacturing is not what is used to be
due to the use of computers, Computer Integrated Manufacturing (CIM) dominates the
manufacturing sector.

Human Resource Management: Companies are using IT systems for screening applicants and
conducting various tests.

Project Management: A range of software packages are available in the market for managing
projects. These software products let the management set the schedules, milestones, facilitate
communication among group members, and monitor the project progress. These products help in
document and report preparation.

Data Analysis: Investment firms heavily use information systems to analyze stocks, bonds and
options to provide better service to their clients.

45
Global IT Applications

The search for systems economies was usually the initial driving force for global IT applications
in many firms. For instance, an engineering firm wished to use a common engineering database
to share project work between its U.S. and Asian offices. In addition to anticipated variations in
engineering codes and relative costs of materials, management soon discovered that the Asian
project requirements demanded far more detailed specifications for contractors than had
traditionally been required of their U.S. office. Except for the economies of scale for systems,
other divers were also to be considered. The following are the implications of some other
common drivers for the global IT.

Global customer -Firms that serve traveling customers (airlines, hotels etc.) find it necessary to
have worldwide customer databases. Corporate customers with global operations that more and
more are demanding integrated worldwide services are increasingly imposing a similar
requirement.

Global product -The product is either the same through the world (e.g., Coco Cola) or is
assembled from subsidiaries through the world (e.g., security), currency exchange etc.) .
Information systems can provide the ability to manage worldwide marketing programs.

 Rationalized operation - Different subsidiaries build different parts of the same product based
on availability of skills, raw materials, or favorable business climate. For example, a computer
manufacturer might build software in Japan, monitors in China, and circuit boards in Cincinnati
and the U.S. MIS is used to coordinate the operations.
 Flexible operations - Operations al-e moved from a plant in one country to a plant in another.
Fort in stance, a computer vendor moves production of personal computers between plants in
respond to labor strife or raw material shortages. Common systems exist across plants, which
facilitates the move.
 Joint resource - National subsidiaries may share certain facilities or people. For instance,
the Chinese subsidiaries for a petroleum company jointly own tankers or storage tanks. A
material resource system is implemented to track the location of joint resource.

 Risk reduction - Risks associated with currency conversions, multiple global markets,
and multiple traders are alleviated. For instance, a petroleum company develops a global

46
 system for bidding on crude oil contracts, or a multinational bank implements a global
risk management system for currency trading.

 Legal requirements - Information requirements mandated by laws in one or more

countries are consolidated. For instance, financial or environmental regulations imposed
on a subsidiary may necessitate corporate-wide information requirements if the
subsidiary intends to sell or use products manufactured elsewhere.

Global Information Technology

Global Information Technology spending is expected to grow rapidly during the next five
years. Because of the magnitude of this investment in the world market, many organizations will
be forced to evolve into global corporations all over the world. The managers that will view these
rapid changes in the global market as an opportunity rather than a burden will have considerable
payoffs. Strategically placed investments in global information technology will provide an
opportunity to increase control and enhance coordination to their organization while opening
access to the new global market.

Information Technology can provide competitive advantage through product differentiation,

unique services, cost reductions, and informed market segmentation. In addition, productivity is
improved through gains in both data processing and workflow processing procedures. Together
automation applications can be evaluated relative to enhanced profitability. Using these three
‘common sense’ benchmarks provides a beyond best practices approach to the evaluation of
information technology usage.

3.7. Communication Technologies

3.7.1. Data Communication
We all are acquainted with some sorts of communication in our day to day life. For
communication of information and messages we use telephone and postal communication
systems. Similarly data and information from one computer system can be transmitted to other
systems across geographical areas. Thus data transmission is the movement of information
using some standard methods. These methods include electrical signals carried along a

conductor, optical signals along an optical fibers and electromagnetic areas.

47
  Suppose a manager has to write several letters to various clients. First he has to use his PC and
Word Processing package to prepare his letter. If the PC is connected to the entire client's PCs
through networking, he can send the letters to all the clients within minutes. Thus irrespective
of geographical areas, if PCs are connected through communication channel, the data and
information, computer files and any other program can be transmitted to other computer
systems within seconds. The modern form of communication like e-mail and Internet is possible
only because of computer networking.

Basic Elements of a Communication System

The following are the basic requirements for working of a communication system.
1. A sender (source) which creates the message to be transmitted.
2. A medium that carries the message.
3. A receiver (sink) which receives the message.

In data communication four basic terms are frequently used. They are
 Data: A collection of facts in raw forms that become information after processing.
 Signals: Electric or electromagnetic encoding of data.
 Signaling: Propagation of signals across a communication medium.
 Transmission: Communication of data achieved by the processing of signals.
Communication Protocols

You may be wondering how do the computers send and receive data across communication
links. The answer is data communication software. It is this software that enables us to
communicate with other systems. The data communication software instructs computer systems
and devices as to how exactly data is to be transferred from one place to another. The procedure
of data transformation in the form of software is commonly called protocol.

 The data transmission software or protocols perform the following functions for the efficient
and error free transmission of data.
 Data sequencing: A long message to be transmitted is broken into smaller packets of fixed size
for error free data transmission.
 Data Routing: It is the process of finding the most efficient route between source and
destination before sending the data.

48
 Flow control: All machines are not equally efficient in terms of speed. Hence the flow control
regulates the process of sending data between fast sender and slow receiver.
 Error Control: Error detecting and recovering is the one of the main function of communication
software. It ensures that data are transmitted without any error.
 Data Transmission Modes

 There are three ways for transmitting data from one point to another
 Simplex: In simplex mode the communication can take place in one direction. The receiver
receives the signal from the transmitting device. In this mode the flow of information is Uni.-
directional. Hence it is rarely used for data communication.
 Half-duplex: In half-duplex mode the communication channel is used in both directions, but only
in one direction at a time. Thus a half-duplex line can alternately send and receive data.
 Full-duplex: In full duplex the communication channel is used in both directions at the same
time. Use of full-duplex line improves the efficiency as the line turn-around time required in
half-duplex arrangement is eliminated. Example of this mode of transmission is the telephone
line.
Figure.3.7. Data Transmission Modes

 Digital and Analog Transmission

49
 Data is transmitted from one point to another point by means of electrical signals that may be in
digital and analog form. So you should know the fundamental difference between analog and
digital signals. In analog signal the transmission power varies over a continuous range with
respect to sound, light and radio waves. On the other hand a digital signal may assume only
discrete set of values within a given range.
 Examples are computer and computer related equipment. Analog signal is measured in Volts
and its frequency in Hertz (Hz). A digital signal is a sequence of voltage represented in binary
form. When digital data are to be sent over an analog form the digital signal must be converted
to analog form. So the technique by which a digital signal is converted to analog form is known
as modulation. And the reverse process, that is the conversion of analog signal to its digital
form, is known as demodulation. The device, which converts digital signal into analog, and the
reverse, is known as modem.

Figgure.3.8: Analog Signal & Digital Signal

50
 Asynchronous and Synchronous Transmission
Data transmission through a medium can be either asynchronous or synchronous. In
asynchronous transmission data is transmitted character by character as you go on typing on a
keyboard. Hence there is irregular gaps between characters. However, it is cheaper to
implement, as you do not have to save the data before sending. On the other hand, in the
synchronous mode, the saved data is transmitted block by block. Each block can contain many
characters. Synchronous transmission is well suited for remote communication between a
computer and related devices like card reader and printers.

 Following are the major communication devices/media used to establish network

today:
 Wire Pairs: Wire pairs are commonly used in local telephone communication and for short
distance digital data communication. They are usually made up of copper and the pair of wires is

51
 twisted together. Data transmission speed is normally 9600 bits per second in a distance of 100
meter.
 Coaxial Cables: Coaxial cable is groups of specially wrapped and insulted wires that are able to
transfer data at higher rate. They consist of a central copper wire surrounded by an insulation
over which copper mesh is placed. They are used for long distance telephone lines and local
area network for their noise immunity and faster data transfer.
 3. Fiber optics: A strand of fiber-optic cable reflects the light that passes through it back
into the fiber, so light cannot escape the strand. Fiber-optic cables carry more
information, suffer less interference, and require fewer signal repeaters over long
distances than wires. It also immune to the effects of moisture and lighting. Fiber optic
cable has the ability to transmit signals over much longer distances than coaxial and
twisted pair. It also has the capacity to carry information at greater speeds; however, it is
more difficult to install and modify.

Figure. 3.9 : Wire Pairs, Coaxial Cables, & Fiber Optics

 Microwave: Microwave system uses very high frequency radio signals to transmit data through
space. The transmitter and receiver of a microwave system should be in line-of-sight because

52
 the radio signal cannot bend. With microwave very long distance transmission is not possible. In
order to overcome the problem of line of sight and power amplification of weak signal,
repeaters are used at intervals of 25 to 30 kilometers between the transmitting and receiving
end.
 Communication Satellite: The problem of line-sight and repeaters are overcome by
using satellites which are the most widely used data transmission media in modern days.
A communication satellite is a microwave relay station placed in outer space. INSAT-1B
is such a satellite that can be accessible from anywhere in India. In satellite
communication, microwave signal is transmitted from a transmitter on earth to the
satellite at space. The satellite amplifies the weak signal and transmits it back to the
receiver. The main advantage of satellite communication is that it is a single microwave
relay station visible from any point of a very large area. In microwave the data
transmission rate is 16 giga bits per second. They are mostly used to link big metropolitan
cities.

3.7.2. Computer Network

 A computer network is an interconnection of various computer systems located at different
places. In computer network two or more computers are linked together with a medium and
data communication devices for the purpose of communicating data and sharing resources. The
computer that provides resources to other computers on a network is known as server. In the
network the individual computers, which access shared network resources, are known as
workstations or nodes.
 Some of the advantages of networks are:
 Resource Sharing- it is to make programs, files, equipment, and data available to anyone on the
network without regard to physical location of the source and the user.
 Provide High Reliability- by having alternative sources of supply, it supports the critical function
of backup. In the event a computer fails, its counterpart can assume its functions and workload.
 Cost Minimizing- by using small personal computers and file servers, we replace early expensive
mainframes. In addition, we can share many software programs rather than buying individual
copies, and also we can update the software through the network.

53
 Flexible Working Environment- employees can work at home by networking computers to their
office, on trips through their portable computers, travel to remote offices and use telephones
and networks to perform their duties.
 Computer Networks may be classified on the basis of geographical area in three broad
categories.
 Local Area Network (LAN)
 Metropolitan Area Networks(MANs)
 Wide Area Network (WAN)

 Local Area Network (LAN): Networks used to interconnect computers in a single room,
rooms within a building or buildings on one site are called Local Area Network (LAN).
6
LAN transmits data with a speed of several megabits per second (10 bits per second).
The transmission medium is normally coaxial cables.
 LAN links computers, i.e., software and hardware, in the same area for the purpose of
sharing information. Usually LAN links computers within a limited geographical area
because they must be connected by a cable, which is quite expensive. People working in
LAN get more capabilities in data processing, work processing and other information
exchange compared to stand-alone computers. Because of this information exchange
most of the business and government organizations are using LAN.

3. Metropolitan Area Networks (MANs): are bigger versions of a LAN and normally uses similar
technology. It might cover a group of nearby corporate offices or a city and might be either
private or public. Cable television network is a good example of MAN. The key aspect of MAN is
that there is broadcast medium (two cables) to which all the computers are attached, which
simplifies its design compared to other kinds of networks
4. Wide Area Network (WAN): The term Wide Area Network (WAN) is used to describe a
computer network spanning a regional, national or global area. For example, for a large
company the head quarters might be at Delhi and regional branches at Bombay, Madras,
Bangalore and Calcutta. Here regional centers are connected to head quarters through WAN.
The distance between computers connected to WAN is larger. Therefore the transmission
mediums used are normally telephone lines, microwaves and satellite links.
5. Some Examples of WAN

54
6. Ethernet: Ethernet developed by Xerox Corporation is a famous example of WAN. This
network uses coaxial cables for data transmission. Special integrated circuit chips called
controllers are used to connect equipment to the cable.

7. Arpanet: The Arpanet is another example of WAN. It was developed at Advanced

Research Projects Agency of U. S. Department. This Network connects more than 40
universities and institutions throughout USA and Europe.

Network Topology
The term topology in the context of communication network refers to the way the computers or
workstations in the network are linked together. According to the physical arrangements of
workstations and nature of work, there are three major types of network topology. They are
star topology, bus topology and ring topology.

1. Star topology: In star topology a number of workstations (or nodes) are directly linked to
a central node (see, Figure. 3.10). Any communication between stations on a star LAN
must pass through the central node. There is bi-directional communication between
various nodes. The central node controls all the activities of the nodes. The advantages of
the star topology are:
 It offers flexibility of adding or deleting of workstations from the network.
 Breakdown of one station does not affect any other device on the network.

a. The major disadvantage of star topology is that failure of the central node disables
communication throughout the whole network.

55
 Figure. 3.10: Star Topology

2. Bus Topology: In bus topology all workstations are connected to a single communication line
called bus. In this type of network topology there is no central node as in star topology.
Transmission from any station travels the length of the bus in both directions and can be
received by all workstations. The advantage of the bus topology is that
1. It is quite easy to set up.
2. If one station of the topology fails it does not affect the entire system.
 The disadvantage of bus topology is that any break in the bus is difficult to identify.

56
Figure. 3.11: Bus Topology

3. Ring Topology: In ring topology each station is attached nearby stations on a point to point
basis so that the entire system is in the form of a ring. In this topology data is transmitted in
one direction only. Thus the data packets circulate along the ring in either clockwise or anti-
clockwise direction. The advantage of this topology is that any signal transmitted on the
network passes through all the LAN stations. The disadvantage of ring network is that the
breakdown of any one station on the ring can disable the entire system.
Figure. 3.12: Ring Topology

57
4. Mesh Topology: A mesh topology network offers superior redundancy and reliability. In a
mesh topology, each computer is connected to every other computer by separate cabling.
This configuration provides redundant paths throughout the network so that if one cable
fails, another will take over the traffic. While ease of troubleshooting and increased
reliability are definite pluses, these networks are expensive to install because they use a lot
of cabling. Often, a mesh topology will be used in conjunction with other topologies to form
a hybrid topology.

3.7.3. Internet

 The Internet is a network of networks. Millions of computers all over the world are
connected through the Internet. Computer users on the Internet can contact one another
anywhere in the world. If your computer is connected to the Internet, you can connect to
millions of computers. You can gather information and distribute your data. It is very
much similar to the telephone connection where you can talk with any person anywhere
in the world.
 In Internet a huge resource of information is accessible to people across the world.
Information in every field starting from education, science, health, medicine, history, and
geography to business, news, etc. can be retrieved through Internet. You can also
download programs and software packages from anywhere in the world. Due to the
tremendous information resources the Internet can provide, it is now indispensable to
every organization.
Origin of Internet

In 1969 Department of Defense (DOD) of USA started a network called ARPANET

(Advanced Research Projects Administration Network) with one computer at California and
three at Utah. Later on other universities and R & D institutions were allowed to connect to
the Network. APARNET quickly grew to encompass the entire American continent and
became a huge success. Every university in the country wanted to become a part of
ARPANET. So the network was broken into two smaller parts MILNET for managing
military sites and ARPANET (smaller) for managing non-military sites. Around 1980,
NSFNET (National Science Foundation Network) was created. With the advancement of
modern communication facilities, other computers were also allowed to be linked up with

58
any computer of NSFNET. By 1990 many computers were looking up to NSFNET giving
birth to Internet.
How Internet functions
 Internet is not a governmental organization. The ultimate authority of the Internet is the
Internet Society. This is a voluntary membership organization whose purpose is to
promote global information exchange. Internet has more than one million computers
attached to it.
 E-mail stands for electronic mail. This is one of the most widely used features of
Internet. Mails are regularly used today where with the help of postage stamp we can
transfer mails anywhere in the world. With electronic mail the service is similar. But here
data are transmitted through Internet and therefore within minutes the message reaches
the destination may it be anywhere in the world. Therefore the mailing system is
excessively fast and is being used widely for mail transfer.
 Internet Service Provider (ISP), company that sells access to the Internet, allowing
computer users to send electronic mail (e-mail) and browse the World Wide Web
(WWW), among other tasks. In some cases, ISPs sell dial-up access, providing a phone
number that lets users dial into the Internet via a computer modem. In other cases, they
sell broadband access, a much faster connection to the Internet.

 Some broadband services, known as Digital Subscriber Lines (DSL) services, run over
standard telephone lines, while others use cable television lines or wireless connections to
orbiting satellites. Typically, the ISP must visit the user’s home and install the broadband
service on the user’s computer, but some companies offer toolkits that let users install the
service on their own. ISPs typically charge a monthly fee for Internet access, and they
often charge an additional fee for broadband installation.

59
 CHAPTER FOUR

4. COMMON BUSINESS APPLICATION OF INFORMATION TECHNOLOGY

Common business application of information technology is generally grouped in to two. This are
Functional business system application which includes Accounting, finance, marketing, human
resource etc. and cross sectional business system application which includes transaction
processing system. Thus, here, we will discuss these types of common business application of
information technology clearly.

4.1. Functional Business Systems

There are as many ways to use information technology in business as there are business activities
to be performed, business problems to be solved, and business opportunities to be pursued. As a
business professional, managers should have a basic understanding and appreciation of the major
ways information systems are used to support each of the functions of business that must be
accomplished in any company that wants to succeed.
Thus, in this section, we will discuss functional business systems, that is, a variety of types of
information systems such as accounting, finance, marketing, operations management, and human
resource management (O’Brien 2009).

4.1.1 Accounting Systems

Accounting information systems are the oldest and most widely used information systems in
business they record and report business transactions and other economic events. Computer-
based accounting systems record and report the flow of funds through an organization on a
historical basis and produce important financial statements such as balance sheets and income
statements. Such systems also produce forecasts of future conditions such as projected financial
statements and financial budgets. A firm’s financial performance is measured against such
forecasts by other analytical accounting reports (O’Brien & Marakas 2011).
 Operational accounting systems:-emphasize legal and historical record-keeping and the
production of accurate financial statements. Typically, these systems include transaction
processing systems such as order processing, inventory control, accounts receivable,
accounts payable, payroll, and general ledger systems.
60
 Management accounting systems:-focus on the planning and control of business
operations. They emphasize cost accounting reports, the development of financial
budgets and projected financial statements, and analytical reports comparing actual to
forecasted performance.
 Online Accounting Systems: - Using the Internet and other networks changes how
accounting information systems monitor and track business activity. The interactive
nature of online accounting systems calls for new forms of transaction documents,
procedures, and controls. This particularly applies to systems like order processing,
inventory control, accounts receivable, and accounts payable. As outlined in these
systems are directly involved in the processing of transactions between a business and its
customers and suppliers. So naturally, many companies are using Internet and other
network links to these trading partners for such online transaction processing systems

61
FIGURE 4.1 A summary of six essential accounting information systems used in business.

62
4.1.2. Financial Management Systems
Computer-based financial management systems support business managers and professionals in
decisions concerning (1) the financing of a business and (2) the allocation and control of
financial resources within a business. Major financial management system categories include
cash and investment management, capital budgeting, financial forecasting, and financial
planning. For example, the capital budgeting process involves evaluating the profitability and
financial impact of proposed capital expenditures. Long-term expenditure proposals for facilities
and equipment can be analyzed using a variety of return on investment (ROI) evaluation
techniques. This application makes heavy use of spread sheet models that incorporate present
value analysis of expected cash flows and probability analysis of risk to determine the optimum
mix of capital projects for a business (O’Brien & Marakas 2011).
Financial analysts also typically use electronic spreadsheets and other financial planning
software to evaluate the present and projected financial performance of a business. They also
help determine the financing needs of a business and analyze alternative methods of financing.
Financial analysts use financial forecasts concerning the economic situation, business operations,
types of financing available, interest rates, and stock and bond prices to develop an optimal
financing plan for the business. Electronic spreadsheet packages, DSS software, and Web-based
group ware can be used to build and manipulate financial models. Answers to what-if and goal
seeking questions can be explored as financial analysts and managers evaluate their financing
and investment alternatives(Ibid).

63
FIGURE 4.2 Examples of important financial management systems.

4.1.3. Marketing Systems

The business function of marketing is concerned with the planning, promotion, and sale of
existing products in existing markets, and the development of new products and new markets to
better attract and serve present and potential customers. Thus, marketing performs an essential
function in the operation of a business enterprise. Business firms have increasingly turned to
information technology to help them perform vital marketing functions in the face of the rapid
changes of today’s environment.
Marketing department is responsible for marketing research, sales forecasting, management of
the sales staff, advertising and promoting. In some firms they also process orders and manage the
design new product and teachers, all these duties possible use of marketing information system
(V. post and L. Anderson, 2006).

64
Marketing information systems provide information technologies that support major
components of the marketing function. For example, Internet/ intranet Web sites and services
make an interactive marketing process possible where customers can become partners in
creating, marketing, purchasing, and improving products and services. Sales force automation
systems use mobile computing and Internet technologies to automate many information
processing activities for sales support and management. Other marketing information systems
assist marketing managers in product planning, pricing, and other product management
decisions; advertising, sales promotion, and targeted marketing strategies; and market research
and forecasting.(O’Brien 2009).
Let’s take a closer look at three of these marketing applications.

4.1.3.1 Interactive Marketing

The term interactive marketing has been coined to describe a customer-focused marketing
process that is based on using the Internet, intranets, and extranets to establish two-way
transactions between a business and its customers or potential customers.
The goal of interactive marketing is to enable a company to use those networks profitably to
attract and keep customers who will become partners with the business in creating, purchasing,
and improving products and services.
In interactive marketing, customers are not just passive participants who receive media
advertising prior to purchase; they are actively engaged in network-enabledproactive and
interactive processes. Interactive marketing encourages customers to become involved in product
development, delivery, and service issues. This is enabled by various Internet technologies,
including chat and discussion groups, Web forms and questionnaires, instant messaging, and e-
mail correspondence. Finally, the expectedoutcomes of interactive marketing are a rich mixture
of vital marketing data, new product ideas, volume sales, and strong customer relationships
(O’Brien 2009).

4.1.3.1 Targeted Marketing

Targeted marketing has become an important tool in developing advertising and promotion
strategies to strengthen a company’s e-commerce initiatives, as well as its traditional business
venues. Targeted marketing is an advertising and promotion management concept that includes
five targeting components:

65
• Community. Companies can customize their Web advertising messages and promotion
methods to appeal to people in specific communities. They can be communitiesof interest, such
as virtual communities of online sporting enthusiasts, or arts and crafts hobbyists, or geographic
communities formed by the Web sites of a city or other local organization.
• Content. Advertising, such as electronic billboards or banners, can be placed on a variety of
selected Web sites, in addition to a company’s Web site. The content of these messages is aimed
at the targeted audience. An ad for a product campaign on the opening page of an Internet search
engine is a typical example.
• Context. Advertising appears only in Web pages that are relevant to the content of a product or
service. So, advertising is targeted only at people who are already looking for information about
a subject matter (e.g., vacation travel) that is related to a company’s products (e.g., car rental
services).
• Demographic/Psychographic. Web marketing efforts can be aimed only at specific types or
classes of people: for example, unmarried, twenty-something, middle income, male college
graduates.
• Online Behavior. Advertising and promotion efforts can be tailored to each visit to a site by an
individual. This strategy is based on a variety of tracking techniques, such as Web “cookie” files
recorded on the visitor’s disk drive from previous visits. This enables a company to track a
person’s online behavior at its Web site so marketing efforts (such as coupons redeemable at
retail stores or e-commerce Web sites) can be targeted to that individual at each visit to its Web
site (O’Brien 2009).

4.1.3.3. Sales Force Automation

Increasingly, computers and the Internet are providing the basis for sales force automation. In
many companies, the sales force is being outfitted with notebook computers, Web browsers, and
sales contact management software that connect them to marketing Web sites on the Internet,
extranets, and their company intranets. This not only increases the personal productivity of
salespeople, but it dramatically speeds up the capture and analysis of sales data from the field to
marketing managers at company headquarters. In return, it allows marketing and sales
management to improve the delivery of information and the support they provide to their
salespeople. Therefore, many companies are viewing sales force automation as a way to gain a
strategic advantage in sales productivity and marketing responsiveness (O’Brien 2009).

66
FIGURE 4.3 marketing information systems provide information technologies to support major
components of the marketing function

4.1.4. Operation management or Manufacturing Systems

Operational management information systems support the production/operations function that
includes all activities concerned with the planning and control of the processes producing goods
or services. Thus, the production/operations function is concerned with the management of the
operational processes and systems of all business firms. Information systems used for operations
management and transaction processing support all firms that must plan, monitor, and control
inventories, purchases, and the flow of goods and services. Therefore, firms such as
transportation companies, wholesalers, retailers, financial institutions, and service companies
must use production/operations information systems to plan and control their operations. In this
section, we will concentrateon computer-based manufacturing applications to illustrate
information systems that support the production/operations function (O’Brien & Marakas 2011).

4.1.4.1. Computer- Integrated Manufacturing

A variety of manufacturing information systems, many of them Web-enabled, is used to support
computer-integrated manufacturing (CIM). CIM is an overall concept that emphasizes that the
objectives of computer-based systems in manufacturing must be to:

67
• Simplify (reengineer) production processes, product designs, and factory organization as a vital
foundation to automation and integration.
• Automate production processes and the business functions that support them with computers,
machines, and robots.
• Integrate all production and support processes using computer networks, cross functional
business software, and other information technologies.
The overall goal of CIM and such manufacturing information systems is to create flexible, agile,
manufacturing processes that efficiently produce products of the highest quality. Thus, CIM
supports the concepts of flexible manufacturing systems, agile manufacturing, and total quality
management. Implementing such manufacturing concepts enables a company to respond to and
fulfill customer requirements quickly with high-quality products and services(O’Brien &
Marakas 2011).
4.1.4.2. Computer-aided manufacturing(CAM) systems are those that automate the production
process. For example, this could be accomplished by monitoring and controlling the production
process in a factory (manufacturing execution systems) or by directly controlling a physical
process (process control), a machine tool (machine control), or machines with some humanlike
work capabilities (robots).
4.1.4.3. Manufacturing execution systems(MES) are performance-monitoring information
systems for factory floor operations. They monitor, track, and control the five essential
components involved in a production process: materials, equipment, personnel, instructions and
specifications, and production facilities. MES includes shop floor scheduling and control,
machine control, robotics control, and process control systems. These manufacturing systems
monitor, report, and adjust the status and performance of production components to help a
company achieve a flexible, high-quality manufacturing process.
4.1.4.4. Process controlis the use of computers to control an ongoing physical process. Process
control computers control physical processes in petroleum refineries, cement plants, steel mills,
chemical plants, food product manufacturing plants, pulp and paper mills, electric power plants,
and so on. A process control computer system requires the use of special sensing devices that
measure physical phenomena such as temperature or pressure changes. These continuous
physical measurements are converted to digital form by analog-to-digital converters and relayed
to computers for processing.

68
4.1.4.5. Machine controlis the use of computers to control the actions of machines. This is also
popularly called numerical control. The computer-based control of machine tools to manufacture
products of all kinds is a typical numerical control application used by many factories throughout
the world.

4.1.5. Human Resource Systems

An important HRM task on any organization is the need to allocate raises using a merit pay
system, each employee is evaluated on the bases of factors related to his/her job (V. post and L.
Anderson, 2006).

The human resource management (HRM) function involves the recruitment, placement,
evaluation, compensation, and development of the employees of an organization.
The goal of human resource management is the effective and efficient use of the human
resources of a company. Thus, human resource information systems (HRIS) are designed to
support
 planning to meet the personnel needs of the business,
 Development of employees to their full potential and
 Control of all personnel policies and programs.
Originally, businesses used computer-based information systems to (1) produce paychecks and
payroll reports, (2) maintain personnel records, and (3) analyze the use of personnel in business
operations. Many firms have gone beyond these traditional personnel management functions and
have developed human resource information systems that also support:-
 Recruitment, selection, and hiring
 Job placement
 Performance appraisals
 Employee benefits analysis
 Training and development and
 Health, safety, and security

4.1.5.1. HRM and the Internet

The Internet has become a major force for change in human resource management. For example,
online HRM systems may involve recruiting for employees through recruitment sections of
corporate Web sites. Companies are also using commercial recruiting services and databases on

69
the World Wide Web, posting messages in selected Internet newsgroups, and communicating
with job applicants via e-mail. The Internet has a wealth of information and contacts for both
employers and job hunters. Top Web sites for job hunters and employers on the World Wide
Web include Monster.com, HotJobs.com, and CareerBuilder.com And in Ethiopia
Ethiojobs.com. These Web sites are full of reports, statistics, and other useful HRM information,
such as job reports by industry, or listings of the top recruiting markets by industry and
profession (O’Brien & Marakas 2011).

4.1.5.2. HRM and Corporate Intranets

Intranet technologies allow companies to process most common HRM applications over their
corporate intranets. Intranets allow the HRM department to provide around-the-clock services to
their customers: the employees. They can also disseminate valuable information faster than
through previous company channels. Intranets can access and update their personal information,
and enter time-sensitive data. Through this completely electronic process, employees can use
their Web browsers to look up individual payroll and benefits information online, right from
their desktop PCs, mobile computers, or intranet kiosks located around a work site (O’Brien &
Marakas 2011).
Another benefit of the intranet is that it can serve as a superior training tool. Employees can
easily download instructions and processes to get the information or education they need. In
addition, employees using new technology can view training videos over theintranet on demand.
Thus, the intranet eliminates the need to loan out and track training videos. Employees can also
use their corporate intranets to produce automated pay sheets, the online alternative to time
cards. These electronic forms have made viewing, entering, and adjusting payroll information
easy for both employees and HRM professionals.

70
FIGURE 4.4 Human resource information systems support the strategic, tactical, and
operational use of the human resources of an organization.

4.2. Cross- Functional Enterprise Applications

Many companies today are using information technology to develop integrated cross functional
enterprise systemsthat cross the boundaries of traditional business functionsin order to reengineer
and improve vital business processes all across the enterprise. (O’Brien & Marakas 2011).
These organizations view cross-functional enterprise systems as a strategic way to use IT to
share information resources and improve the efficiency and effectiveness of business processes,
and develop strategic relationships with customers, suppliers, and business partners.

71
FIGURE 4.5 The new product development process in a manufacturing company. This is an
example of a business process that must be supported by cross-functional systems that cross the
boundaries of several business functions.

4.2.1. Transaction Processing Systems

Transaction processing systems (TPS) are cross-functional information systems that process
data resulting from the occurrence of business transactions.
It is the main system serving the operational level of the organization. It records all of the daily
routine transaction that takes place within the organization and it used primarily by client and
operation staff that either input or maintain the data on the system. The recording of individual
sales is necessary for the production of and as a base for company’s accounts.(Mesfin Fikre
2008)

Many of the decision made are automatic and can be delegated to a computer. The stock re
ordering process, for example will be triggered when stock level below the re order level. These
tasks are routine but are made more efficient and cost effective by the use of computers, once
data has been put on computer. It can easily be manipulated and used to produce additional
information (Ibid).

TPS are special class of system designed to process business event and transaction.
Consequently TPS often reside close to customers, at the operational level of the organization (L.
Jussep and J. valacich, 2004).

72
The goal of TPS is to automate repetitive information processing activities within organization to
increases speed and accuracy and to lower the cost of processing each transaction. That is to
make the organization more effective (Ibid).

Transactions are events that occur as part of doing business, such as sales, purchases, deposits,
withdrawals, refunds, and payments. Think, for example, of the data generated whenever a
business sells something to a customer on credit, whether in a retail store or at an e-commerce
site on the Web. Data about the customer, product, salesperson, store, and so on, must be
captured and processed. This need prompts additional transactions, such as credit checks,
customer billing, inventory changes, and increases in accounts receivable balances, which
generate even more data. Thus, transaction processing activities are needed to capture and
process such data, or the operations ofa business would grind to a halt. Therefore, transaction
processing systems play a vitalrole in supporting the operations of most companies today.
Example of TPS;

 Transaction processing system can be found in almost all section of organization

example:-
o Sales or marketing system.
o Manipulating and production system
o Human resource management
o Finance or accounting system

4.2.1.1. Online transaction processing systems

Online transaction processing systemsplay a strategic role in Web-enabled businesses. Many
firms are using the Internet and other networks that tie them electronically to their customers or
suppliers for online transaction processing (OLTP). Such real-time systems, which capture and
process transactions immediately, can help firms provide superior service to customers and other
trading partners. This capability adds value to their products and services, and thus gives them an
important way to differentiate themselves from their competitors (O’Brien 2009).

4.2.1.2. The Transaction Processing Cycle

Transaction processing systems capture and process data describing business transactions, update
organizational databases, and produce a variety of information products (Ibid).

73
• Data Entry. The first step of the transaction processing cycle is the capture of business data.
For example, transaction data may be collected by point-of-sale terminals using optical scanning
of bar codes and credit card readers at a retail store or other business. Transaction data can also
be captured at an e-commerce Web site on the Internet. The proper recording and editing of data
so they are quickly and correctly captured for processing is one of the major design challenges of
information systems
• Transaction Processing. Transaction processing systems process data in two basic ways: (1)
batch processing , where transaction data are accumulated over a period of time and processed
periodically, and (2) real-time processing (also called online processing), where data are
processed immediately after a transaction occurs.
All online transaction processing systems incorporate real-time processing capabilities. Many
online systems also depend on the capabilities of fault tolerant computer systems that can
continue to operate even if parts of the system fail.
• Database Maintenance. An organization’s databases must be updated by its transaction
processing systems so that they are always correct and up-to-date.
Therefore, transaction processing systems serve to assist in maintaining the corporate databases
of an organization to reflect changes resulting from day-to-day business transactions. For
example, credit sales made to customers will cause customer account balances to be increased
and the amount of inventory on hand to be decreased. Database maintenance ensures that these
and other changes are reflected in the data records stored in the company’s databases.
• Document and Report Generation. Transaction processing systems produce a variety of
documents and reports. Examples of transaction documents include purchase orders, paychecks,
sales receipts, invoices, and customer statements.
Transaction reports might take the form of a transaction listing such as a payroll register, or edit
reports that describe errors detected during processing.
• Inquiry Processing. Many transaction processing systems allow you to use the Internet,
intranets, extranets, and Web browsers or database management query languages to make
inquiries and receive responses concerning the results of transaction processing activity.
Typically, responses are displayed in a variety of pre specified formats or screens. For example,
you might check on the status of a sales order, the balance in an account, or the amount of stock
in inventory and receive immediate responses at your PC.

74
Figure 4.6 The transaction processing cycle

4.3. Decision Support in Business

To succeed in business today, companies need information systems that can support the diverse
information and decision-making needs of their managers and business professionals. In this
section, we will explore in more detail how this is accomplished by several types of management
information, decision support, and other information systems.

4.3.1. Information, Decisions, and Management

The type of information required by decision makers in a company is directly related to the level
of management decision making and the amount of structure in the decision situations they
face. Even in todays downsized organizations and flattened or nonhierarchical organizational
structures. Levels of management decision making still exist, but their size, shape, and
participants continue to change as today’s fluid organizational structures evolve. Thus, the levels

75
of managerial decision making that must be supported by information technology in a successful
organization are:
• Strategic Management. Typically, a board of directors and an executive committeeof the CEO
and top executives develop overall organizational goals, strategies, policies, and objectives as
part of a strategic planning process. They also monitor the strategic performance of the
organization and its overall direction in the political, economic, and competitive business
environment.
• Tactical Management. Increasingly, business professionals in self-directed teams as well as
business unit managers develop short- and medium-range plans, schedules, and budgets and
specify the policies, procedures, and business objectives for their subunits of the company. They
also allocate resources and monitor the performance of their organizational subunits, including
departments, divisions, process teams, project teams, and other workgroups.
• Operational Management. The members of self-directed teams or operating managers
develop short-range plans such as weekly production schedules. They direct the use of resources
and the performance of tasks according to procedures and within budgets and schedules they
establish for the teams and other workgroups of the organization (O’Brien & Marakas 2011).

4.3.2. Nature of decision making

According to (Mesfin Fikre 2008), Decision can be broken down into three main types.

I. Structured decision

It means that:-

 Decision can be taken objective

 There is clearly defined method of solving problem
 Generally there right answer
II. Unstructured decision

This sort of decision can only be reached subjectively, example hiring of a new employee would
they fit in with the company ethos and existing practices.

Efforts are often made to them unstructured decision into structured one by setting hard and test
criteria. This practice is gaining ground in such field recruiting and granting credit facilities.

76
 III. Semi structured decision
 These leis between structured and unstructured decision
 Some part of a decision making process are programmable (structured) other are not. For
example deciding how much to maintain for product will evolve an analyses of prior
usage but this may then have to be adjusted it a computer has recently gone out of
business and we expect additional but unknown demand.

4.3.3. Managerial Decision Support Systems

Decision support systems are computer-based information systems that provide interactive
information support to managers and business professionals during the decision making process.
Decision support systems use (1) analytical models, (2) specialized databases, (3) a decision
maker’s own insights and judgments, and (4) an interactive, computer-based modeling process to
support semistructured business decisions.
It is systems that support decision making using flexible access to data and models for use by
end user; the system should provide flexible interface to support non routine, unstructured
decision often involving uncertain decision situation and multiple objective with provision for
incorporating the decision maker’s individual style of decision making (Sadapogan 2013).

For example, Sales managers typically rely on management information systems to produce sales
analysis reports. These reports contain sales performance figures by product line, salesperson,
sales region, and so on. A decision support system (DSS), however, would also interactively
show a sales manager the effects on sales performance of changes in a variety of factors (e.g.,
promotion expense and salesperson compensation). The DSS could then use several criteria (e.g.,
expected gross margin and market share) to evaluate and rank alternative combinations of sales
performance factors.
Therefore, DSS are designed to be ad hoc, quick-response systems that are initiated and
controlled by business decision makers. Decision support systems are thus able to support
directly the specific types of decisions and the personal decision-making styles and needs of
individual executives, managers, and business professionals.

4.3.3.1. DSS Components

Unlike management information systems, decision support systems rely on model bases, as well
as databases, as vital system resources. A DSS model base is a software component that consists

77
of models used in computational and analytical routines that mathematically express
relationships among variables. For example, a spread sheet program might contain models that
express simple accounting relationships among variables, such as Revenue , Expenses and Profit.
A DSS model base could also include models and analytical techniques used to express much
more complex relationships.
For example, it might contain linear programming models, multiple regression forecasting
models, and capital budgeting present value models. Such models may be stored in the form of
spreadsheet models or templates, or statistical and mathematical programs and program modules.
In addition, DSS software packages can combine model components to create integrated models
that support specific types of decisions. DSS software typically contains built-in analytical
modeling routines and also enables you to build your own models. Many DSS packages are now
available in microcomputer and Web-enabled versions. Of course, electronic spreadsheet
packages also provide some of the model building (spreadsheet models) and analytical modeling
(what-if and goal-seeking analysis) offered by more powerful DSS software. As businesses
become more aware of the power of decision support systems, they are using them in ever-
increasing areas of the business (O’Brien & Marakas 2011).

4.3.4. Characteristics of decision support system

According to (Mesfin Fikre 2008) Further characteristics of decision support system includes:-

 Broad based approach to supporting decision making, it helps to identify important future
trends, adapt the organization to changing conditions.
 Decision maker retains control over the decision making process.
 It allows the capability to retrieve, manipulate, present and store data.
 Utilization of appropriate mathematical and statistical model to assist the decision maker
in evaluating alternative solution.
 Query capabilities to obtain into by requesting the interactive mode of the system extend
the individual’s reading process.
 Output directed to organizational personnel at all level.
 It can also provide lower management and their operating personnel with the necessary
output for supporting decision or controlling current operation.
 Integrate subsystem allows manager and personnel to retrieve and manipulate
information to decision making.
78
  Comprehensive database.

CHAPTER 5
KNOWLEDGE MANAGEMENT

Contents
 Learning Objectives
 Introduction
 knowledge management-an overview
 Critique to knowledge management

79
  Sources of knowledge
 Types of knowledge
 Knowledge creation
 Features and Functions of knowledge Management Products
 Benefits Knowledge Management
 Knowledge Management application in organizations
 Trends and Challenges in Knowledge Management
 Summary
 Review Questions

5.1. Learning Objectives

After reading and studying this chapter, you should be able to:
 Understand the concept of knowledge management
 Identify the sources and types of knowledge
 Explain the ways of organizational knowledge creation.
 Understand the features and functions of knowledge Management Products
 Explain the benefits and challenges of knowledge management

5.2. Introduction

Present day’s organizations, large or small, gather vast amount of knowledge during the course
of their regular operations. This knowledge remains in the ‘minds’ of organizational members
conducting the operations- be it research, design, development, manufacturing, or services. The
effects of losing organizational knowledge is especially noticeable and can have far reaching
implications when people occupying important positions such as Chief of Designs or Chief
Marketing leave since all the knowledge they gathered over long years of experience is lost
permanently to the organization, along with them. Computers have not played a significant role
in this area, till recently, having mainly concentrated in the data processing field: obviously due
to the faster pay back period for the money invested.

80
 KNOWLEDGE IS LIKE LIGHT. Weightless and intangible, it can easily travel the
world, enlightening the lives of people everywhere. Yet billions of people still live in
poverty unnecessarily. Knowledge about how to treat such a simple ailment as
diarrhea has existed for centuries but millions of children continue to die from it
because their parents do not know how to save them.

Source: Opening statement of the World Bank 1998/99 World Development Report:
Knowledge for Development.

Knowledge informs decisions and actions. Knowledge is intangible, dynamic, and difficult to
measure, but without it no organization can survive.

5.3. Knowledge Management-an overview

Understanding Knowledge Management requires an understanding of knowledge and the

knowing process and how that differs from information and data. Knowledge Management
recognizes that data, information, and knowledge are critical organizational resources.
 Data – raw facts about people, places, events, and things that are of importance in an
organization.
 Information – data that has been processed or reorganized into a more meaningful form
for someone. It is information that changes something or somebody-either by becoming
grounds for actions or by making an individual capable of different or takes more
effective actions.

DATA INFORMATION KNOWLEDGE

Definition Raw facts, figures Data placed into Information in
and records a form that is context to make
contained in a accessible, timely it insightful and
system. and accurate. relevant for
human action.
Reason Processing Storing / Insight, 81
Accessing. innovation,
improvement.
Source: Luan, J & Serban, A. (2002, June). Knowledge management concepts, models and
applications. Paper presented at Annual AIR Forum, Toronto.

What is Knowledge?
Let us see some of the definitions given for the term Knowledge:
1. Knowledge comprises all cognitive expectancies—observations that have been
meaningfully organized, accumulated and embedded in a context through experience,
communication, or inference—that an individual or organizational actor uses to interpret
situations and to generate activities, behavior and solutions no matter whether these
expectancies are rational or used intentionally.
2. Knowledge – data and information that is further refined based on the facts, truths,
beliefs, judgments, experiences, and expertise of the recipient.
3. Knowledge is justified true belief.
4. Knowledge is a fluid mix of framed experience, values, contextual information and
expert insight that provides a framework for evaluating and incorporating new experience
and information. It originates and is applied in the minds of knower's. In organizations it
often becomes embedded not only in documents or repositories but also in organizational
processes, practices and norms.
5. Knowledge is information in action. Knowledge is viewed as a collection of facts, ideas,
learnings, policies, practices and a lot more.

The new source of wealth is knowledge, and not labor, land, or financial capital. It is the
intangible, intellectual assets that must be managed.

82
Activity A

“How can the organization manage and share knowledge for competitive
advantage?”

.............................................................................................................................

.............................................................................................................................

.............................................................................................................................

.............................................................................................................................

.............................................................................................................................

.............................................................................................................................

.............................................................................................................................

.....................................................................................................................

What is Knowledge Management?

Let us see some of the definitions given for Knowledge Management
1. “Knowledge management is a discipline that promotes an integrated approach to
identifying, managing and sharing all of an enterprise’s information needs. These
information assets may include databases, documents, policies and procedures as well as
previously unarticulated expertise and experience resident in individual workers.”
Source: Gartner Group Research.

2. Knowledge Management strives to integrate the data and information that can create
and preserve knowledge.

3. Knowledge management is defined as the management function responsible for the

regular selection, implementation and evaluation of goal-oriented knowledge strategies
83
 that aim at improving an organization’s way of handling knowledge internal and external
to the organization in order to improve organizational performance. The implementation
of knowledge strategies comprises all person-oriented, organizational and technological
instruments suitable to dynamically optimize the organization-wide level of
competencies, education and ability to learn of the members of the organization as well
as to develop collective intelligence.

4. Knowledge Management is the collection of processes that govern the creation,

dissemination and utilization of knowledge.

5. “Knowledge Management is a discipline and framework designed to help your

organization acquire, package and share “what you know” to enable decision-making,
creativity, innovation and communication.”

Knowledge management is still a young field with multidisciplinary roots. Thus, it is not
surprising that there seem to be almost as many definitions to the term than there are
approaches or “schools” of authors contributing to the field. On the one hand, this situation
can be characterized as a positive development because the lack of clear boundaries has
allowed the free influx of ideas, concepts and approaches.

Any Knowledge Management project should essentially have the following four
components;
Create knowledge (knowledge Repository)
Improve Knowledge Access
Enhance Knowledge Environment
Manage Knowledge as an Asset

Knowledge management is a constantly evolving business practice. In other words, there is

no 'completion date' for any knowledge management project. Not all information is
knowledge. One of the keys to a successful knowledge management program is discerning

84
 what information and knowledge is worthwhile to include in the knowledge management
process, and what data and information should be kept out.

5.4. Critique to knowledge management

Is knowledge manageable? Is knowledge management just another passing management fad? Is

it too complex a concept for being researched rigorously? What are the main research barriers to
the utilization of knowledge? What is it about knowledge management that is distinctly different
from older theories and concepts such as organizational learning, organizational change etc.?
These are some of the questions knowledge managers and researchers face. Moreover, more
traditional software like document management systems, data warehouses and analysis tools and
data bases are marketed increasingly as knowledge management systems.

Thus, as with every emerging discipline or field of research, there is considerable variety in the
perspectives taken and there is no consensus yet what knowledge management is all about and
how to proceed.

Many authors have criticized knowledge management and/or suggested new directions for
research. Most of the authors agree that there are substantial benefits to be gained from the
systematic and conscious treatment of knowledge-related processes in organizations. The
diversity, interdisciplinary nature and dynamics of the field have resulted in a large variety of
KM approaches some of which seem to fail to recognize the abundant “lessons learned” in the
approaches that form the roots of KM, namely organizational development, organizational
learning and strategic management. As a consequence, organizations eager to improve their way
of handling knowledge are confronted with several theoretical “schools of thought” on the one
hand (human-oriented versus technology-oriented approaches, but also the intellectual capital
approach, newer forms of organizational learning approaches, HR approaches etc.) and a vast
and not transparent market supply of KMS on the other hand. Moreover, a theory-driven
implementation of ICT to support a strategically relevant KM initiative not only has to select a

85
KM perspective and often a combination of KM tools and systems, but also integrate
organizational design- and culture-oriented instruments with the supporting technology.

In other words, even though many authors regularly put emphasis on the (individual and
organizational) human side of KM, it is technology that all too often is employed as an enabler, a
catalyst, a vehicle to complement or implement the concepts that should change the way
organizations handle knowledge. Information and communication systems are used as enablers
because they provide a cost-efficient and time-efficient way of changing organizational routine
or at least managers believe so. Even though KMS can act as catalysts for KM initiatives, it has
to be warned against an implementation of such systems without considering the human and
organizational side. Instead, a careful coordination with a corresponding strategy, an
organizational design and people-oriented measures is required in order to provide a systematic
and potentially successful intervention into an organization’s way of handling knowledge.

Knowledge Management is not useless

The entire idea sits on the fact that it’s along-term strategy to maintain the existing knowledge of
the person/organization and also to harvest the “new” knowledge, which a person acquires
during his process of learning. People intuitively know whether they are managing their own
knowledge well and whether their organization helps them to work without stress and
inefficiency.

People and technology

People should not have to choose between knowing a little about a lot or about a little. They
should be able to concentrate most on what they need to know most and, when needed, find out a
lot about related things. People do not want to “use technology” to solve problems. Technology
is a means not an end.

Financial factor
The cost of not managing knowledge greatly exceeds the cost of managing important knowledge.
Organizations have the habit of externalizing the cost of not managing the knowledge to their
customers.

86
Future trends
Those who want to think and act in integrated, creative ways and solve complex problems need
rich, integrated, up-to-date knowledge management environments to support them. The gulf
between traditional knowledge-driven organizations is growing as knowledge-driven
organizations concentrate not only on present success but their own evolution so they can better
take advantage of the new knowledge intense environment.

The paradoxical image

Call it the knowledge management paradox: those who are so busy “putting out fires” that they
have no time to tackle knowledge management are those who most need to manage their
knowledge better. While many CEO’s put knowledge Management as top priority, few
companies are still at a stage of implementation: it’s the mind shift of the organizational heads to
add knowledge to the balance sheet.

5.5. Sources of knowledge

“KM [Knowledge Management] involves blending a company’s internal and external

information and turning it into actionable knowledge via a technology platform.”

The two sources of knowledge are:

Internal sources emerging from the operations of the organization-internal sources include
the organizational operations such as design, development, engineering, sales, marketing,
manufacturing, customer contact, etc. This is the basic source of organizational information,
which is controllable and can be easily canalized to Knowledge Resource.

External sources such as Industry/Professional Associations, Commercial web sites etc-

there are many professional bodies such as Ethiopia Economic Association, academic bodies
such as universities, research institutions, industry associations, and commercial
organizations. These sources usually make the knowledge available through web sites and

87
 some times through publications. Some of them could be free services and some could be for
a fee.

5.6. Types of knowledge

There are two kinds of knowledge:

EXPLICIT knowledge can be expressed in words and numbers and shared in the form of data,
scientific formulae, specifications, manuals and the like. This kind of knowledge can be readily
transmitted across individuals formally and systematically.

TACIT knowledge is highly personal and hard to formalize, making it difficult to communicate
or share with others. Subjective insights, intuitions and hunches fall into this category of
knowledge – Difficult to verbalize, such tacit knowledge is deeply rooted in an individual’s
actions and experience, as well as in the ideals, values, or emotions he or she embraces. The
following comparison adds clarity about the difference between explicit knowledge & implicit
(Tacit) knowledge.

Documented information Know-how & learning

embedded within the
that can facilitate action.
minds people.

Implicit (Tacit) knowledge

Explicit knowledge
• Informal and uncodified
• Formal or codified • Values, perspectives & culture
\ • Documents: reports, policy • Knowledge in heads
manuals, white papers, • Memories of staff, suppliers
standard procedures and vendors
• Databases
• Books, magazines, journals
(library)

These two types of knowledge are complementary to each other, and both are crucial to
knowledge creation. They interact with and change into each other in the creative activities of
human beings.

5.7. Knowledge Creation

88
Knowledge creation is a function of an organization’s absorptive capacity. Absorptive capacity
requires a learning capability and develops problem-solving skills. Learning capability involves
the development of capacity to assimilate existing knowledge.

Knowledge creation in organizations takes place primarily through the dynamic process of four
different modes of conversion between the two dimensions of knowledge.

Socialization: Tacit knowledge to conversion takes place when tacit knowledge within one
individual is shared by another through training. The new economy has given rise to a culture of
working in teams.

Today no job in the knowledge industry can be performed in isolation. Since working in teams is
not a passing fad, companies are now designing a compensation structure, which rewards team
performance in addition to individual performance.

Combination: Explicit knowledge to explicit knowledge conversion takes place when an

individual combines discrete pieces of explicit knowledge into a whole new.

Externalization: Tacit knowledge to explicit knowledge conversion can be said to take place
when an individual is able to articulate the foundations of his and her tacit knowledge.

Internalization: Explicit knowledge to tacit knowledge conversion takes place when new
explicit knowledge is shared throughout the firm and other members begin to use it to broaden,
extend and reframe their own tacit knowledge.

Knowledge creation, whether for imitation or innovation, takes place at two levels- individual
and organizational. The prime actors in the process of knowledge creation are individuals within
the organization. Knowledge creation in organizations is not, however, the simple sum of
knowledge creation by individuals.

89
5.8. Features and Functions of knowledge Management Products

It's important to note and understand that knowledge management is not a technology, or a
solution, or a software package, but is rather a business practice. As such, the implementation of
knowledge management should be considered at a strategic level. Successful knowledge
management often requires a cultural change within an organization, and the most common
problem with knowledge management is that interpersonal and cultural issues have not been
adequately addressed. After all, individuals are being asked to give up unique knowledge and
experience on behalf of the organization- the very qualities that make the individual valuable
within the organization. If the individual 'gives up' their information, the perception is that they
become less valuable and therefore more at risk.

To create an environment in which every individual's knowledge is valued and rewarded,

encouraging the individual to share knowledge is critical and shouldn't be under estimated.
Incentives are often used to encourage the sharing of knowledge, but care must be exercised so
that the quality and relevance of the information remains consistent. Ideally, contributing to a
knowledge management program should be its own reward and should improve work quality for
participating individuals.

The tools available in the knowledge management toolbox include items like centralized
databases, electronic message boards; Web portals-(An electronic gateway to a comprehensive
pool of information and services that is organized and presented to serve the needs of a defined
user population.) , article management, search functions, statistical reporting, and other
collaborative tools. These tools can be used either within an organization or with external users
to give employees and customers' quicker access to better information.

Knowledge as a product: Knowledge not only guides organizational actions, but can also be
sold. For example, professional services companies sell knowledge services. Pharmaceutical
companies hold patents and license the production of drugs.

90
Information and communication technology represents a key enabler for knowledge
management initiatives. Consequently, both, computer scientists and MIS researchers show
substantial interest in the field. This is especially true for both, researchers and practitioners in
the field of AI who have changed their research focus from expert and knowledge-based systems
to knowledge management systems. The theory most notably used as the underlying basis of
socio-technical system research in general is systems theory. Additionally, the perspective on
organizations as knowledge processing systems provides useful insights for knowledge
management.

Examples for information and communication technologies that are related to knowledge
management are:
Intranet infrastructures provide basic functionality for communication—email,
teleconferencing—as well as storing, exchanging, search and retrieval of data and
documents,
Document and content management systems handle electronic documents or Web content
respectively throughout their entire life cycle,
Workflow management systems support well-structured organizational processes and handle
the execution of workflows,
Artificial intelligence technologies support for example search and retrieval, user profiling
and matching of profiles, text and Web mining,
Business intelligence tools support the analytic process which transforms fragmented
organizational and competitive data into goal-oriented “knowledge” and require an integrated
data basis that is usually provided by a data warehouse,
Visualization tools help to organize relationships between knowledge, people and processes,
Groupware and collaboration software supports for example the time management,
discussions, meetings or creative workshops of work groups and teams,
E-learning systems offer specified learning content to employees in an interactive way and
thus support the teaching and/or learning process.

91
Knowledge Management suites provide solutions for creating centralized repositories for storing
and sharing data as well as providing solutions and tools for searching, retrieving and managing
this data.
Some KM software suit examples:
 Retrieval ware by Convera-www.convera.com: Retrieval ware creates a complete
inventory of all enterprise assets, then enables users to search more than 200
document types on file servers in groupware systems, relational databases, document
management systems, web servers and more while respecting access right all from a
common user interface.

 Right now Technologies- www.rightnow.com: Knowledge Management software,

the self-learning knowledge base completely integrates all communication channels
resulting in customers and agents accessing information.

 IBM-lotus-knowledge Discovery Product: A discipline providing the strategy

process, and technology to share and leverage information and expertise to do just
that knowledge discovery products and solutions can help rapidly achieve Knowledge
Management by capturing and organizing knowledge in the form of content, expertise
and communication. Technologies such as Intranets and advanced collaborative
software have made Knowledge Management possible. So it can be easily managed,
located, evaluated and reused to drive responsiveness, innovation, efficiency and
learning.

Knowledge management systems (KMS) promise significantly enhanced functionality through

an integrated combination of a substantial portion of the above mentioned information and
communication tools and systems from the perspective of knowledge management. KMS should
not be seen as a voluminous centralized data base. They can rather be imagined as large
networked collections of contextualized data and documents linked to directories of people and
skills and provide intelligence to analyze these documents, links, employees’ interests and
behavior as well as advanced functions for knowledge sharing and collaboration. Goals of using
KMS are for example to generate, share and apply knowledge, to locate experts and networks, to

92
actively participate in networks and communities, to create and exchange knowledge in these
networks, to augment the employees’ ability to learn and to understand relationships between
knowledge, people and processes.

5.9. Benefits Knowledge Management

A good knowledge management system should reinforce an organizational culture that promotes
sharing and learning, makes better information more widely available, reduces duplication of
efforts, helps companies develop 'best practices', and allows forth passing of valuable
information as members leave the organization.

An effective Knowledge Management program should help a company leverage the assets and
provide the following benefits:
 Fostering innovation by encouraging free flow of ideas.
 Improving customer service by streamlining response time.
 Boosting revenues by getting products and services to market faster.
 Enhancing employee retention rates by recognizing the value of employees knowledge
and rewarding them for it.
 Streamlining operations and reducing costs by eliminating redundant or unnecessary
processes.
 Enhance customer service and satisfaction by improving the speed and quality of
customer contacts.
 Decrease customer service costs by improving self-service processes.
 Decrease training costs and times for new employees.
 Increase employee retention rates by recognizing and rewarding employee contributions.

A creative approach to knowledge management can result in improved efficiency, higher

productivity and increased revenues in practically any business function Knowledge
Management’s role is to connect knowledge owners with knowledge seekers.

93
5.10. Knowledge Management application in organizations

Knowledge Management Initiatives at INFOSYS

Infosys provides consultancy and software services worldwide to 500 companies. KM at Infosys
is founded on ‘Learn once and Use anywhere’ concept. Infosys manages organization-wide
knowledge using three centrally operated knowledge Shops (k-shop); Process Assets Database
(PAD) and People Knowledge Map (PKM).

Knowledge Management Initiatives at BAAN

Baan is a world leader in powerful, innovative, easy-to-use business software. Now they have
turned towards knowledge management, in keeping with the demands of time. Two
departments, namely," Knowledge Transfer” and “Knowledge Development” are projected for
this purpose. Their main objectives are to empower the member with skills necessary to meet
the external world. One of the features of Baan is the encouragement provided to the employees
for knowledge management.

Pioneers in Knowledge Management

Anderson Consulting; USAA Insurance firm; GE; RITZ Carlton; Agro Corp USA; Dow
Chemical USA; Boeing 777 USA; Beckman Labs USA; Mckinsey and Bain and Co.

5.11. Trends and Challenges in Knowledge Management

Presently the emphasis is being focused on Information Technology related KM-creating tools
and techniques that facilitate creating of KR (Knowledge Resource) and effectively utilizing it.
Groupware (IBM-lotus Notes, Microsoft Exchange Servers-Outlook) has become the more
popular tool. Reasons are not hard to guess:-

 It facilitates Discussion Groups very effectively

 Economical and cost effective
 Familiarity- they are the most popular e-mail tools

94
  Easy to use for creation of Knowledge Resource and using it
 Robust and reliable tools

Enterprises need to know:

 What their knowledge assets are?
 How to manage and make use of these assets to get maximum return?

Challenges in Knowledge Management

 The market place is increasingly competitive and the rate of innovation is rising. So that
knowledge must evolve and be assimilated at an ever-faster rate.
 Competitive pressures are reducing the size of the workforce, which holds this
knowledge for this.
 Knowledge takes time to experience and acquire. Employees have less and les time for
this.
 There are trends for employees to retire earlier and for increasing mobility, leading to
loss of knowledge.
 There is a need to manage increasing complexity as small operating companies are
transnational sourcing operations. A change in strategic direction may result in the loss of
knowledge in a specific area. A subsequent reversal in policy may then lead to a renewed
requirement for this knowledge, but the employees with that knowledge may no longer be
there.

Activity A

What would you suggest about the challenges and trends of Knowledge Management in
Ethiopian context?

………………………………………………………………………………………………

5.12. Summary

95
 Knowledge management (KM) comprises a range of strategies and practices used in an
organization to identify, create, represent, distribute, and enable adoption of insights and
experiences. Such insights and experiences comprise knowledge, either embodied in
individuals or embedded in organizational processes or practice. “Knowledge management
(KM) is an effort to increase useful knowledge within the organization. Ways to do this
include encouraging communication, offering opportunities to learn, and promoting the
sharing of appropriate knowledge artifacts.”

Knowledge management efforts typically focus on organizational objectives such as

improved performance, competitive advantage, innovation, the sharing of lessons learned,
integration and continuous improvement of the organization. KM efforts can help individuals
and groups to share valuable organizational insights, to reduce redundant work, to reduce
training time for new employees, to retain intellectual capital as employees’ turnover in an
organization, and to adapt to changing environments and markets. “A focus on the people
issues dramatically increases the potential for success.”

5.13. Review Questions

1. What is knowledge management and how does it enhance the competiveness of a

firm?
2. What are the essential components of knowledge management project?
3. What are the benefits of knowledge management?
4. What are the problems & challenges in the implementation of a knowledge
management system?

96
 CHAPTER 6

Ethical and security issues

6.1. Learning Objectives

After reading and studying this chapter, you should be able to:

 Describe ethical issues involved in information society;

 Discuss the right to privacy and freedom of information in society;
 Explain the need and mechanism to protect hardware and software from
unauthorized access;

97
  Recognize the importance of having a disaster recovery plan; and
 Measure the threat of virus and identify ways of preventing them

6.2. Introduction
The use of IT presents major security challenges, poses serious ethical questions, and affects
society in significant ways. IT raises ethical issues in the areas of Crime, Privacy, Individuality,
Employment, Health, and Working conditions. But, IT has had beneficial results as well. For
example, computerizing a manufacturing process may have the adverse effect of eliminating
people's job, but also have the beneficial result of improving working conditions and producing
products of higher quality at less cost. So as managers, it is our responsibility to minimize the
detrimental effects and optimize the beneficial effects. That would represent an ethically
responsible use of information technology.

6.3. Ethics in Information Society

 With their increasing power and versatility, computers simplify day-to-day life.
Unfortunately, as computer use becomes more widespread, so do the opportunities for
misuse. Computer hackers—people who illegally gain access to computer systems—
often violate privacy and can tamper with or destroy records.
 Programs called viruses or worms can replicate and spread from computer to computer,
erasing information or causing malfunctions. Other individuals have used computers to
electronically embezzle funds and alter credit histories. New ethical issues also have
arisen, such as how to regulate material on the Internet and the World Wide Web.

Principles of Technology Ethics

 Ethical principles to help evaluate the potential harms or risks of the use of new
technologies
 Proportionality: The good achieved by the technology must outweigh a harm or risk.
Moreover, there must be no alternative that achieves the same or comparable benefits
with less harm or risk.
 Informed consent: Those affected by the technology should understand and accept the
risks.

98
  Justice: Benefits and burdens of the technology should be distributed fairly. Those who
benefit should bear their fair share of the risks, and those who do not benefit should not
suffer a significant increase in risk.
 Minimized Risk: Even if judged acceptable by the other three guidelines, the technology
must be implemented so as to avoid all unnecessary risk. These, four principles can serve
as basic ethical requirements that companies should meet to help ensure the ethical
implementation of information technologies and information systems in business. But
what more specific guidelines might help your ethical use of information technology?
To answer this question it is important to examine statements of responsibilities contained in
codes of professional conduct for IS professionals. A good example is the code of professional
conduct of Association of Information Technology Professionals (AITP), an organization of
professionals in computing field. Its code of conduct is a portion of ethical principles that can
serve as the bases for ethical conduct by managers, end users, and IS professionals.

Businesses and IS professionals would live up to their ethical responsibilities by voluntarily

following such guidelines. For example, you can be a responsible professional by (1) acting with
integrity, (2) increasing your professional competence, (3) setting high standards of personal
performance, (4) accepting responsibility for your work, and (5) advancing the health, privacy,
and general welfare of the public. Then you would be demonstrating ethical conduct, avoiding
computer crime, and increasing the security of any information system you developed or use.

Part of the AITP standards of professional conduct

In recognition of my obligation to my employer I shall:
 Avoid conflicts of interest and ensure that my employer is aware of any potential
conflicts.
 Protect the privacy and confidentiality of all information entrusted to me.
 Not misrepresent or withhold information that is germane to the situation.
 Not attempt to use the resources of my employer for personal gain or for any purpose
without proper approval
 Not exploit the weakness of a computer system for personal gain or personal satisfaction
In recognition of my obligation to society I shall:

99
  Use my skill and knowledge in inform the public in all areas of my expertise.

 To the best of my ability, ensure that the products of my work are used in a socially
responsible way.

 Support, respect, and abide by the appropriate local, state, provincial and federal laws.

 Never misrepresent or withhold information that is germane to a problem or a situation of

public concern nor will I allow any such known information to remain unchallenged

 Not used knowledge of a confidential or personal nature to achieve personal gain

6.4. Information Privacy & Rights in Information Society

 IT makes it technically and economically feasible to collect, store, integrate, interchange,

and retrieve data and information quickly and easily. The benefit – IT increases efficiency
and effectiveness. But, may also have a negative effect on individual’s right to privacy
 In modern life the everyday use of digital technology creates numerous instances in
which personal information—name, street address, phone number, birthday, driver's
license number, e-mail address, or social security number—is collected from the
consumer. Increasingly, consumers are unable to keep personal information private and
are often unaware of how or when this information is being collected, utilized, sold, or
otherwise manipulated. Everything from a doctor's visit to shopping to sending personal
mail could present an opportunity for an unwanted invasion of privacy.
The question that is being asked in many circles is - can someone else use information
given for a specific purpose for another purpose? For example, you provide details about
your age, date of birth, illnesses, dependents, etc., when you are recruited by an
organization. Can your employer (without your permission) pass on this information to a
credit card company for them to do their marketing? This would mean you are
bombarded with phone calls from various salespersons or receive a lot of “junk” mail.
These can be quite irritating and you may find them, an “invasion” of your privacy.

PRIVACY SOLUTIONS
Potential solutions to the loss of informational privacy can be grouped into three areas:
regulation, technical measures, and individual action. Protecting privacy is such a

100
 complicated and difficult task that any workable solution will have to address all three
areas

6.5. Types of Threats to Computer Systems and Control

Security concepts in a computer system

Security in a computerized system involves protecting all parts of the computer system.
This includes data, the software and the hardware. Computer systems (hardware, software
and data) need protector from intentional as well as unintentional damage and misuse.

Some scenarios of threats to computer system

The system could succumb to fires (accidental. or deliberate) or earthquakes or floods
dragging our equipment and making it impossible for the organization to function
normally. Try to imagine the consequences if the computer managing the railway
reservation is burnt down in a fire and the Railways do not have any means of tackling
such a disaster. Data in the system could be tampered with. For example, in a banking
system, an account holder bank employee may (if the security is not good enough)
transfer amounts from “dead” accounts into his/her account and withdraw it .Confidential
data may become available to unauthorized persons. Today, for example in India, high
performing IT professionals and Finance professionals are in great demand. The salaries
that an organization pays to its employees are confidential. Competition is often desperate
to get hold of the list of employees along with the current salary so that they can make an
“appropriate’ offer. Software may get stolen and used by competitors. Often, years of
hard labor and creative effort goes into building of software, which may be a key to an
organization’s competitiveness. For example a steel mill may have, over many years,
developed a software program which helps them minimize waste and as result reduce
cost and price of their steel to their ultimate customers. This program, if is falls in the
hands of competitors can be used by them, thereby removing any advantage enjoyed by
the first steel mill.

What is a Virus?
 Computer viruses are self-replicating programs which cannot exist without a host. These
programs have existed since the 1960's, but did not get the name of "virus" until 1984.

101
 These programs can be relatively harmless, or can completely incapacitate your
computer. The damage done to your computer is called the payload, and can range from a
harmless message or image being displayed to destroying files and reformatting the hard
drive of your computer. With the popularity of the Internet, viruses have become more
widespread and common. Originally, the viruses were passed by floppy disks, but now
they are often passed through Internet downloads and especially email attachments. Over
50,000 viruses have been identified, and around 200 more are created each month.
 There are other types of programs associated with viruses and sometimes seen to be
subsets of viruses. These are worms and Trojans. Many recent viruses have incorporated
viruses, worms, and Trojans into one virus.
Worms are also self-replicating, but they do not have the payload that viruses have.
Worms use the internet or a network to send copies of itself to other computers, often
using email programs. They are often incorporated into viruses, and are to blame for the
spreading of most of the recent viruses, such as Love letter and Sir Cam
 Trojans on the other hand do not replicate themselves. Like the Trojan horse of legend,
Trojans seem harmless but transport harmful information to other computers. Trojans can
allow a hacker complete access to your computer so they can corrupt files, steal
passwords, and modify the system registry. Often, Trojans are used to attack websites by
having thousands of computers under their control trying to access one site at the same
time.
Additional information about viruses and/or virus hoaxes is available from the LTS Help
Desk Virus Information site and on the Internet at, Computer Virus Myths.

 Protecting Your Computer from Viruses

With the prevalence of viruses today, it is important for any computer accessing the
Internet to have protection against viruses. In addition to safe operating procedures, there
are many different programs which can help you to protect your computer. Viruses can
come from many different sources, so you must be aware to protect yourself from getting
a virus from any source. Remember that virus scanners can only catch the known viruses,
so do not rely solely on virus protection software. Viruses may take months before they
are discovered and solutions are found.

102
Some hints for preventing virus infections:
Don'ts
 Never use storage media from an untrustworthy source
 Never download files from a site or person that you do not trust
 Never open an email attachment from a person you do not know
 Never open an email attachment that looks unusual or suspicious
(To check email attachments against known infected attachments, see About. com's Infected
Attachment Names )
Do's

 Disable preview screens when using email

 Scan storage media (e.g., USB drives) before using them

 Use a real-time virus scanner or frequently check your system with an online virus
scanner

 When using a real-time virus scanner, download virus updates every week

 Backup important files often

 Use personal firewall software to prevent unauthorized Internet access to and from your
computer

 Use of the RTF (Rich Text Format) file format preserves document content and
formatting AND reduces the spread of viruses. The Word .doc format has been a popular
target for those creating viruses. (Refer to Saving a Document in RTF Format.)

Virus Protection Software

There are many different programs which scan for and correct viruses which are on your
computer. Many times you will not even know you have a virus until you scan for viruses. There
are many options for scanning and curing viruses. There are free software, free online scans,
downloadable trial versions of software, and software which you may purchase. The vast number
of software companies offering virus protection makes it difficult to include all companies, but
we have compiled a listing of the best rated virus protection solutions. The downloadable virus

103
software scans for viruses in real-time, which means that as your computer receives files, the
software checks the files for viruses. The software also constantly monitors the computer files to
search for viruses. It is very important when using a real-time virus scanner to download updates
frequently, so the software can detect all of the newly found viruses.

SOME OF THE BEST RATED VIRUS PROTECTION SOFTWARE IS:

 Symantec: Norton AntiVirus
 McAfee: VirusScan
 Trend Micro: PC-cillin
 Panda: Antivirus Titanium
 Computer Associates: Inoculate IT
 Kapersky : Anti-Virus
 F-Secure: Anti-Virus

Firewall
Personal firewall software controls what programs are allowed to access the internet, and
prevents people from hacking into your computer. This can prevent Trojans which are already
on your computer from accessing the internet. There are companies which offer free and paid
software for personal firewalls as well.

SOME PERSONAL FIREWALLS AVAILABLE ARE:

 Zone Labs: Zone Alarm (free) and Zone Alarm Pro (trial or paid)
 Symantec: Norton Personal Firewall (trial or paid) and Norton Internet Security (trial or paid)
A firewall is a system designed to prevent unauthorized access to or from a private
network. Firewalls can be implemented in both hardware and software, or abomination of
both. Firewalls are frequently used to prevent unauthorized Internet users from accessing
private networks connected to the Internet, especially intranets. All messages entering or
leaving the intranet pass through the firewall, which examines each message and blocks
those that do not meet the specified security criteria.

6.6. Disaster Recovery Plans

104
Organizations and businesses that rely on computers need to institute disaster recovery plans that
are periodically tested and upgraded. This is because computers and storage components such as
diskettes or hard disks are easy to damage. A computer's memory can be erased or flooding, fire,
or other forms of destruction can damage the computer’s hardware. Computers, computer data,
and components should be installed in safe and locked facilities. In addition, the least one should
do is take a regular Backup & Security

Role of Backups

A backup is a copy of a disk or a file on a disk. When we make a spare copy of a disk or of a file,
we say we are “making a backup” or “backing up” a file. Suppose you have only one copy of an
important document. This file is on your hard disk. For some (unfortunate) reason this file is now
no longer available - this may happen because of a variety of reasons, like, Hard- disk crash;
Fire; Theft; Virus corruption & Inadvertent or deliberate delete/ overwrite .A loss of the file
means a loss of all the work that has gone, in. Not only is it a loss of me, it may also not be
possible to recreate the document.

Now suppose you have been taking a daily backup every evening. You just need to insert the
latest backup floppy and copy yesterday’s version of the file from it. Now your loss is restricted
to the work done today. The copying back of a file (or files} from a backup to get back (an older
version of) the file is called “restore”.

A backup can be created very simply. You can just copy the required files on a floppy of the files
are very large, you may need to “zip” them (use a compression utility to ‘compress the file
without losing any data in it). You can also simplify your backup procedure by including all the
required commands in a batch file, which you execute whenever you want a backup.

Hazards: Fire, Excessive heat, Moisture, Floods, Damage by insects and rodents, & Theft
Physical Security: Though all hazards cannot be prevented in a cost – effective manner, some of
the more common means are discussed below:
 Locate computer installation away from electric transformers, boiler rooms, kitchens or
any other equipment that can cause a fire
 Ensure that computer systems supporting mission critical application are housed in fire
proof construction

105
 Take regular backups on tape/ floppies and store the backups in a fire safe. Also
periodically, take backup copies off-site. Off-site means a location away from the location
of the computer installation.
 Install special fire extinguishers for electrical and electronic equipment like inert gas fire
extinguishers.

 Do not install water sprinklers near costly computer equipment as these can accidentally
go off and damage the computers.

 Do not allow employees to smoke near the computers ensure that power supply
equipment and wiring is done in a proper manner. Also ensure that appropriate fuse wires
are installed at the right places in the power supply

 Install smoke detectors

 Ensure that the computer installation is relatively free of paper and other inflammable
material

 Do not locate computer installations in the basement, as basements are typically the first
places to get flooded

 As far as possible, avoid installing a computer system on the top floor of a building, as
these are affected by seepage. In case you have no choice, ensure that the roof is treated
against seepage.

 Do not install computers near underwater tanks, large drains, sinks, etc.

 Do not eat or drink near computer installations. The food or drink may spill over the
equipment. Also, the smell of the food and drink may attract insects and rats, who can
damage the equipment

 Install an air-conditioner to control the temperature and humidity.

 Restrict the entry of personnel to persons with badges and persons who are accompanied
by an authorized employee

106
  If machines or terminals are provided to individuals and are not kept at a centralized
place, encourage employees to use locks and keys to their rooms and machines.

 The smart strategy is to be in pro-active mode rather than reactive mode. It may be less
expensive to plan ahead to avoid possible down time than suffer losses.
Activity A
 Critically evaluate the security of computers by your organization?
 ..............................................................................................................................
 ..............................................................................................................................
 ..............................................................................................................................
 ..............................................................................................................................
 ..............................................................................................................................
 ..............................................................................................................................
 ..............................................................................................................................

107
108