This action might not be possible to undo. Are you sure you want to continue?
This course on Management Information Systems covers a wide range of topics using the concept of ‘systems approach’. Extra emphasis will be given to the systems approach in this chapter as it is fundamental to all remaining chapters of this course. We all have an understanding of the term ‘system’ and we use it often on ad-hoc basis in our conversations e.g. in reference to the education system, financial system, transport system etc. We need to have an explicit and clear understanding of the term in order to use it as a tool in management, especially to introduce Information Systems. A simple system will be advanced to a complex system by citing examples from human behaviour. It will then be related to the sophisticated structure of the firm. The distinction between the modern and the old firm is highlighted so as to identify the significance of information in the modern firm. Great emphasis is paid to the concept of information, especially the process of production of information at firm level. The concept of ‘competitive advantage’ has changed the direction of firms especially after 1980s. The modern firm now relies very much on achieving ‘competitive advantage’ making adjustments at the firm level. The modern firm is enthusiastic to employ ‘Information Technology’ to plan its functions.
2. A simple system
Let us begin with the concept of a ‘system’. The easiest way of understanding a system is by learning about a refrigerator which is quite familiar to all of us. Figure 1.1 describes the mechanism of a refrigerator. The input is the electricity that goes into the system of the refrigerator. The electricity performs some functions in the ‘black box’ 1 and produces a service (output). This system helps produce required level of cooling to preserve food. There are feedbacks in this system, three controlling points (valves), which monitor the structure. At point 1, the voltage level is set and checked and the variations in electricity voltage are controlled until the correct voltage is confirmed. (The stabilizer monitors the variation of voltage). At point 2, the electricity supply is controlled and monitored by itself to maintain the required cooling level set by the user at point 3. Once the required level is reached the system stops itself consuming
electricity. At point 3, the user sets different levels of cooling
We use the word „black box‟ to refer to a situation when the exact workings of a given system are not understood by or accessible to outsiders.
CDCE-UNIVERSITY OF PERADENIYA
All the above CDCE-UNIVERSITY OF PERADENIYA Page 2 BBA 334 . Figure -1. The refrigerator is a simple. processes.closed. closed system. accomplish the overall desired goal for the system. For example. outputs and outcomes geared to accomplish an overall goal for the subsystem. blood circulation is a subsystem which is controlled by the heart. There are many subsystems in it. It is a closed-loop system. which together.1 System of Refrigerator. This system is an automated process and the refrigerator provides services uninterruptedly. or subsystems‟ There are varieties of systems which range from simple to advanced ones. each performing different tasks and integrating into the main system of the human body. The three control elements at points 1. The respiratory system is another which is coordinated by lungs.loop .Input(Electricity voltage) 1 -The system(Refrigerator with different Functions) 2 3 . 2 and 3 control the system and produce different levels of outputs. (2) and (3) to input cell). The nervous system is another which monitors and controls the body.Output(Preserving food by cooling) „A system is an organized collection of parts (or subsystems) that are highly integrated to accomplish an overall goal. which in turn is interlinked with blood circulation. So a system is usually made up of many smaller systems. The feedback loops pass on new commands produced at the above three points back to the processing level. 3 Complicate Systems The human body is a complicate system with different organs. Each subsystem has its own boundaries of sorts.(depending upon the required level of cooling for different types of foods). and includes various inputs. It has control elements and feedback loops (the lines going from points (1). The system has various inputs. which go through certain processes to produce certain outputs.
Three such subsystems were identified in Figure 1. kidneys help the main sub-system. A subsystem is a system within a system. The system approach helps planning. to perform its functions efficiently. These are interconnected with some order or rules for them to perform collectively and efficiently. Sub-subsystems like liver. mechanism in a market. Problems can be structured as systems for planning purposes.2. social system prevailing in a village and internal organization of a firm. the blood circulatory system. You can recognize that there are subsubsystems in each of the organs in the human body to support the subsystem and finally to the main system. Other examples for such complex systems are driving a vehicle.subsystems are interwoven and produce a task for the human body to function. The order and arrangements of subsystems located in the human body produce different tasks that result in the production of an efficient human behaviour to work in a highly complex world order. for example. We should internalise the concept of ‘systemic thinking’ for us to develop systemic insight into complex situations and problems in management or even problems that you come across in the home front.2 – The Human Body – A complicate system The nervous system The respiratory system The blood circulation system 4. subsystems and even subsubsystems. The Subsystems The human body which is a natural system contains systems. The change in commands or even adding another subsystem into the system BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 3 . Different outcomes will be forecast by the system once the commands are changed in the feedback system as in the case of changing command at point 3 in the refrigerator. In the blood circulatory subsystem. Figure 1. the heart is one subsystem which performs a different function while another sub-subsystem of arteries carries blood to different points in the body.
you will have to add the knowledge earning subsystem into it! Now Test your Progress: Do the following Continuous Assessment 1 5. Just like in the human body. if you need the mind to make better decisions. The „business systems approach‟ considers a business as a system of interrelated factors of strategy. incorporating systems. it is the bank vision (increase stakeholder value) that goes as an input into the bank system and it is processed at point (1) by the Board of Directors and is forwarded for implementation. This processed vision is implemented at different levels in the bank structure – the black box.changes the outcome that will be delivered. and competitors. internal cost and growth of the firm. suppliers. a firm.2 6. The primary goal of this system is to increase stakeholder value. finance. In the nervous system. owners. The management determines the strategies and activities to achieve the goals. processes. competitive market forces. In relation to Figure 1. the customer satisfaction. Human elements work as a team in this organization. An example . This can be achieved through dynamic balancing of competing elements. BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 4 . customers.1. Firm as a system Now let us move from the natural system of the human body to an artificial entity.a bank as a System Let us use an example of a hypothetical bank (assume that it exists in Sri Lanka!) to elaborate the concept of systems approach.1000advices. these resources can be organized into a complex system. (Throughout this course we use the bank as an example in discussing MIS). interacting with physical elements in achieving the above goals. products. management. say. A firm is an artificial entity made up of human and physical resources. investors.com/guru/business_success_balanced_wheel_vk. A complex system can be formed by combining humans with humans and humans with physical elements using the systems approach we learnt previously. workers. subsystems and sub-subsystems. The problems arising at the level of implementation are fed 2 (http://www.html).
the senior management of the bank decides on a new rate of interest (both buying and selling) and the middle level of management implements this decision through the operational level. Let us look at the shape of an internal organizational structure with the hierarchical structure of the old firm. from the top to the last level of an internal organization. The conventional firm too performs functions as a system to increase its stakeholder value. Finally. The correct shape of the firm and the correct distribution of authority help better reach the overall objective of the firm. In the bank the manager has overall responsibility to mobilize resources to achieve the goal of the bank. Now Test your Progress: Do the following Continuous Assessment 2 7. The decision making tasks are fundamental and these are performed at the managerial levels. The authority is distributed according to the tasks assigned to the individuals of the firm. delegates authority (transfers power) to his subordinates. tall and flat pyramidal BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 5 . The tasks of each are defined and each is provided with certain authority and responsibility. semiskilled and unskilled. People at the operational level lend and borrow money to/from the customers accordingly. A Conventional Firm and the Flow of Information A conventional firm may be understood by referring to an old firm in the banking industry. Each carries some responsibility depending upon his capacity and the level of the internal organization he belongs to. administrators. the manager in the bank. There are typically two types of hierarchical structures. There are managers. There is a hierarchical structure of this organisation in delegating authority and responsibility within the firm.back at point (2) to the point (1). For example. The person at the top of the organization. At point (3) the feedbacks of customers can also be directed to point (1) in the structure. The authority (the power or right to give orders or make decisions) flows from the manager to the peon. These decisions are executed at the middle and operational levels of the organization. who perform different functions to produce banking services to the customers. The internal organization of this system comprises of people of different skill levels. the revised version of vision helps produce a banking service. and people at operational level engaging in different activities. skilled.
In a structure with tall hierarchy each manager has a small number of employees under his control and they can be closely supervised.structures. On the other hand. In figure 1. Figure – 1. Now Test your Progress: Do the following Continuous Assessment 3 BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 6 .2 there is a long chain of command.2 Tall (pyramid) hierarchy Chief Executive Board of Directors Executive Senior managers Managers Junior Managers Supervisors Assistants The two pyramids above show how commands are passed through different levels of the organization. The information flows quite slowly in a tall hierarchy as it has to go through many levels.3 it is only a short chain of command where the command goes quickly to the last level.3 Flat (horizontal) hierarchy Figure -1. In figure 1. Tall ones are common in the manufacturing organizations and flat ones in services industries. Decision making is easier with relatively few managers. the flatter hierarchy has quicker travel of information between management and workers and therefore is less costly.
The number of telephone calls used by the bank to produce 1000 transactions does not have much meaning to anyone. The rupee rate of telephone calls has to be applied to find the total cost on telephone calls incurred by each department in bank. The processing adds values to any activity. In the above example. cost cutting strategies. addition of new technology to save cost of telephone and so forth. This data needs to be processed to give it a value – the value is the information. The knowledge is thus the appropriate collection of information. This information provides lots of insight to the bank management. the output is information. It is the knowledge about the cost of telephone used in the production of transactions and the cost pertaining to each department. The number of steps and methods that is adopted in finding the unit costs of telephone incurred by each department is referred to as processing of data. But more precisely. existing without much significance and meaning to the user. the processing of raw flour at the bakery turns it to a new product called bread. data are facts and figures which are raw. What is information? We use the terms data. This total cost on telephone has to be divided between direct use and indirect (overhead) use by different sections of the bank. data may be the units of electricity used in the production of services by the bank. Another example. The information and knowledge can then be used in decision-making regarding the lending rates. the total duration of telephone calls in the bank which has to be divided between different departments or sections of the bank. BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 7 . The expenditure on direct and indirect use of telephone have to be divided by the number of services to find the unit direct cost and unit indirect cost of telephone calls in the production of bank services. When raw data is processed. For example. the information is the unit direct and indirect costs of telephone usage in each department of the bank. But we can give lots of meanings and value to this figure by processing it. Value is added to flour at each level of production to convert flour into bread. information and knowledge loosely and interchangeably in our normal conversations.8. For example. Similarly processing of raw data adds value to it and creates information.
Data: symbols 2. They form „wisdom‟ with such understanding of issues. Understanding: appreciation of "why" 5. and "when" questions 3. The knowledge then will help „understanding‟ the issues faced by the strategic management. "where". He shows the following diagram describing the process of the transformation of data into information and finally wisdom. information may be facts. concepts. Thus. a systems theorist and professor of organizational change: 1. Knowledge: application of data and information. Wisdom: evaluated understanding. The data in management is to be transformed into business information. answers "how" questions 4. Such information need to be transformed into business knowledge to answer “how” questions. Information: data that are processed to be useful. provides answers to "who". or instructions. Information is a resource and it plays an important role in almost every human BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 8 .According to Russell Ackoff. any sort of knowledge which can be communicated. "what".
Now Test your Progress: Do the following Continuous Assessment 4 9. processing. Large business firms are formed to supply information and others to use the information. It has a very high price in the business world.army. processing.arl. inexpensive computation performed at high speeds‟ 3 The electronic data processing age which commenced in 1950s was the beginning of the information systems approach of data processing. and research workers of an organization is the conventional form of gathering. These have taken mankind to a new era. The manual dealing of data by statisticians.activity.the 2nd revolution in history. In practice there are different types of production of information. Again in 1947 the first high-speed electronic automatic computer was put into use. clerical workers.html. Thus. This type of information processing can still be found in government departments and in some private business organizations. The developed countries are now moving away from industrial production towards knowledge production to become „informative economies‟. Information is an essential input in any production process.mil/~mike/comphist/61ordnance/chap1. accountants. The accumulated knowledge in the field over this period resulted in the development of a differential analyser for computing by 1930. Early focuses on information There is a history of more than a thousand years of search for devices that reduce the hard work of data processing. storing and distributing information to support decision making and control in an organization. The up-down efficient flow of information within an organization helps make good decisions and speedily convey them to relevant parties in the organization. However it leads to slow processing and slow flow of information within the structure causing delays in decision making. BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 9 . Data processing was carried out by entering 3 http://ftp. storing and distributing information. both earn huge profits in this information market. the information industry has become the fastest growing industry in today‟s competitive business world. „It was one of the most significant developments of our time because it enabled us to expand our knowledge in almost every field through limitless quantities of accurate. The accuracy of information is also little guaranteed. the computer era. Information system is gathering. account clerks.
The introduction of silicon chip circuits into the computers in 1964 was the next milestone in the development of the „computer-based information processing system‟. The New Business Environment and the Modern Firm The modern firm emerged in this new business environment.4. Lower administrative. labour unions. 10. customers. labour unions. the „computer-based information processing system‟ passed through another landmark. competitors. The computer industry became a most profitable venture. global community. The most important resource is the information which regularly carries signals from the customers. and the shareholders to the modern firm. With the springing up of the internet in the 1980s. the government and global community. The „computer-based information processing system‟ entered into business when „information for management‟ gained popularity among large businesses. Some signals may be unfavourable like trade union actions. The resources come into the system in the form of the personnel.social. Now Test your Progress: Do the following Continuous Assessment 5 4 Increased cash flow. Ease of billing electronically (support is available). government tax policies.computing inputs into the computer in a punched card form and output was as punch cards or paper reports. machines. suppliers. It operates in a highly complex economic. higher demand from the customers and foreign markets etc. Added efficiency and Accurate claims filing—data is received precisely as input by the supplier’s office. There was a demand for fast processing hardware and software applicable in the area of business management. These institutions in the environment supply resources to the firm as indicated in arrows from the outer circle in Figure 1.political environment. postage and handling costs. suppliers. financial institutions. and others may be favourable like high share prices. material. shareholders. eliminating the chance of processing errors etc. especially for „Management Information Systems‟ (MIS). These include the financial institutions.4. BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 10 . government. Its new business environment is featured in Figure 1. There are many factors that influence the behaviour of the modern firm. money and information. These helped the business world in a variety of ways4.
Global communi ty. Competitive Advantage Porter‟s (1985) concept of „competitive advantage‟ gained popularity in the 1980s and thereafter in the era of globalisation. Also. If the firm can deliver the same product at a lower cost than its competitors the firm can earn „cost advantage‟ and generate profits higher than its competitors. The new structure comprises management. „cost advantages‟ and „differentiation advantages‟. How should the modern firm respond to signals? The middle circle in Figure 1. namely. organisation and technology. It has added new institutions in its structure to suit with the changing environment. if the firm can introduce the same product with some „differentiations‟ compared to the BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 11 . 12.4 The Business Environment of the Modern Firm Sharehold ers / owners Labour unions Competito rs Organisatio n Supplier s Management Custome rs The Moder n Firm Technolog y Financial Institutio ns Govt.4 illustrates the structural adjustments in the modern firm in responding to signals coming from the external environment. He emphasised the importance of change in management so as to earn competitive advantage at the new world market environment. the precise alliance of these in the internal structure helps absorb pressures coming from the external environment. A firm can restructure its resources and management practices to achieve two types of advantages.11. Figure 1.
With the use of „computer-based information processing systems‟ the firms are now operating in networks which are vertically and horizontally integrated by Information Systems. research on management is increasingly concentrated on this new concept of „competitive advantage‟. implementing and evaluating decisions that will enable an organization to achieve its objectives (we will be discussing this concept in later chapters). The modern organizational structure takes the form of a flat (horizontal) hierarchy as in Figure – 1. The Information Systems have hastened the flow of information within the structure. some levels of the pyramid have disappeared altogether. the information flows fast helping quick decision making and implementation. Management now relies very much on „computer-based information processing systems‟ to administer. adding Information technology (IT) as a resource component in production functions.3 above. developing new management techniques to use in firms. In these extended networks. Information Systems approach in business is a fast spreading management concept today. the hierarchical structure of the modern firm has become flat as many low level jobs disappear with computer technology (e. The special feature of these new products has been that they are embedded with a large component of information technology. The computer revolutionised the production processes. Now Test your Progress: Do the following Continuous Assessment 6 BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 12 .g. On one hand. the firm can earn „differentiation advantage‟ and generate profits higher than competitors. program and forecast activities of the firm. the large firm sector is investing a large sum on Research & Development (R&D) to invent new products and technology for the society. It is an approach of formulating. therefore. The Information systems (IS) now assist management to achieve strategic advantages in competitive businesses. automated data entry has replaced many secretaries) and. At the same time.products of the competitors. One such new approach is the concept of „strategic management‟. On the other hand. robots have replaced production workers.
an artificial system with subsystems would similarly successfully work in an organization. The next chapter will pay attention to the adoptability of the concept of „systems approach‟ in Information Technology. Attempt will be made to introduce Systems approach to a complex situation where the firm now interacts with the environment. This is described using the human body model. It describes in detail how a simple system and a complex system work. Just as a natural human body system operates successfully with the help of subsystems. BBA 334 CDCE-UNIVERSITY OF PERADENIYA Page 13 . Summary This chapter provides an introduction to the systems approach explaining how a system works in reality. During this discussion a historical note was provided to the concept of computer-based information process system.13. especially in Information Systems. In particular. There are subsystems and sub-subsystems in a system which helps functioning of the total system. The concepts of open-loop-system and Management Information Systems (MIS) will be introduced in the next chapter. an Information System in an organization was elaborated.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.