System’s Concept

• Term system is derived from the Greek

word ‘Systema’ which means an
organized relationship among
functioning units or components.
 Definition of System

• A system is an orderly grouping of

interdependent components linked
together according to a plan to achieve a
specific objective.
 Characteristics of a System
• Organization

• Interaction

• Interdependence

• Integration

• Central Objective
Continued…
• Organization-It implies structure and order.

• Interaction-It refers to manner in which

each component functions with other
components of the system.

• Interdependence-Units/parts are
dependent on each other.
Continued…
• Integration-The parts of a system work
together within the system even though
each part performs a unique function.

• Central Objective-Objective may be real or

stated. All the components work together
to achieve that particular objective.
 Elements of a System
• Outputs and Inputs

• Processor

• Control

• Feedback

• Environment

• Boundaries and Interface

Continued…
• Inputs and Outputs- Inputs are the
elements that enter the system for
processing and output is the result of
processing.

• Processor- It is the element that involves

the actual transformation of input into
output.
Continued…
• Control- The control element guides the system.

• Feedback- Output is compared against

performance standards.

• Environment- It is the suprasytem within which

an organization operates.

• Boundaries and Interface- A system should be

defined by its limits.
 Types of System
• Physical or Abstract System
• Physical – These are tangible entities that
may be static or dynamic in operation.
For example- parts of a computer center
are the desks, chairs etc. that facilitate
operation of the computer. They are static
and a programmed computer is dynamic.
 Continued…
• Abstract System – These are conceptual
or non physical entities. For example- the
abstract conceptualization of physical
situations. A model is a representation of a
real or planned system. A model is used
to visualize relationships.
 Deterministic or Probabilistic
System
• Deterministic System – It operates in a
predictable manner and the interaction between
parts is known with certainty. For example: Two
molecules of hydrogen and one molecule of
oxygen makes water.

• Probabilistic System – It shows probable

behavior. The exact output is not known. For
example: weather forecasting, mail delivery.
 Social, Human Machine, Machine
System
• Social System- It is made up of people.
For example: social clubs, societies
• Human Machine System- When both
human and machines are involved to
perform a particular a particular task to
achieve a target. For example:- Computer.
• Machine System- Where human
interference is neglected. All the tasks are
performed by the machine.
 Natural and Manufactured
• Natural System- The system which is
natural. For example- Solar system,
Seasonal System.
• Manufactured System- System made by
man is called manufactured system.
For example- Rockets, Dams, Trains.
 Permanent or Temporary System
• Permanent System- Which persists for
long time. For example- policies of
business.
• Temporary System- Made for specified
time and after that they are dissolved. For
example- setting up DJ system.
Adaptive and Non Adaptive System
• Adaptive System- respond to change in
the environment in such a way to improve
their performance and to survive. For
example- Human beings, animals.

• Non Adaptive System-The system which

doesn’t respond to the environment. For
example- Machines
 Continued…
• Open System – It has many interfaces
with its environment. It interacts across its
boundaries, it receives inputs from and
delivers outputs to the outside world. It
must adapt to the changing demands of
the user.
• Closed System – It is isolated from the
environmental influences. A completely
closed system is rare.
 Characteristics of Open Systems
• Input from outside- Open systems are self
adjusting and self regulating. When
functioning properly open system reaches
a steady state or equilibrium.
• Entropy- Dynamic systems run down over
time resulting in loss of energy or
entropy. Open systems resist entropy by
seeking new input or modifying the
processes to return to a steady state.
 Continued…
• Process, output and cycles- Open system
produce useful output and operate in
cycles, following a continuous flow path.
• Differentiation- They have a tendency
toward an increasing specialization of
functions and a greater differentiation of
their components. For example the role of
machines and people tend toward
greater specialization and greater
interaction.
 Continued…
• Equifinality- Goals are achieved through
differing courses of action and a variety of
paths.
Man Made Information Systems
• Information System may be defined as a
set of devices, procedures, and
operating systems designed around user
based criteria to produce information and
communicate it to the user for planning,
control and performance.
 Data and Information
• Data is a raw fact that can take the form of a number or a statement
such as a date or a measurement.
• Information refers to data that has been processed so that it has
meaning to a particular user in a particular context.
• The processing includes collection of data and then subjecting them
to a transformation process in order to create information.
• This can be achieved using a number of different transformation or
data processes. Some examples of data processes include aggregating
which summarizes data by such means as taking an average value of a
group of numbers. Classification places data into categories such as
on-time and late deliveries. Sorting organizes data so that items are
placed in a particular order. Calculations can be made on data such as
calculating an employee’s pay by multiplying the number of hours
worked by the hourly rate of pay. Finally data can be chosen based on
a set of selection criteria, such as the geographical location of
customers.
 Information Quality
• The differences between ‘good’ and ‘bad’ information can be
identified by considering whether or not it has some or all of the
attributes of information quality.
• Attributes can be related to the timing, content and form of the
information.
• Timeliness refers to that the information should be available when
needed. If information is provided too early, it may no longer be
current when used. If the information is supplied too late, it will be of
no use. Also the information should cover the correct time period. A
sales forecast, for example, might include information concerning
past performance, current performance and predicted performance
so that the recipient has a view of past, present and future
circumstances.
• The content of the information refers to factors such
as the accuracy of the information and relevance of
the information to a particular situation and user.
• The form of the information refers to aspects such as
the clarity of the information which should be
appropriate to the intended recipient. The recipient
should be able to locate specific items quickly and
should be able to understand the information easily.
The information should also contain the correct level
of detail in order to meet the recipient’s information
needs. For example, in some cases highly detailed
information will be required whilst in others only a
summary will be necessary.
A good IS must be able to produce
• Relevant – information must pertain to the problem at hand.
• Complete – partial information is often worst than no
information.
• Accurate – erroneous information may lead to disastrous
decisions.
• Current – decisions are often based upon the latest
information available.
• Economical – in a business setting, the cost of obtaining
information must be considered as one cost element
involved in any decision.
Information Quality
Business Information System
• A group of interrelated components that work
collectively to carry out input, processing, output,
storage and control actions in order to convert data
into information products that can be used to support
forecasting, planning, control, coordination,
decision making and operational activities in an
organization
• It is based on the organization represented by
organization chart.
• The chart is a map of positions and their
authority relationships, indicated by boxes
and connected by straight lines.
Components of a Business
Information System
• People
• Hardware
• Software
• Communications
• Data
 Continued…
• People resources include the users and developers of an
information system and those who help maintain and
operate the system such as IS managers and technical
support staff.
• Hardware resources include computers and other items
such as printers.
• Software resources refer to computer programs known
as software and associated instruction manuals.
• Communications resources include networks and the
hardware and software needed to support them.
• Data resources cover the data that an organization has
access to such as computer databases and paper files.
MAJOR TYPES OF INFORMATION SYSTEMS  
 Operational Level Information Systems
• The information system that involved at operational level of an organization is
Transaction Processing Systems. Transaction processing systems (TPS) are the
basic business systems that serve the operational level of the system.
• A transaction processing system is a computerized system that performs and
records the daily routine transactions necessary to the conduct of the
business. A TPS is any system that records transaction (a business event: a
sale, a purchase, the hiring of a new employee). TPS is the entry point where
data are entered at its source at the time of transactions take place. TPSs are
interfaced with applications that provide clerical workers and operational
managers with up-to-date information.
• At the operational level, tasks, resources and goals are predefined and highly
structured. The decision to grant credit to customer, for instance, is made by
a lower-level supervisor according to predefined criteria. All that must be
determined is whether the customer meets the criteria.
• The following table shows the specific types of application information
systems that correspond to operation level:
 Cont’d
• All organizations have these five kinds of TPS (even if the system is
manual). TPS are often so central to a business that TPS failure for a
few hours can spell the demise of a firm and perhaps other firms
linked to it.
• Manager needs TPS to monitor the status of internal operations and
the firm’s relations with the external environment. TPS are also major
producers of information for the other types of systems.
• For example, the payroll system illustrated before will supplies data to
the company’s general ledger system, which is responsible for
maintaining records of the firm’s income and expenses and for
producing reports such as income statements and balance statements.
• Information inputs for TPS are normally transactions and events. The
processing process for TPS is to sort, list, merge or update the data
based on the transactions or events. Information output from TPS is
detailed reports, lists or summaries.
 Management Level Information Systems
• For management level of an organization, two types of
information systems involved, which is Management Information
System (MIS) Management Information Systems (MIS,
information system at the management level of an organization
that serve the functions of planning, controlling and decision
making by providing routine summary and exception reports)
serves the management level of the organization, provides
managers with reports and in some cases with on-line access to
organization’s current performance and historical records.
• Most of the systems oriented almost exclusively to internal, not
environmental or external events. MIS primarily serve the
functions of planning, controlling and decision making at the
management level.
 Cont’d
• Generally, they are dependant on underlying TPS for their data. MIS
summarize and report on the basic operations of the company.
• The basic data from TPS are compressed and are usually presented
in long reports that are produced on a regular schedule. Figure 3.3
shows how a typical MIS transforms transactions level data from
inventory, production and accounting into MIS files that are used to
provide managers with reports.
• MIS usually serve managers interested in weekly, monthly or yearly
results – not day-today activities. MIS generally address structured
questions that are known well in advance but the systems are not
flexible and have little analytical capability. Most MIS uses simple
routines such as summaries and comparisons as opposed to
sophisticated mathematical models or statistical techniques.
 Cont’d
Some of the characteristics of MIS are as follows:
• MIS support structured decisions at operational and management
control levels. However, they are useful for planning purpose of
senior management staff.
• MIS are generally reporting and control oriented. They are
designed to report on existing operations and therefore to help
provide day-to-day control of operations.
• MIS rely on existing corporate data and data flows.
• MIS have little analytical capability.
• MIS generally aid in decision making using past and present data.
• MIS are relatively inflexible.
• MIS have an internal rather than an external orientation.
 Strategic Level Information Systems
• Senior managers use Executive Support System (ESS) to make decisions. ESS serve
the strategic level of an organization and address unstructured decisions and
create a generalized computing and communications environment rather than
providing any fixed application or specific capability.
• ESSs are designed to incorporate data about external events but they also draw
summarized information from MIS and DSS. They filter, compress and track critical
data, emphasizing the reduction of time and effort required to obtain information
useful to executives.
• ESSs employ the most advanced graphics software and can deliver graphs and data
from many sources immediately to a senior executive’s office or to a boardroom.
Unlike other types of information systems, ESSs are not designed primarily to solve
specific problems. Instead, ESSs provide a generalized computing and
telecommunications capacity that can be applied to a changing array of problems.
• While many DSS are designed to be highly analytical, ESS comes with less
analytical capabilities. Since ESSs are designed to be used by senior managers
who often have little, is any, direct contact or experience with computer-based
information systems, they incorporate easy-to-use graphic interfaces.
 Factors influencing the use of IS
• The first factor is the emergence and strengthening of the global economy.
Globalization of the world’s industrial economies greatly enhances the value of
information to the firm and offers new opportunities to businesses. Information system
provides the communication and analytical power that firms need for conducting trade
and managing businesses on a global scale.
• The second factor is due to the transformation of industrial economies and societies
into knowledge and information based service economies. In knowledge based
economies, knowledge and information are key ingredients in creating wealth to an
organization. Knowledge and information are becoming the foundation for many new
services and products. Intensification of knowledge utilization in the production of
traditional products has increased as well. New kinds of knowledge- and information-
intense organizations have emerged that are devoted entirely to the production,
processing, and distribution of information
• The third factor is due to the transforming of the business enterprise. Traditional firms
was and still is a hierarchical, centralized, structured arrangement of specialist that
typically relies on a fixed set of standard operating procedures to deliver a mass-
produced product or services. But the business enterprises has change into flattened,
decentralized, flexible arrangement of generalists who rely on nearly instant information
to deliver mass-customized products and services uniquely suited to specific markets or
customers
 Operational Excellence:
• Improved efficiency in terms of speed, accuracy,
dependability, persistence, multitasking, etc, results in
higher profitability
• Information systems and technologies help to improve
higher levels of efficiency and productivity
• Wal-Mart (largest retailer) is the champion of combining
information systems, best business practices, and
supportive management to achieve operational efficiency
— $408 billion in sales in 2010
• Wal-Mart is the most efficient store in the world as a
result of digital links between its
suppliers and stores (the first to use CRP)
Information Systems and Business Strategy
 New products, services, and
business models:
• Information systems and technologies enable firms to create new
products, services, and business models
• A business model includes how a company produces, delivers, and
sells its products or services to create wealth
• The music industry has seen drastic changes in business models in
recent years
• Apple Inc. transformed and old business model of music distribution
based on tapes, records, CD into an online based on iPod technology
platform.
• Apple has been very successful at introducing new products (e.g., iPad,
iPod nano, iPod video player, iPhone).
Information Systems and Business Strategy
 Customer and supplier
intimacy:
• Customers who are served well become repeat customers who
purchase more
• Close relationships with suppliers result in lower costs
• The Mandarin Oriental in Manhattan uses information systems and
technologies to foster an intimate relationship with its customers
including keeping track of their preferences (room temperature,
check in time, frequently dialed telephone numbers, TV programs–
store these data in a large data repository.
• JCPenney uses information systems to enhance its relationship with
its supplier in Hong Kong TAL Apparel Ltd.Everytime a shirt is bought
at JCPenny store in US, TAL decides how many replacement shirts to
make, what colors, style and sizes. TAL then sends the shirts to each
of JCPenny stores bypassing retailers.

Information Systems and Business Strategy

 Improved decision making:
• A company’s bottom line can be hurt by managers being swamped with
data that are neither timely nor helpful, forcing them rely on forecasts,
best guesses, and luck resulting in over or under production of goods
and services, misallocation of resources, and poor response time

• Real-time data have improved the ability of managers to make

decisions

• Web-based digital dashboard utilised by VerizonCorp. (one of the

largest telecomm co in US) can be used to update managers with real-
time data on customer complaints, network performance, and line
outages

Information Systems and Business Strategy

 Competitive advantage
• Achieving the previously mentioned business objectives often leads to
competitive advantage
• Advantages over competitors include charging less for superior products,
better performance, and better response to suppliers and customers
which add up to higher sales and higher profits
• Dell Computer is one of the best examples of establishing competitive
advantage as the company has continued to be profitable during a time
when PC prices have been falling steadily

Information Systems and Business Strategy

 Survival
• Businesses may need to invest in information systems out of necessity
• Necessity arises from keeping up with competitors, such as when
Citibank New York introduced ATMs in 1977
• Necessity also arises from federal and state regulations, such as the Toxic
Substances Control Act and the Sarbanes-Oxley Act

Information Systems and Business Strategy

Besides the above mentioned main factors, there are also
several trends that have made the use of information
systems very important in business:
• Computers’ power has grown tremendously, while their
prices have dropped.
• Computer programs’ variety and ingenuity have
increased.
• Quick and reliable communication lines and access to the
Internet and World Wide Web have become widely
available and affordable.
• The fast growth of the Internet has opened opportunities,
as well as competition in global markets.
• An increasing ratio of the workforce is computer literate.
Strategic Information Systems (SIS)
• Certain types of systems have become especially critical
to firms’ long term prosperity and survival. Such systems
are powerful tools for staying ahead of the competition.
They are called strategic information systems (SIS)
• SIS: computer systems at any level of the organization
that change goals, operations, products, services, or
environmental relationships to help the organization
gain a competitive advantage.
• Systems that have these effects may even change the
business of organizations.

Information Systems and Business Strategy

Strategic Information Systems (SIS)
• SIS is able to change significantly the manner in
which biz is done. How?
• Contributing to the strategic goals of the organization
• Ability to increase performance and productivity significantly.

• SIS should be distinguished from strategic level

systems (executive information system) that are
used by senior managers.
• SIS can be used at all organizational levels.
• SIS profoundly alter the way a firm conducts its
business or the very business of the firm itself.
Information Systems and Business Strategy
 Different Types of SIS
1. Outward systems: aimed to compete directly with other
companies in the industry
2. Inward systems: directed to enhance the competitive
position of an organization by increasing employee
productivity, improving teamwork, and enhancing
communications between various components of the
organization.
3. Hybrid systems: for e.g. CAT combined both outward (EDI and
CAT TV) and inward (computer integrated manufacturing).
4. Strategic alliances: two or more companies share a SIS. Eg.
Banks share the same ATM network.

Information Systems and Business Strategy

 Management Challenges
• Implementing SIS can be risky—the
investment involved in implementing SIS is
high
• SIS requires planning—Porter and Millar
framework can be used to plan and develop a
strategy of how to use SIS
• Sustainability of competitive advantage—
competitive advantage isn’t always sustainable

Information Systems and Business Strategy

Why SIS are difficult to build and
sustain
• Expensive
• Risky to build (time consuming)
• Easily copied by other firms
• Implementing strategic systems often
requires extensive organizational change
and a transition from one sociotechnical
level to another

Information Systems and Business Strategy

 Different Levels of Strategy and

Strategic Systems
There is generally no single all encompassing strategic
systems, but instead there are a number of systems
operating at different levels of strategy—the business,
the firm, and the industry level.
 For each level of business strategy, there are strategic
uses of systems. And for each level of business strategy,
there is an appropriate model used for analysis.
 Business-level strategy: Porter’s value chain model
 Firm-level strategy: synergy and core competency
 Industry level strategy: information partnership, competitive forces model, network
economics

Information Systems and Business Strategy

A good IS must be able to produce
• Relevant – information must pertain to the problem at hand.
• Complete – partial information is often worst than no
information.
• Accurate – erroneous information may lead to disastrous
decisions.
• Current – decisions are often based upon the latest
information available.
• Economical – in a business setting, the cost of obtaining
information must be considered as one cost element
involved in any decision.
Information Quality
 New Options for Organizational Design: The
Networked Enterprise
• Flattening organizations will results in fewer levels of management, with lower-level
employees being given greater decision-making authority. Those employees are
empowered to make more decisions than in the past are no longer work standard 8
hours and no longer necessary work in an office and they can be scattered
geographically. Team members can collaborate closely even from distant locations.
• Separating work from location is possible as organizing globally while working locally
is made possible through technologies like e-mail, the Internet, video conferencing.
Communication technology eliminates distance as a factor for many types of work in
many situations. Collaborative teamwork across thousands of miles has become a
reality designer’s work on the design of a new product together even if they are
located on different continents. Companies are not limited to physical locations or
their own organizational boundaries for providing products and services. Virtual
organization becomes reality where organization using network linking people, assets
and ideas to create and distribute products and services without being limited by
traditional organizational boundaries or physical location.
• Reorganizing work flows as IS have been progressively replacing manual work
procedures with automated work procedures, work flows and work processes.
Improved work flow management enabled many organizations not only to cut cost
significantly but also to improve customer service at the same time.
 Cont’d
• Increases flexibility of organization as companies uses communication
technology to organize in more flexible way, increases their ability to respond to
changes in the marketplace and to take advantage of new opportunities. Large
organization can use information technology to achieve some of the agility and
responsiveness of small organizations like mass customization, the use of software
and computer networks to finely control production so that products can be easily
customized with no added cost for small production runs.
• Information technology is recasting the process of management, providing
powerful new capabilities to help managers plan, organize, lead and control. For
example the use of Enterprise Resource Planning (ERP) is a business management
that integrates all facets of the business, including planning, manufacturing, sales
and finance so that they can become closely coordinated by sharing information
with each other.
• Reducing organizational boundaries as networked information system enables
transactions to be exchanged electronically among different companies, hence
reducing the cost of obtaining products and services from outside the firm. An
inter-organizational system is a system that automates the flow of information
across organizational boundaries and links a company to its customers,
distributors or suppliers.