Module 1

FUNDATIONS OF INFORMATION SYSTEMS

1 Introduction

In today’s world of ever increasing complexities of business, technology and

management, every business organization wants to grow and keep the firm in good
strategic position. This is possible only if the firm has adequate, quick and reliable
information about the contemporary business environment. Information technology and
information system is one such tool to provide information required by the business
organization and its stake holders so that managers can initiate decisions which help
growth of the organization. The globalization context makes the product and market as
global.

The organizations are highly dependent on information technology and systems

to make the business. In this context business managers and professionals rely on a
variety of information systems that uses information technologies. In this chapter we
understand the concepts of data, information, system’s concept, information systems,
and its resources, role of information in business, dimensions and attributes of
information, different perspectives of information system and strategic objectives of
information systems.

2 Concept of Data and information

Data: Data consists of raw facts, such as an employee’s name and number of hours
worked in week, inventory part numbers. Several types of data can be used to represent
to represent these facts which are organized or arranged in a meaningful manner, they
become information.

Raw data from a supermarket checkout counter can be processed and organized
to produce meaningful information such as the total sales of soap or the total sales
revenue from soap for a specific stores or sales territory.

1|Page
2.1 Information

Information can be defined as the data which is organized and presented at a time and
place so that the decision maker may take necessary action. Information in other wards
is the result/product of processing data.

Data Process Information Decision

Specific
Action

2.2 Different types of information

a. Environmental information
i. Government policies
ii. Economic trends
iii. Technological environment
iv. Factors of production

b. Competitive information
i. Industry demand
ii. Firm demand
iii. Competition
iv. Past performance
v. Present activity
vi. Future plans

c. Internal information
i. Sales forecast
ii. Financial plan
iii. Supply factors
iv. Policies

2|Page
2.3 Data versus Information

Data: Streams of raw facts representing events such as business transactions. Once,
enterprises get their data into shape, that data can more easily be turned into
information.

Information: Data that has been put into a meaningful and useful context. Usually, help
to make a decision. Information is a cluster of facts that are meaningful and useful to
human beings in the processes such as making decisions. ―Information is power‖:
Mission of the Information is put the right information, in the right hands, at the right
time, in the right format.

3 Concept of System

3.1 Introduction to Systems

Systems are diverse in nature like economic system, computer system, decision
support system, communication system, transport system, educational systems. This
means use live in an era of systems.

A system is composed with set of interrelated components which has a clearly

defined boundary and working together to achieve a common set of objectives by
accepting inputs and producing outputs in an organized transformation process. The
simple system is shown in figure 1.1.

Figure: 1.1. System

3|Page
The figure 1.1 shows the system has a set of elements like input, processing, output,
feedback and control element. The output of the system is subjected to variations and
will pass to the notice of input and processing stage to initiate corrective actions. The
feedback element will do this job. A control element will exercise the control over the
elements of the system to take care of feedback. Such a system is called closed loop or
cybernetic system which has two important characteristics. One is self monitoring and
other is self regulation to maintain the system objectives.

Thus a system is a group of elements or components joined together to fulfill

certain functions. A system is an assemblage of procedures, processes, methods,
routine techniques.

A system is made up of sub systems. These subsystems may be composed of further

subsystems.

Various types of systems

Systems Sub-systems Usefulness

Transport Air transport, rail transport, water To provide movement of
transport goods and passengers
Computer Physical components like inputs, outputs Processing data for
storage information
Business Various departments like production Production of goods and
marketing, finance and Human resource. services

3.2 Characteristics of a system

In general, the characteristics of a system is may be listed as follows.
1. A set of interrelated components
2. With a clearly defined boundary
3. Working together
4. To achieve a common set of objectives
5. By accepting inputs and producing outputs
6. In an organized transformation process

4|Page
4 Information system

An information system has a set of interrelated components that collect (or retrieve),
process, store, and distribute information to support decision making and control in an
organization. An information system has an organized combination of People, Hardware
and Software, Communication networks, Data resources and Policies and procedures.

Therefore, information system is stores, retrieves, transforms, and disseminates

information in an organization. The simple information system is shown in figure 1.2.The
Information System transforms the input of data resources into an output of information
and its products. The processed data as information shall be stored for further uses.

Figure 1.2.Information system

4.1 Components of Information System

Various components of Information Systems is presented in Figure 1.3. Components of

Information Systems are Data, Hardware, Software, Telecommunications and network,
People and Procedures. Table 1.1 indicates the roles of various Components of
Information Systems.

5|Page
 Table 1.1. The roles of various Components of Information Systems.

Data: Input that the system takes to produce information

Hardware: A computer and its peripheral equipment: input, output, and storage
devices. Hardware includes data communication equipment

Software: Set of instructions that tell the computer how to take data in, how to process
it, how to display information, and how to store data and information

Telecommunications and network: Hardware and software that facilitate fast

transmission and reception of text, pictures, sound and animation in the form of
electronic data

People: Information systems professionals and users who analyse organisational

information needs, design and construct information systems, write computer programs,
operate the hardware, and maintain software.

Procedures: Rules for achieving optimal and secure operations in data processing.
Procedures include priorities in dispensing software applications and security measures.

Figure 1.3.: Various components of Information Systems is presented

6|Page
5 Classification of Information Systems

Information Systems may be broadly classified as Operations support systems and

Management Support Systems. They may be further classified as mentioned below.
The figure 1.4 represents the classification of Information Systems.

1. Operations support systems process data generated by business operations

Major categories are:
i) Transaction processing systems
ii) Process control systems
iii) Office automation systems

2. Management Support Systems provide information and support needed for

effective decision making by managers
Major categories are
i) Management Information System
ii) Decision Support Systems
iii) Executive Information System

Figure 1.4: Classification of Information Systems

7|Page
6 Major roles of business applications of information systems

The three important roles business applications of information systems which are the
vital roles that information can perform for the enterprises are mentioned below.

1. Support Business Process and Operations.

2. Support Business Decisions.

3. Support strategies for competitive advantages

The three important roles business applications of information systems are illustrated in
Figure 1.5.

Support strategies
for
competitive advantages
Support Business Decisions.

Support Business Process and Operations

Figure 1.5 Major roles of business applications of information systems

Support Business Process and Operations: information system support the Business
Process and Operations of an organization. For an example even a small medical retail
shop today depends on an information system. As the consumer enquires the medicine
to buy, the retailer would log into the information systems to see the availability of the
medicine, to know the cost and billing of the medicine. Therefore every business
transactions and business process need the support of the information systems.

8|Page
Support Business Decisions: An Information system not only support business
process and operations but also provides information that helps the mangers or end
user to make the decisions related to the business. With reference to the above
example, in a retail medical store, the Information system provides the stores manager
status of the inventory, transactions of the products, fast moving products, sales details
of the specific period etc., with the help of which he can take decisions to order or to
keep stock, discounts, investments and so on.
Support strategies for competitive advantage: Information system provides its
innovative applications and helps the organizations to gain Support strategies for
competitive advantage. For an example in a large book house, stores manger may
initiate to establish electronic kiosks to help customer for their quick references and to
save their time in their purchases. This may differentiate the book house from its
competitors and creates an opportunity to increase the firms business.
Information system (IS) and Information Technology (IT)
Although, people often interchange the terms Information system and Information
Technology which goes hand in hand, the distinction may be noted as follows.
Information system refers all the components and resources necessary to deliver
its information and functions to the organization, While, Information Technology refers
the various hardware components necessary for the systems to operate. Figure 1.6
presents the role of IT in IS.

Figure 1.6 Role of IT in IS.

9|Page
 7 Contributions of IT that makes a difference to the success of a business

Three important reasons why IT makes a difference to the success of a business are
mentioned below.

1. Foundation of doing business

2. Productivity

3. Strategic opportunity and advantage

7.1. Foundation of doing business

Most businesses today could not operate without extensive use of information
systems and technologies. The organizations more specifically using e-commerce
and e-business like Amazon.com, e-bay, wall-mart and such organizations would
have not exist without IT. IT can help a business become a high-quality, low-cost
producer and hence to increase market share. IT is vital to the development of new
products.

There is a growing interdependence between a firm’s information systems and its

business capabilities. Changes in strategy, rules, and business processes
increasingly require changes in hardware, software, databases, and
telecommunications. Often, what the organization would like to do depends on what
its systems will permit it to do.

Down the line five years the firm’s strategic growth and profit level depends on
how the company implements the IT and build the IT capabilities in the firm and
hence IT acts as a Interdependence between Organizations and Information
Systems. This Interdependence between Organizations and Information Systems is
presented in figure 1.7.

10 | P a g e
 Figure 1.7.Interdependence between Organizations and Information Systems

7.2. Productivity

IT is one of the most important tools manager’s uses to have increase productivity and
efficiency of businesses. IT is a major factor in reducing costs. For firms, IT is a major
source of labor and capital efficiency.

7.3. Strategic Opportunity and Advantage.

Information technology creates strategic opportunity and advantage to business

organization. But the kind of getting the competitive advantage depends on the
organizations’ capability to use IT and its innovation as uniqueness in their business.
Although, IT is available in the market, and immitigable by the competitors but still the
organizations’ capability to use IT matters more.
E.g. Dell Computers, Amazon, e-bay, Google are the some examples of the
global organizations which adopted it and innovations to their business and gained
competitive advantages in the market.

11 | P a g e
Further, Strategic Opportunity and Advantage may be viewed with following points.

• Create competitive advantage: IT makes it possible to develop competitive

advantages.

• New Business Models: Dell Computer has built its competitive advantage on an IT
enabled build-to-order business model that other firms have not been able to imitate.

• Create new services: IT makes it possible to develop Create and develop new
services. E.g. E Bay has developed the largest auction trading platform for millions
of individuals and businesses.

• Differentiate the organization from the competitors: IT and its innovation may be
adopted as uniqueness in their business to differentiate the organization from the
competitors. Amazon has become the largest book retailer in the United States on
the strength of its huge online inventory and recommender system. Amazon, eBay,
Dell, Wal-Mart and Apple's iTunes are just a few firms that have built and maintained
technology-based advantages.

8 Impact of IT in business firms

There are five factors to consider when assessing the growing impact of IT in business
firm. They are mentioned below.

1. Internet growth and technology Convergence.

2. Transformation of Business Enterprises.

3. Growth of a globally connected economy (Globalization).

4. Growth of knowledge and information-based economies

5. Emergence of the digital firm

12 | P a g e
Further, above impacts are discussed briefly in the below sections.

8.1. The Internet and Technology Convergence

Internet is bringing about rapid changes in markets and market structure: financial

services and banking such as eTrade.com. Internet resulted growth in e-business, e-

commerce, and e-government. The Internet is not emerged and burst but it will

continue to be a flat form to do the business. The Internet is making many traditional

business models obsolete.

8.2 Transformation of Business Enterprises.

Along with rapid changes in markets and competitive advantages are changes in the

firm themselves. The internet and new markets are changing the cost and revenue

structure of the traditional firms and are hastening the demise of traditional business

models. In addition to the above some more transformations are also caused due to the

technological convergence in the traditional business in terms of its structure,

management, technology adoption etc. These transformations are presented in the

encapsulated manner below.

• Organizations are becoming Flattening

• Organizations are becoming Decentralization

• Organizations are becoming Flexibility

• Location independence

• Low transaction and coordination costs

• Empowerment

• Collaborative work and teamwork

13 | P a g e
8.3 Globalization
Globalization results various organizations to distribute core business functions in

product design, manufacturing, finance and customer supports to locations in other

countries where the work may be performed cost effectively. The Globalization leads

the management and control in a global marketplace, competition in world markets,

global workgroups and global delivery systems which essentially based on digital

technology.

8.4 Rise of the Information Economy

Today’s country economy is not only dependent on manufacturing sectors business but

also on Knowledge and information-based products. Knowledge and information

provides more value the new products and services. In Knowledge and information-

based economies, the firms capability and market value will be assessed on new

products and services launched by the firm and firm’s Knowledge as a central

productive and strategic asset.

8.5 The Emerging Digital Firm

A digital firm is one in which nearly all of the organisation’s significant business
relationships with customers, suppliers and employees are digitally enabled and
mediated. Core business which involve set of logically related tasks and behaviours that
organisations develop over time to produce specific business results and the unique
manner are organised and coordinated. Core processes are accomplished through
digital networks spanning the entire organisation or linking multiple organisations. In a
digital firm, any piece of information required to support key business decisions is
available at any time and any where in the firm. Key Corporate Assets of digital firm are
Intellectual property, core competencies, and financial and human assets – are
managed through digital means. A frame work of Digital Firm is presented in Figure
1.8.
14 | P a g e
 Figure 1.8. A frame work of Digital Firm

8.51 Key benefits of digital firms may be listed as below.

1. They sense and respond to the changing business environments more rapidly than
traditional firms, giving them flexibility to survive in turbulent times.

2. The firms offer extraordinary opportunities for more flexible global organisation and
management.

3. Time shifting (business being conducted 24x7) and space shifting (business being
conducted globally or beyond traditional geographic boundaries) are the norms in
the organisations.

15 | P a g e
 8.52 The characteristics of digital firm

A digital firm usually possess the flowing characteristics.

1. Digitally enabled relationships with customers, suppliers, and employees

2. Core business processes accomplished using digital networks

3. Digital management of key corporate assets

4. Agile sensing and responding to environmental changes

5. Seamless flow of information within the firm, and with strategic partners

9 Data versus Information

Data consists of raw facts, such as an employee’s name and number of hours worked in

week, inventory part numbers. Several types of data can be used to represent to

represent these facts which are organized or arranged in a meaningful manner, they

become information.

Raw data from a supermarket checkout counter can be processed and organized

to produce meaningful information such as the total sales of soap or the total sales

revenue from soap for a specific stores or sales territory.

Information

Information can be defined as the data which is organized and presented at a time and

place so that the decision maker may take necessary action. Information in other wards

is the result/product of processing data. Figure 1.9 illustrates the differences between

data and information

16 | P a g e
 Figure 1.9 Differences between data and information

9.1 Attributes of Information Quality

Attributes of Information Quality may be viewed under three important dimensions such
as Time Dimension, Content Dimension, and Form dimension. Various attributes along
with requirements are furnished in Table 1.2

Table 1.2 Attributes of Information Quality

Attributes Requirements
Timeliness Information should be provided when it is needed
Currency Information should be up-to-date when it is provided
Frequency Information should be provided as often as needed

Time Period Information should be provided about past, present, and future time periods
Accuracy Information should be free from errors
Relevance Information should be related to the information needs of a specific recipient
for a specific situation
Completeness All the information that is needed should be provided

17 | P a g e
Conciseness Only the information that is needed should be provided
Scope Information can have broader or narrow scope, or an internal or external
focus
Performance Information can reveal performance by measuring activities accomplished,
progress made, or resources accumulated.

Clarity Information should be provided in a form that is easy to understand

Detail Information can be in detail or summary form
Order Information can be arranged in a predetermined sequence
Presentation. Information can be presented in narrative, numeric, graphic, or other forms.
Media Information can be provided in the form of printed paper, documents, video
displays, or other media

18 | P a g e
10 Perspectives on Information Systems

Perspectives on Information Systems are discussed under the views of Technological

based, Computer-Based Information System (CBIS) based and Business based
Perspectives. The brief descriptions of each perspective are discussed below.

10.1 Technology perspective: A set of interrelated components that collect (or

retrieve), process, store, and distribute information to support decision making and
control in an organization. Information System Stores, retrieves, transforms, and
disseminates information in an organization.

10.2 Computer-Based Information Systems (CBIS)

Earlier days there was a usage of manual information system which essentially depend
on the human skills and intellectual capabilities of individuals. Unlike manual information
system, Computer-Based Information System has fixed definitions of data and
procedures. Computer-Based Information System (CBIS) rely on computer hardware
and software and performs processing operations as defined by the pre established set
of procedures, and sequences of instructions and thus disseminate the information to
the organization or to end users.

10.3 Business perspectives of Information Systems

Following points are worth to note under the view of Business Perspective on
Information Systems.
Information Systems based on information technology require significant
investments but provides thus organizational and management changes and
innovations to meet the contemporary business needs and hence to meet the changing
business environment. Information Systems create value primarily by changing
business processes and management decision making behavior and process.
Businesses organizations invest in Information Systems in order to create value and
hence to increase profitability. Information systems are more than just technology.
Information systems are an organizational and management solution to business
challenges that arise from the business environment. Major Business Functions Rely on
Information Systems are Sales and marketing, Manufacturing, Finance, Accounting, and
Human resources.

19 | P a g e
10.4 The Business Information Value Chain

The figure 1.20 shows the Business Information Value Chain (BVIC). It may be noted
that from the business perspective, Information Systems are part of a series of value-
adding activities for acquiring, transforming, and distributing information that managers
can use to improve decision making, enhance organizational performance and,
ultimately, increase firms’ profitability. As shown in figure, raw information is
systematically acquired and then transformed through various stages of business
process and management functions so that value shall be added to that information.

The Business Information Value Chain

Figure 1.20 Business Information Value Chain (BVIC).

20 | P a g e
11 Dimensions of Information Systems

Dimensions of Information Systems are broadly considered as

1. Organizations
2. Managers
3. Technology
It is need to understand and balance these dimensions of information systems in order
to create business value.
11.1 Organisation
The key elements of an organization are its people, structure, business processes,
politics, and culture. An organization coordinates work through a structured hierarchy &
formal standard operating procedures. Managerial, professional, and technical
employees form the upper levels of the organization's hierarchy while lower levels
consist of operational personnel. Information systems serve each of these levels.
Scientists and knowledge workers often work with middle management and lower levels
with operational personnel. Figure 1.21 shows three principal levels of manager
hierarchically situated in a typical organization.
Business organization generally has hierarchies consisting of three principal levels:
1. Senior management,
2. Middle management, and
3. Operational management.

Figure 1.21 shows three principal levels of management in an organization.

21 | P a g e
Operational level people make daily, routine and programmed decisions which do not

significantly affect the organizations strategic growth, while middle level management

people will take tactical decisions and top level personnel shall take strategic decisions

which will affect the organization’s performance in the long range. Table 1.3 shows

some examples of three kinds levels and associated objectives and decisions.

Table 1.4 shows some examples of different functions of the organizations and

associated Operations, Tactics, Strategy Decisions.

Table 1.3. Examples of three levels and associated decisions.

Decision Description Example Type of Information

Level

Strategic Competitive advantage, New product that External events, rivals,

become a market leader. will change the sales, costs quality,

Long-term outlook. industry. trends.

Tactical Improving operations without New tools to cut Expenses, schedules,

restructuring the company. costs or improve sales, models, forecasts.

efficiency.

Operations Day-to-day actions to keep Scheduling Transactions, accounting,

the company functioning. employees, human resource

ordering supplies. management, inventory.

22 | P a g e
Table 1.4 Examples of functions and associated Operations, Tactics, Strategy Decisions.
Sector Operations Tactics Strategy

Production • Machine settings • Rearrange work area • New factory

• Worker schedules • Schedule new products • New products

• Maintenance sch. • Change inventory method • New industry

Accounting • Categorize assets • Inventory valuation • New A/C 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 promotions • Select marketing media • New markets

Senior management makes long-range strategic decisions and ensures the firm's
financial performance. Middle management carries out the plans of senior management
and operational management monitors the firm's daily activities. Knowledge workers
such as engineers and scientists design products and create and distribute new
knowledge for the organization. Data workers such as secretaries process the
organization's paperwork. Production or service workers produce the products or
services.

Experts are employed for the major business functions: the specialized tasks
performed by organizations, which consist of sales and marketing, manufacturing and
production, finance and accounting, and human resources.

An organization coordinates work through its hierarchy and business

processes. These processes may be documented and formal. Each organization has a
unique culture, or fundamental set of assumptions, values, and ways of doing things,
that are accepted by most of its members. Part of an organization's culture can be found
in its information systems. For example, UPS's organizational focus on customer
service can be found in the package tracking system available to customers.

23 | P a g e
 Information system may also reflect the organizational politics or conflicts that
result from differing views and opinions in an organization. Information systems are also
a key component in the ability of management to make sense of the challenges facing a
company and in management's ability to create new products and services. Information
technology is one of the tools managers use to cope with changes.

11.2 The Management Dimension of Information Systems

The Management Dimension of Information Systems is viewed manager’s as mentioned

below.

Managers are:

1. Sense makers

2. Decision makers

3. Planners

4. Innovators of new processes

5. Leaders: set agendas

11.3 The Technology Dimension of Info Systems

The Technology Dimension of Info Systems considers Information technology is one of

the tools managers use to cope with change. The resources and its roles of information
system is described briefly below.

• Hardware: Physical equipment

• Software: Detailed preprogrammed instructions

• Storage: Physical media for storing data and the software

• Communications technology: Transfers data from one physical location to

another

• Networks: Links computers to share data or resources

24 | P a g e
12 Functions of an Information System

1. An information system contains information about an organization and its

surrounding environment. Three basic activities—input, processing, and

output—produce the information that organizations need.

2. Feedback is returned to appropriate people or activities in the organization to

evaluate and refine the input.

3. Environmental factors, such as customers, suppliers, competitors,

stockholders, and regulatory agencies, interact with the organization and its

information systems.

4. Functions of an Information System is presented in figure 1.22

Figure 1.22 Functions of an Information System

25 | P a g e
13 Information systems to achieve strategic business objectives:

Business firms invest heavily in information systems to achieve six strategic business

objectives:

1. Operational excellence: Efficiency, productivity, and improved changes in business

practices and management behavior. Eg. Wall-Mart.

2. New products, services, and business models: A business model describes how

a company produces, delivers, and sells a product or service to create wealth.

Information systems and technologies create opportunities for products, services, and

new ways to engage in business. E.g. iPod, iTunes music Service, and the iPhone.

3. Customer and supplier intimacy: Improved communication with and service to

customer’s raises revenues and improved communication with suppliers lowers costs

(Hotel).

4. Improved decision making: Without accurate and timely information, business

managers must make decisions based on forecasts, best guesses, and luck, a process

that results in over and under-production of goods, raising costs, and the loss of

customers.

5. Competitive advantage: Implementing effective and efficient information systems

can allow a company to charge less for superior products, adding up to higher sales and

profits than their competitors (Toyota).

6. Survival: Information systems can also be a necessity of doing business. A necessity

may be driven by industry-level changes, as in the implementation of ATMs in the retail
banking industry. A necessity may also be driven by governmental regulations, such as
central or state statutes requiring a business to retain data and report specific
information.

26 | P a g e
 14 Information technology and Internet

Information technology is one of the many tools used by management to cope with

change. A firm's information technology (IT) infrastructure is a technology platform or

foundation on which a firm can build its information systems.

The Internet is the world's largest and most widely used network. The Internet is

a global network that uses universal technology standards to connect many private and

public networks. The universal standards and technologies used in the Internet are also

used in systems and networks within the firm.

Intranets are internal corporate networks based on Internet technology, and

extranets are corporate networks extended to authorized users outside of the firm.

Recommended Books

1. Management Information Systems‖, Kenneth J Laudon, Jane P. Laudon, Pearson/PHI,10/e,

2. ―Management Information Systems‖, James A. O’ Brien, Tata McGraw Hill, 7th Edition, 2007.

3. ―Management Information Systems‖, W. S. Jawadekar, Tata McGraw Hill Edition, 3/e, 2007

Reference Books

1. ―Management Information Systems‖, S.Sadagopan, PHI, 1/e, 2005.

2. ―Management Information Systems‖, Effy Oz, Thomson Course Technology, 3/e, 2003

3. Corporate Information Strategy and Management‖, Lynda M AppleGate, Robert D Austin et al,

Tata McGraw Hill, 7th Edition.

**********

27 | P a g e