Management Information System

Module- 1
Introduction
Management Information Systems helps firms in realizing maximum profits on their investments. The whole system is
designed with the aim of enhancing profits, exercising better control and performance planning at all
levels. Information systems are used at all the levels of a business organization in order to collect, process or store data.
However, this gathered information needs to be carried out in an efficient manner which actually helps in business growth.
So, MIS professionals create information systems for data management. They manage the various information systems in
such a way that it is able to meet the needs of management, staff as well as clients. MIS professionals play a critical role in
areas of information security, integration as well as exchange.
Management information system (MIS) is a system to provide selected decision-oriented information needed by ma-
nagement to plan, control, and evaluate the activities of the corporation.
It is designed within a framework that emphasizes profit planning, performance planning, and control at all levels.
MIS is an organized integration of hardware and software technologies, data, processes, and human elements. It is a
software system that focuses on the management of information technology to provide efficient and effective strategic
decision making.
Elements of how a system is set in MIS:
 Input
 Process
 Output
 Feedback
 Environment
Meaning

A management information system is an acronym of three words, viz., Management, information, system. In
order to fully understand the term MIS, let us try to understand these three words.
1. Management: Management is the art of getting things done through and with the people in formally organised groups.

2. Information: Information is data that is processed and is presented in a form which assists decision-making. It may
contain an element of surprise, reduce uncertainty or provoke a manager to initiate an action.

3. System: A system is an orderly grouping of interdependent components linked together according to a plan to achieve a
specific goal. The term system is the most loosely held term in management literature because of its use in different
contexts.
Components of MIS
The major components of MIS are:
 People Resources: People are
required for the operation of all
information system.
 Data Resources: Database holds
processed and organized data.
 Software Resources: It includes all sets of information processing instruction.
 Hardware Resources: Include all physical devices and materials used in information processing.
 Process: is a step undertaken to achieve a goal.

MIS Definition
Management Information System (MIS) is an integrated man/machine system for providing information to hold
up the operations, management and decision making functions in an organization.G.B. Davis
A formal method of collecting timely information in a presentable form in order to facilitate effective decision
making and implementation, in order to carry out organisational operations for the purpose of achieving the
organisational goals. Walter I. Kennevan

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 A Management Information System is an organized portfolio of formal systems for obtaining, processing, and
delivering information in support of the business operations and management of an organization. Zwass (1992)
Need of Management Information System
An organisation must have a very clear version about requirements such as type of information required, type of
data available , type of stakeholders etc, at different levels of Management. An Organisation established and
MIS for the following reasons:

 Efficiently storing and managing data of all business functional areas.

 Fast and accurate delivery of information, as and when needed.
 Processing of gathered data and developing information from it.
 Information availability for production and inventory.
 Providing information about current economic status of company.
 Faster implementation of results available from reliable data sources.
 Smooth flow of data within various levels of organization.
Make availability of information required for planning organizing and monitoring business process.
Scope of MIS

After understanding what is MIS and the nature of management, we move on to the scope of MIS. Information
Systems is growing at a fast pace to become one of the most promising career fields in today’s world. With
everything happening digitally, the demand for MIS professionals is increasing more than ever. MIS involves
performing a number of task simultaneously such as-

 Processing data
 Initiating transactions
 Responding to inquiries
 Producing reports and its summaries
 Manage the data created within the structure of a particular business

MIS acts in an organization just like a nervous system in a body by providing with the relevant information for
ease in the process of decision making.
The purpose of MIS is to work towards satisfying the information needs of everyone in the business. It means
providing the relevant information to those who need it.
Thus, MIS has a lot of potential to become one of the most promising careers for individuals interested in the
workings of a business.

Nature of Management Information System

Management Information Systems (MIS) can be simply referred to as a system or process that facilitates the
smooth working of the organisation. The nature of MIS is truly multifold because it plays a bigger role in
business decisions, from costs to employee management. Here are the major features that portray the nature of
MIS:

 MIS is utilised by every level of a management.

 It clarifies and focuses on the strategic goals and objectives for the management.
 MIS provides an effective system to analyse costs and revenues and further reviews effectively and
efficiently to bring a balanced in finances and costs.
 MIS is maintained either through manual systems or automated systems or a combination of both.
 It also plays a incremental role in identifying, locating, measuring, tackling and limiting risks.
 It lays down a framework of rules and regulations for the management to bring a clear and concise
communication between employees.
 MIS provides an objective system of collecting, assessing and aggregating information for a business.
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Characteristics of MIS
What is MIS Characteristic? MIS plays a very important role in every aspect of an organization. These
characteristics are generic in nature.
Following are the characteristics of MIS:
1. System Approach
2. Management Oriented
3. Need-Based
4. Exception Based
5. Future Oriented
6. Integrated
7. Long Term Planning
8. Sub-System Concept
9. Central Database
System Approach
The information system follows a System’s approach. The system’s approach implies a holistic approach to the
study of system and its performance in the light for the objective for which it has been constituted.
Management Oriented
The top-down approach must be followed while designing the MIS. The top-down approach suggests that the
system development starts from the determination of management needs and overall business objectives.
The MIS development plan should be derived from the overall business plan. Management oriented
characteristic of MIS also implies that the management actively directs the system development efforts.
Need-Based
MIS design and development should be as per the information needs of managers at different levels, strategic
planning level, management control level and operational control level. In other words, MIS should cater to the
specific needs of managers in an organization’s hierarchy.
Exception Based
MIS should be developed on the exception-based reporting principle, which means an abnormal situation, i.e. the
maximum; minimum or expected values vary beyond tolerance limits. In such situations, there should BE
exception reporting to the decision-maker at the required level.
Future Oriented
Besides exception-based reporting, MIS should also look at the future. In other words, MIS should not merely
provide past or historical information; rather it should provide information, on the basis of projections based on
which actions may be initiated.
Integrated
Integration is a necessary characteristic of a management information system. Integration is significant because
of its ability to produce more meaningful information.
For example, in order to develop an effective production scheduling system, it is necessary to balance such
factors as setup costs, Workforce, Overtime rates, Production capacity, Inventory level, Capital requirements and
Customer services.
Long Term Planning
MIS is developed over relatively long periods. Such a system does not develop overnight. A heavy element of
planning is involved. The MIS designer must have the future objectives and needs of the company in mind.
Sub-System Concept
The process of MIS development is quite complex and one is likely to lose insight frequently. Thus, the system,
though viewed as a single entity, must be broken down into digestible sub-systems which are more meaningful at
the planning stage.
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Central Database
A central database is a mortar that holds the functional systems together. Each system requires access to the
master file of data covering inventory, personnel, vendors, customers, etc. It seems logical to gather data once,
validate it properly and place it on a central storage medium, which can be accessed by any other subsystem.
Structure of MIS:
Structure of MIS is a difficult concept to understand because there is no standard or universally accepted
framework for describing management information system. MIS structure may be described by following a
variety of different approaches, such as:
 Physical Components
 Information system processing functions
 Decision support
 Levels of management activities
 Organizational functions
Physical Components: Structure of MIS may be understood by looking at the physical components of the
information system in an organization
 Hardware
 Software
 Database
 Procedure
 Operating personnel
 Input and Output

Information system processing functions:

Information system structure can also be understood in terms of its processing functions. The functions
of an MIS explain what the system does. The main processing functions of information systems are described
below.
 To process transactions: Information systems process
transactions. Where transaction may be defined as an
activity taking place in an organization.
 To maintain master file: Information systems create
and maintain master files in an organization. A master
file stores relatively permanent or historical data about
organizational entities.
 To produce report: Reports are significant products of
an information system. Many reports are produced on a
regular basis, which are called scheduled reports. An
information system also produces reports on adhoc
(special) requests.
 To process enquires: An information system is used to
process enquiries. For processing such queries, the
information system uses its database. These may be
regular enquiries with a pre defined format or adhoc enquiries.
 To process interactive support application: The information system contains applications
designed to support systems for planning, analysis and decision-making. Various types of
models are used for processing.
Decision Support:

Structure of MIS can also be described on the basis of its support in decision-making in an organization.
Decisions vary with respect to the structure that can be provided for making them. A highly structured decision
can be preplanned, whereas a highly unstructured decision cannot. However, it should not be taken to
necessarily mean that the decision is automated, although many programmable decisions are automate.
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Levels Of Management Activities:

Management information systems support various management activities in an organization. This

implies that the structure of an information system can be categorized in terms of levels of
management activities. Anthony, on the basis of activities, has classified the management hierarchy
into three levels. These are:
 Strategic Planning Level
 Management Control Level
 Operational Control Level

Strategic Planning deals with long-range considerations.

Management Control Level includes acquisition and organization of resources, structuring of work,
and acquisition and training of personnel.
Operational Control is related to short-term decisions for current operations
Organisational Functions:

The structure of management information system can also be described in terms of the organizational
functions. Though there is no standard classification of functions, a typical set of functions in a
manufacturing organization includes production, sales and marketing, finance and accounting,
materials, personnel and information systems.
Activities:
 Strategic planning
 Management control
 Operational control
 Transaction processing
Organizational Function:
 Production
 Finance
 Personnel
 MIS etc.
Role of MIS
A management information system (MIS) plays an important role
in business organizations.
What is MIS role: There are many roles of MIS and some of the
important MIS role are discussed below:
1. Decision making
2. Coordination among the department
3. Finding out Problems
4. Comparison of Business Performance
5. Strategies for an Organization

Decision making
Management Information System (MIS) plays a significant role in the decision-making process of any
organization. In any organization, a decision is made on the basis of relevant information which can be retrieved
from the MIS.
Coordination among the department
Management Information System satisfy multiple need of an organization across the different functional
department.
Finding out Problems
As we know that MIS provides relevant information about every aspect of activities. Hence, if any mistake is
made by the management then MIS, information will help in finding out the solution to that problem.

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Comparison of Business Performance
MIS store all past data and information in its Database. That why the management information system is very
useful to compare business organization performance.
Strategies for an Organization
Today each business is running in a competitive market. An MIS supports the organization to evolve appropriate
strategies for the business to assent in a competitive environment.

Requirements of Management Information System

Following are the requirements of a management information system:
1. Database
2. Qualified System and Management Staff
3. Top Management Support
4. Active Participation of Operating Management
5. Control and Maintenance of Management Information System
6. Evaluation of Management Information System

Objectives of MIS
The goals of an MIS are to implement the organizational structure and dynamics of the enterprise for the
purpose of managing the organization in a better way and capturing the potential of the information system for
competitive advantage.
Following are the basic objectives of an MIS −
 Capturing Data − Capturing contextual data, or operational information that will contribute in decision
making from various internal and external sources of organization.
 Processing Data − The captured data is processed into information needed for planning, organizing,
coordinating, directing and controlling functionalities at strategic, tactical and operational level.
Processing data means −
o
making calculations with the data
o
sorting data
o
classifying data and
o
summarizing data
 Information Storage − Information or processed data need to be stored for future use.
 Information Retrieval − The system should be able to retrieve this information from the storage as and
when required by various users.
 Information Propagation − Information or the finished product of the MIS should be circulated to its
users periodically using the organizational network.
Advantages of Management Information System
1)Facilitates planning :
Management Information System provides relevant information for efficient decision making for stop with the
increasing size and complexity of organisation, managers now work remotely rather than from the operations
location. MIS proves to be a big help in such scenarios.
2) Minimizes Information Overload:
MIS help in compartmentalizing data into smaller relevant parts of decision-making. This reduces the confusion
of large can organised data.
3) MIS Encourages Decentralization:
MIS enables decentralization of authority. This is possible as there and minority system at lower levels of
measuring performance. This helps in making changes in organisational plans and procedures.
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 4) Brings Co-ordination :
MIS connect all decision making nodes in an organisation. It assist in assimilation of specialized activities
whereby each department becomes aware of the problems and requirement of other departments . this ensures
smooth functioning of an organisation.
5) Makes Control Easier :
MIS at as an important tool to relate managerial planning and control. MIS increases the data processing and
storage capacity as well as reduces the cost with the help of computer. It enhance the managements capability to
evaluate and improve performance.
Disadvantage of Management Information System
1)Highly sensitive, requires constant monitoring:
MIS content highly sensitive information about an organisation which can be used for fraudulent activities.
Constant monitoring and filtering is required to avoid manipulation of data by fraudster causing harm to
business.
2) Budgeting of MIS is Extremely Difficult :
MIS cannot be budgeted like activities of all other department. Hence, its expense is unpredictable. Even though
it forms a very sensitive and important function of organisation but it is not possible to predict its expense.
3) Quality of Outputs Governed by Quality of Input :
The quality of the information generated through MIS is dependent on the quality of raw data used for
processing.
4) Lack of Flexibility to Update Itself :
MIS Cannot update itself automatically like many other application. Updating has to be done manually by
obtaining raw data and feeding it into the system for processing and updating pre existing data.
5) Effectiveness Decrease Due to Frequent Changes in Top Management :
Frequent changes in middle or top management levels reduces the effectiveness of information produced through
MIS, as requirements of reports are the result of input provided by the top management level . Change in
management result in chair changed information requirement because new team of management will require
information on their own format.
6) Takes into Account only Qualitative Factors :
MIS takes into consideration only qualitative factors, ignoring the non qualitative factors such as morale,
attitude, and motivation of workers. is the biggest limitation of MIS.

Types and MIS CLASSIFICATION:

Management Information System is used to
provide an inclusive picture of an organisation and
it enhances the operational productivity. It further
assists the managers to make better decisions for
their organisations. There are different types of
Management Information System including
process control, management control, sales and
marketing, human resource management, expert
and executive information system. Following are
some of the most important management
innovation system:
 Process control
Process control system monitors industrial
processes of business such as automobile assembly
metal fabrication and petroleum processes. The
process control system collects data and makes a

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 report on the basis of system performance. It is considered as one of the most essential types of Management
Information System, from the perspectives of manufacturing organisation.
 Management reporting system
Management Reporting System is designed basically to produce the reports related to finances and operations of
management in a particular organisation. It is helpful for the managers to compare the performance of the
organisation with its previous year performance. In this way the manager has the ability to evaluate the
performance as well as add to its improvement. The generated performance report can be utilised by upper
management. This allows them to compare the potential financial output and efficiency of operations with the
objectives of the organisation.
 Inventory control
Inventory of a particular company include sales, inventory on hand, theft and spoilage. It takes all the things as
well as updating the management about the inventory system. In this way the management can evaluate the
individual items that are required to stock in the warehouse and retail stores of the organisation. Inventory
system is also helpful in keeping track of inventory movement in the warehouse. It includes the items sold,
return on them and at the department store. It is also one of the most essential types of Information Management
Systems, which is utilised by the retail organisations in dealing with storage and stocking of goods and products.
 Sales and marketing
This system is helpful for the management to track and execute the efficiency of marketing functions as well as
the sales of the organisation. The marketing function comprises projected sales, improved quality of products,
pricing advertising, discounts, effective advertising, sales promotions, and schedules. These reports have the
ability to evaluate the level of sales as well as check the products that are not doing good in retail stores.
 Human resource or enterprise collaboration or office automation
This Information Management System has the ability to allow management to control the information flow
around the organisation. In this process, several electronic devices are being utilised by the managers in order to
make communication with other departments employees. This is considered as part of the system of auto office
automation. These media devices Basically include landline, phones, cell phone, internet, email, voice mail, file
sharing and video conferencing.
Human resource management system keeps the track of employees as well as the recruitment system and is
accountable for the daily management operations. This system is also helpful in tracking the financial elements
including retirement, profits, and payroll which is the essential part of the financial and accounting system. With
the use of this, there can be proper communication between human resource managers, management and
employees.
 Accounting and Finance
The system of accounting and Finance can track the Assets and investments of the particular organisation. The
data which is gathered from these processes is assembled for the purpose of financial reporting. This information
is demanded by law in order to deal with several functions including pension funds, state local tax and payroll.
This system also assesses daily posting of transactions such as returns transfers, bank deposits and sale income
and different types of statements annually or monthly can be produced with the use of this system. These
statements are considered as crucial to measure the performance of the organisation and are beneficial for both
the middle and upper management.
 Decision support system
Decision support system is a form of management information system which is designed in such a way that it
can be helpful for the managers to make a decision for a particular situation. The data is collected from internal
and external resources. This can include, cost of new house construction, population trends, and interest rate.
These are the factors associated with external sources whereas inventory financial data sales and manufactory are
the example of internal sources of information.
 Expert system
The expert system associated with Management Information System is designed in such a way that it stores
knowledge related to human export. This is done with respect to a particular subject which is utilised to assist the
people who have lower expertise. It uses one of the most effective technologies i.e. Artificial Intelligence. With
the use of artificial intelligence technology, the expert system makes use of sensors for sensing the actions and
comparing them. It is also helpful for making the logical assumptions.
 Executive information system

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 The utilisation of Executive Information System is done for assisting the Executive Manager so as to perform
and manage the executive function. This system also includes the information in the form of charts and tables
which is necessary for a manager so as to make important decisions and analyse data.
 Transaction processing system
Transaction Processing System is a type of MIS, which is used to collect as well as process the data. This
information is produced during the routine activities of a particular organisation. These activities can include
reservation, deposits, payments, and orders.
 ERP (Enterprise Resource Planning)
It refers to the systems and software used for planning and managing all the core services, supply chain,
financial, manufacturing and several other processes in an organization. ERP (Enterprise Resource
Planning) software can also be used for automating and simplifying the individual activities across an
organization or business, including customer relationship management, supply chain operations, compliance,
accounting and procurement and risk management.

MIS Classification / Types of MIS

The discipline of MIS is in its evolutionary stage. MIS is a concept which is a matter of degree rather
than an absolute one. In management, there are perhaps few other areas other than MIS which have
evoked such a controversy.
Though it lacks clear lines of demarcation and is classified in several different ways; for the sake of
clarity, we have categorized information systems on the basis of their roles in the operations and
management of a business.
Accordingly information systems have been divided in to 2 types:
1) Operation Support System
2) Management Support System

OPERATION SUPPORT SYSTEM:

As and when any transaction takes place in an organization, data which is a by-product of a
transaction, is generated. Also, business operations are carried out using data. In order to process
such data, information systems are required which are called operations support systems. The role of
operations support system is to efficiently process business transactions, control industrial process
support organizational communication and update company’s databases.

Transaction Processing System:

As the name indicates transaction processing system (TPS) records and process data and produces
reports. It represents the automation of the fundamental, routine processing used to support business
operations.
For example: point-of-sale (POS) systems at many retail stores use electronic case register terminals to
electronically capture and transmit sales data over telecommunications links to head office computer centre for
immediate (real-time) or weekly (batch) processing.

Data Processing Data

Input Output
Previously, TPS was known as Management Information System. Prior to computers, data processing was
performed manually or with simple machines. However, nowadays, data processing is mainly done with the
help of computers. In many organizations, TPS is also known as a Data Processing System.
For example: Transferring work in process from one stage of production to the next, recording
depreciation on equipment, making routine file changes such as adding or deleting records or
changing an employee’s address and correcting errors in previous input data are all examples of
internal transactions.
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Processing Control System:

The systems which monitor and control physical processes are known as Process Control System.

For example: Pharmaceutical manufacturing company ruses electronic sensors linked to computers to
monitor chemical processes and make the required adjustments.

Office Automation System:

Office automation refers to the application of computer and communication Technology to office functions.
Office automation systems are meant to improve the productivity of managers at various levels of management
by providing of hardware, software and people in information system, that process offices transactions and
support office activities at all levels of the organization. These systems include a wide range of support
facilities, Which include word include word processing, electronic filing, electronic mail message switching,
data storage, data and voice communication, etc.
Office activities may be grouped under two classes, namely:
 Typing
 Mailing
 Scheduling of meetings and conferences
 Retrieving documents

The following is a list of activities in the second category (managerial category):

 Conferencing
 Production of information
 Controlling performance

As already discussed, information technology facilitates both types of activities. A wide variety of office
automation devices like fax machine, phones etc., are used in offices.

MANAGEMENT SUPPORT SYSTEM:

Management Support System (MSS) are the information systems’ applications that focus on providing
information and decision support for effective decision making by manager. There are various types of
information systems that support a variety of decision-making process.
For Example: Management Information System, Decision Support System, Executive Support System.
Management Information System: Management Information System (MIS) is an information system which
processes data and converts it into information. A management information system uses TPS for its data
inputs. The information generated by the information system may be used for control of operations, strategic
and long-range planning, short-range planning, management control and other managerial problem solving.

Decision Support System: A decision support system (DSS) is an information system application that assists
decision making. DSS tends to be used in planning, analyzing alternatives, and trial and error searching for
solution. Decision Support Systems, although created and used by managers, are nevertheless a part of the
organization’s MIS. As decision support system is tailored to a specific managerial task or special problem, its
use is limited to that task or problem. The second component of the DSS is a library of models to manipulate and
analyze the data in the desired ways. A user interface is the third component. Through this, the user can
communicate with the DSS. The physical interface generally consists of a terminal, hooked up to the mainframe
computer, either directly or by telephone.

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 DSS can be differentiated from MIS in terms of its processing capabilities. Whereas MIS
processes data to convert it into information; DSS processes information to support the decision-
making process of a manager.

Decision Support System Alternative Processing

For example, a salary information system provides information to every employee regarding his basic salary,
allowances and deductions, if any, etc. However, if an employee wants to make deposits in some schemes for
availing income tax rebates, he can make use of DSS.

Executive Support System: Executive Support System (ESS) is an extension of the management information
system, which is a special kind of DSS and provides critical
information from various inter and intra-sources in easy to use displays. As ESS is specially tailored for the
used of the chief executive of an organization to support his decision-making.

Enterprise Systems: Enterprise systems integrates all facets of the organization including its planning,
manufacturing, sales human resource management, customer relations, inventory control, customer order
tracking, financial management and marketing-i.e. all aspects of businessorganization.

General Support System:

The above-mentioned categories of information systems have been defined on the basis of their role in
operations and management of a business. However, there are many other applications of information
systems which fall in both the categories, as they provide support in operations as well as managing of
the business. For example:

(i) Business Expert Systems:

Business expert system, which are based on artificial intelligence (AI), are advanced
information systems. Artificial intelligence may be referred to as the capability that makes computers
display intelligent, human-like behavior. For example, reasoning, drawing inferences, learning and
problem-solving are such acts of intelligence.

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 Business Expert System are advanced information systems based on artificial intelligence,
which may be referred to as the capability that makes computer display intelligent, human like
behavior.

The main advantages of using expert systems may be outlined as follows.

i) The knowledge/ capabilities of many experts can be used to build a single expert
system.
ii) Decision-making in critical times can be more reliable, as these systems are not affected by
emotional factors or fatigue.
iii) Multiple hypotheses can be considered simultaneously.

The expert system is interactive in nature, which enables it to ask questions of the user. On the
basis of these questions, an expert system searches its knowledge base for facts and rules, explains its
reasoning process when asked and comes out with expert advice to the end user in the subject area
being explored.

The main components of an expert system include:

i) Knowledge base
ii) Inference engine
iii) User interface

Knowledge base contains the facts about the specific expert area and heuristic (rules of thumb) that
describe the reasoning procedures of an expert on the subject.

Inference engine contains the logic of reaching an inference from the stored data and rules (knowledge
base)

Expert systems may be developed by using either programming languages, such as LISP, PROLOG or
C by using expert system packages (expert system shells). Using the expert system packages, which
are like application generators, one can design an expert system that combines the features of a DSS
and an expert system.

(i) Knowledge Management Systems:

Knowledge Management System are information systems that are knowledge based and, thus, support
the creation, organization and dissemination of business knowledge to managers and other employees of the
organization, for example, Intranet access to the best practices and solutions to various business problems.
Nowadays many companies are building knowledge management systems to manage organizational learning
and business know-how. They are developed to provide quick feedback to knowledge workers, encourage
behavior changes by employees and improve business performance.

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 Structured data resources Unstructured data sources like e- Organizational
like ERP, like ERP, CRM mail like e-mail groupware, web, Knowledge Base
database documents, presentations

Data Sources

Expert Knowledge portal

Knowledge Management System User

(i) Strategic Information System:

Strategic Information Systems apply information technology to the products, services or

business processes of an organization to help the organization gain a strategic advantage over its
competitor. Thus strategic information system can be any kind of information system (TPS, MIS,
DSS, ESS etc) that uses IT to help an organization gain a competitive advantage, reduce a competitive
disadvantage, or meet other strategic enterprise objectives (Bowles, Jerry, 1997).

(ii) Functional Business System:

One of the most widely used bases for organizing activities in almost every organization is the
business function. Business activities are grouped around functions such as production, marketing,
finance and personnel, etc resulting in the respective department or an area of the business
organization. These departments or functional areas are commonly known as the functional areas of
business.

(i) Production
(ii) Marketing
(iii) Finance and accounting
(iv) Materials and
(v) Personnel systems

Challenges of MIS
What is MIS Challenges: There are three major challenges of MIS: high cost, training of employees and
maintenance cost. These are briefly discussed below:
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 1. High Cost
2. Training of Employee
3. Maintenance Cost

High Cost
Development of new computerized based information system is a problem for the organization due to the cost
factor and it creates problems because with the change of time there is need of up-to-date of the information
system.

Training of Employee
Employees should have the capacity of learning of the information system with the changing competitive and
business environment; otherwise it will be difficult for the organization to stay in the market.

Maintenance Cost
Sometimes a problem arises due to server crash and website crash. Sometimes it leads to the loss of information.
So, maintenance cost is needed to tackle the above problem.

Other Challenges
 Requirement of a skilled staff
In order to keep Management Information Systems working in the best way, business organizations require
professionals who are not only adept in the field of business but also have a good technical know-how. This is
because business professionals can make most of the MIS only if they are aware of its technicalities. Further, it is
not at all an easy task for organizations to find such skilled professionals. Thus, the requirement of a skilled staff
is one of the biggest challenges presented by a Management Information System.

 Finding and withholding talented professionals

Finding talented professionals is certainly one big challenge but an even bigger one is to retain the same talent.
This is because the advancements in business technology occur at a very high pace. This results in development
of new opportunities for the IT professionals. These luring opportunities often distract the talent to shift from one
management firm to another. Thus, it is challenging for most organizations to find and withhold MIS specialists
who can manage their Management Information Systems properly.

 Matching strides with the ever changing world of business technology

As discussed above, advancements in business technology occur at a very high pace. Further, in order to stay
ahead in the highly competitive environment of the business sector, business organizations have to regularly
adopt these advancements. This implies that they have to make continuous transitions from their current
Management Information System to either its upgraded version or some other MIS which is superior to it. As
this transition takes place, business organizations have to put extra efforts into helping their employees adapt the
respective changes, which isn’t an easy task. In fact, it is sometimes really frustrating for the employees to
reprogram their mind according to the latest advancements in the management information system. Thus, to sum
up, it is challenging for business organizations to match strides with the ever changing world of business
technology.
Changing role of Information System in business

Since the business has started using computer the role of computer has change with time. In 50’s computer is use
as business accounting machine, In 60’s as a EDP department to provide departmental processing capability to
the business organization, In 70’s we have centralized MIS system with one database and processing program, In
80’s we have sharing of resources across the geography through enterprise resource planning(ERP), In 90’s the
integration is further extended to end user to end user with the help of Internet, Intranet, Extranet etc.
Information systems perform three vital roles in business firms. Business applications of IS support an
organization’s business processes and operations, business decision making, and strategic competitive
advantage. Major application categories of information systems include operations support systems, such as

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transaction processing systems, process control systems, and enterprise collaboration systems; and management
support systems, such as management information systems, decision support systems, and executive information
systems. Other major categories are expert systems, knowledge management systems, strategic information
systems, and functional business systems. However, in the real world, most application categories are combined
into cross-functional information systems that provide information and support for decision making and also
performing operational information processing activities.
There are a seemingly endless number of information software but the main reason for all business applications
are represented in three fundamental role of information system figure 2.7. They are found in the three vital roles
that information systems can perform for a business enterprise

The above diagram represents the interaction of various information system in the organization. A information
systems are designed to support business processes and operations may also be provide data/ Information to, or
accepting data/ Information from, systems focused on business decision making or achieving competitive
advantage. i.e. all the information system use in the business organization they share data/ information among
them. Today’s organizations are constantly striving to achieve integration of their systems to allow information
to flow freely through them, which adds even greater flexibility and business support than any other individual
information system could provide.

Strategic Information System

Strategic information systems (SIS) are information systems that are developed in response to corporate
business initiative. They are intended to give competitive advantage to the organization. They may deliver a
product or service that is at a lower cost, that is differentiated, that focuses on a particular market segment, or is
innovative.
Strategic Information System (SIS) is a system to manage information and assist in strategic decision making.
A strategic information system has been defined as, “The information system to support or change enterprise’s
strategy.” Simply says, a Strategic Information System is a type of Information System that is aligned with
business strategy and structure.

Strategic information management (SIM) is a salient feature in the world of information technology (IT). In a
nutshell, SIM helps businesses and organizations categorize, store, process and transfer the information they
create and receive. It also offers tools for helping companies apply metrics and analytical tools to their
information repositories, allowing them to recognize opportunities for growth and pinpoint ways to
improve operational efficiency.
A strategic information system is mainly developed to respond to the corporate world and many business
initiatives. Strategic information is used for gaining competitive advantage and formulating business strategies
by organizations. It may deliver a service or product that is at a lower price, differentiated and mainly
concentrates on a demanding market section, or which is innovative. It help companies frame business strategy,
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 competitive strategy, take management decisions and thus gain competitive advantage and achieve cost
reduction.
Strategic Information System is a management system that helps to set goals and organize activities for an
organization. It allows you to to organize the information and ideas about the way your company works. In the
1990s, several companies were founded on the idea of “strategic information systems,” which is a fancy way of
saying they use computers to gather data that helps them make better decisions. Strategic Information System
(SIS) is a database of information collected by the government for the purposes of national defence and security.
Strategic Information Systems are different from other comparable management information systems as:

1. They change the way the firm competes.

2. They have an external (outward looking) focus.
3. They are associated with higher project risk.
4. They are innovative (and not easily copied).

It is mainly concerned with providing and organization and its members an assistance to perform the routine
tasks efficiently and effectively. One of the major issue before any organization is the challenge of meeting its
goals and objectives. Strategic IS enable such organization in realizing their goals. Strategic Information System
(SIS) is a support to the existing system and helps in achieving a competitive advantage over the organizations
competitors in terms of its objectives. This unit deals with the critical aspects of the strategic information
system.

Ways of Gaining Competitive Advantage

Some of the more common ways of thinking about gaining competitive advantage are
1 Deliver a product or a service at a lower cost.
This does not necessarily mean the lowestcost, but simply a cost related to the quality of the product or service
that will be bothattractive in the marketplace and will yield sufficient return on investment. The costconsidered is
not simply the data processing cost, but is the overall cost of all corporateactivities for the delivery of that
product or service. There are many operational computersystems that have given internal cost saving and
other internal advantages, but they cannotbe thought of as strategic until those savings can be translated to a
better competitiveposition in the market.
2 Deliver a product or service that is differentiated
Differentiation means the addition ofunique features to a product or service that are competitive attractive in the
market.Generally such features will cost something to produce, and so they will be the settingpoint, rather than
the cost itself. Seldom does a lowest cost product also have the bestdifferentiation. A strategic system helps
customers to perceive that they are getting someextras for which they will willingly pay.
3 Focus on a specific market segment
The idea is to identify and create market niches thathave not been adequately filled. Information technology is
frequently able to provide the capabilities of defining, expanding, and filling a particular niche or segment. The
applicationwould be quite specific to the industry.
4 Innovation
Develop products or services through the use of computers that are new andappreciably from other available
offerings. Examples of this are automatic credit cardhanding at service stations, and automatic teller machines at
banks. Such innovativeapproaches not only give new opportunities to attract customers, but also open up
entirelynew fields of business so that their use has very elastic demand

Role of Information Technology in Strategic Management

1. Innovative applications
IT creates innovative applications that provide direct strategicadvantage to organizations. For example, Federal Express
was the first company in itsindustry to use IT for tracking the location of every package in its system. Next, FedEx wasthe
first company to make this database accessible to its customers over the Internet. FedExhas gone on to provide e-
fulfillment solutions based on IT and is even writing software forthis purpose

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2. Competitive weapons
Information systems themselves have long been recognized as acompetitive weapon. Amazon.com’s one-click shopping
system is considered so significantand important to the company’s reputation for superior customer service that it
haspatented the system. Michael Dell, founder of Dell Computer, puts it bluntly: “The Internetis like a weapon sitting on
the table, ready to be picked up by either you or yourcompetitors”.

3. Changes in processes
IT supports changes in business processes that translate tostrategic advantage. For example, Berri is Australia’s largest
manufacturer and distributor offruit juice products. The principal goal of its enterprise resource planning
systemimplementation was “to turn its branch-based business into a national organization with asingle set of unified
business processes” in order to achieve millions of dollars in cost-savings. Other ways in which IT can change business
processes include better control overremote stores or offices by providing speedy communication tools, streamlined
productdesign time with computer-aided engineering tools, and better decision-making processesby providing managers
with timely information reports.

include better control over remote stores or offices by providing speedy communicationtools, streamlined product design
time with computer-aided engineering tools, and betterdecision-making processes by providing managers with
timely information reports.
4. Links with business partners
IT links a company with its business partners effectively andefficiently. For example, Rosenbluth’s Global Distribution
Network allows it to connectagents, customers, and travel service providers around the globe, an innovation thatallowed it
to broaden its marketing range.
5. Cost reductions
IT enables companies to reduce costs. For example, a BoozAllen &Hamilton study found that: a traditional bank
transaction costs $1.07, whereas the sametransaction over the Web costs about 1 cent; a traditional airline ticket costs $8 to
process,an e-ticket costs $1. In the customer service area, a customer call handled by a live agentcosts $33, but an
intelligent agent can handle the same request for less than $2.
6. Relationships with suppliers and customers
IT can be used to lock in suppliers andcustomers, or to build in switching costs (making it more difficult for suppliers or
customersto switch to competitors). For example, Master Builders sells chemical additives thatimprove the performance
characteristics of concrete. The company offers customersMasterTrac, a tank-monitoring system that automatically notifies
Master Builders whenadditive inventories fall below an agreed-on level. Master Builders then resupplies the tankson a just-
in-time basis. The customer benefits from an assured supply of product, lesscapital tied up in inventory, and reduced
inventory management time and processing.Master Builders benefits because competitors face a more difficult task to
convinceconcrete companies to switch to them
7. New products
A firm can leverage its investment in IT to create new products that are indemand in the marketplace. Federal Express’s
package-tracking software is one example. InAustralia, ICI Explosives no longer views its business model as just selling
explosives; it nowalso writes contracts for broken rock. ICI engineers developed computer models that specifydrilling
procedures and explosives use for different types of rockfaces to produce rock in thesizes that the customer needs. , “The
redefinition of ICI’s role not only generated muchhigher margins for the business, it also gave ICI a much more defensible
competitiveposition”
8. Competitive intelligence
. IT provides competitive (business) intelligence by collecting andanalyzing information about products, markets,
competitors, and environmental changes.For example, if a company knows something important before its competitors, or
if it canmake the correct interpretation of information before its competitors, then it can act first,gaining strategic
advantage through first-mover advantage (the competitive advantagegained by being the first to offer a particular product
or service that customers deem to beof value.

Competitive Advantage

The information systems and information technology evolution has shifted product/ process orientation to customer centric
product and services. The information revolution is sweeping through the economy. The reduction of cost of obtaining
processing and transmitting data/ information enable every organization to look for new method and ways to generate
specialized use of data and information resulting, competitive advantage over its competitors. This is also essential because
lower cost of computerization and automation enables everybody to computerize its activity. Therefore all the organization
become at par in terms of use of computer and information system. Information technology is changing the way business
organization operates. It is effecting the business organization creates their products and services.
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The consistent effort to achieve a measurable competitive advantage in an industry or marketplace occupies a significant
portion of an business resources. Creative and innovative marketing, research and development, and process reengineering,
among many other activities, are used to gain that elusive and sometimes indescribable competitive advantage over rival
firms.

The term competitive advantage is often used when referring to a firm that is leading an industry in some identifiable way
such as sales, revenues, or new products. Information technology is no longer an afterthought in forming business strategy,
but it is actual cause and driver to develop innovative product and services. The emerging role of information systems
applications in business is to provide effective support of a business strategy for gaining competitive advantage. This
strategic role of information systems involves using information technology to develop products, services, and capabilities
that give a business major advantage over the competitive forces it faces in the global market.

Porter’s Five Forces Model

A business can survive and succeed in the long run only if it successfully develops strategies to confront market
forces that shape the structure of competition in its industry. These forces are describe by Michael Porter’s
classic model of competition that any business that wants to survive and succeed must effectively has to develop
and implement strategies to counter five forces.

(1) The rivalry of competitors within its industry

(2) The threat of new entrants into an industry
and its markets
(3) ) The threat posed by substitute products that
might capture market share,
(4) The bargaining power of buyer/ customers,
(5) The bargaining power of suppliers.

1. The rivalry of competitors within its

industry
Competition is inevitable characteristic of the
business and competitors share a natural rivalry among them. This rivalry requires a constant effort to gain
competitive advantage in the marketplace. This ever-present competitive force requires significant resources on the
part of a firm in terms of product quality, price, innovation etc.
Industry rivalry mean the intensity of competition among the existing competitors in the market. Intensity of
rivalry depends on the number of competitors and their capabilities. Industry rivalry is high when:
 There are number of small or equal competitors and less when there’s a clear market leader.
 Customers have low switching costs
 Industry is growing
 Exit barriers are high and rivals stay and compete
 Fixed cost are high resulting huge production and reduction in prices
These situations make the reasons for advertising wars, price wars, modifications, ultimately costs increase and it is
difficult to compete
(2) The threat of new entrants into an industry and its markets
A new entry of a competitor into your market also weakens your power. Threat of new entry depends upon entry and exit
barriers. Threat of new entry is high when:
 Capital requirements to start the business are less
 Few economies of scale are in place
 Customers can easily switch (low switching cost)
 Key technology is not hard to acquire or isn’t protected well
 Product is not differentiated
There is variation in attractiveness of segment depending upon entry and exit barriers. That segment is more attractive
which has high entry barriers and low exit barriers. Some new firms enter into industry and low performing companies
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leave the market easily. When both entry and exit barriers are high then profit margin is also high but companies face more
risk because poor performance companies stay in and fight it out. When these barriers are low then firms easily enter and
exit the industry, profit is low. The worst condition is when entry barriers are low and exit barriers are high then in good
times firms enter and it become very difficult to exit in bad times.
(3) The threat posed by substitute products that might capture market share
Threat of substitute products means how easily your customers can switch to your competitors product. Threat of substitute
is high when:
 There are many substitute products available
 Customer can easily find the product or service that you’re offering at the same or less price
 Quality of the competitors’ product is better
 Substitute product is by a company earning high profits so can reduce prices to the lowest level.
In the above mentioned situations, Customer can easily switch to substitute products. So substitutes are a threat to your
company. When there are actual and potential substitute products available then segment is unattractive. Profits and
prices are effected by substitutes so, there is need to closely monitor price trends. In substitute industries, if
competition rises or technology modernizes then prices and profits decline.
(4) The bargaining power of buyer/ customers,
Bargaining Power of Buyers means, How much control the buyers have to drive down your products price, Can they
work together in ordering large volumes. Buyers have more bargaining power when:
 Few buyers chasing too many goods Buyer purchases in bulk quantities
 Product is not differentiated
 Buyer’s cost of switching to a competitors’ product is low
 Shopping cost is low
 Buyers are price sensitive
 Credible Threat of integration

Buyer’s bargaining power may be lowered down by offering differentiated product. If you’re serving a few but huge
quantity ordering buyers, then they have the power to dictate you.

(5) The bargaining power of suppliers.

Bargaining Power of supplier means how strong is the position of a seller. How much your supplier have control over
increasing the Price of supplies. Suppliers are more powerful when
1. Suppliers are concentrated and well organized
2. a few substitutes available to supplies
3. Their product is most effective or unique
4. Switching cost, from one suppliers to another, is high
5. You are not an important customer to Supplier
When suppliers have more control over supplies and its prices that segment is less attractive. It is best way to make
win-win relation with suppliers. It’s good idea to have multi-sources of supply.

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only
by competition with its traditional direct competitors but also by four forces in the industry’s environment: new
market entrants, substitute products, customers, and suppliers.

There are four generic strategies used to manage competitive forces, each of which often is enabled by using
information technology and systems:

1. Low-cost leadership: Use information systems to achieve the lowest operational costs and the lowest
prices. For example, a supply chain management system can incorporate an efficient customer response
system to directly link consumer behavior to distribution and production and supply chains, helping
lower inventory and distribution costs.

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 2. Product differentiation: Use information systems to enable new products and services, or greatly
change the customer convenience in using your existing products and services. For instance, Land's End
uses mass customization, offering individually tailored products or services using the same production
resources as mass production, to custom-tailor clothing to individual customer specifications.
3. Focus on market niche: Use information systems to enable a specific market focus and serve this
narrow target market better than competitors. Information systems support this strategy by producing and
analyzing data for finely tuned sales and marketing techniques. Hilton Hotels uses a customer
information system with detailed data about active guests to provide tailored services and reward
profitable customers with extra privileges and attention.
4. Strengthen customer and supplier intimacy: Use information systems to tighten linkages with
suppliers and develop intimacy with customers. Chrysler Corporation uses information systems to
facilitate direct access from suppliers to production schedules, and even permits suppliers to decide how
and when to ship suppliers to Chrysler factories. This allows suppliers more lead time in producing
goods. Strong linkages to customers and suppliers increase switching costs (the cost of switching from
one product to a competing product) and loyalty to the firm.
The Internet has nearly destroyed some industries and has severely threatened more. The Internet has also
created entirely new markets and formed the basis for thousands of new businesses.

Because of the Internet, the traditional competitive forces are still at work, but competitive rivalry has become
much more intense. Internet technology is based on universal standards, making it easy for rivals to compete on
price alone and for new competitors to enter the market. Because information is available to everyone, the
Internet raises the bargaining power of customers, who can quickly find the lowest-cost provider on the Web.
Some industries, such as the travel industry and the financial services industry, have been more impacted than
others. However, the Internet also creates new opportunities for building brands and building very large and
loyal customer bases, such as Yahoo!, eBay, and Google.

Value Chain Model

1. The value chain model highlights specific activities in the business where competitive strategies can best
be applied and where information systems are most likely to have a strategic impact. The value chain
model views the firm as a series or chain of basic activities that add a margin of value to a firm's products
or services. These activities can be categorized as either primary activities or support activities.

 Primary activities

Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service.
They consist of the following:

 Inbound logistics – These are all the processes related to receiving, storing, and distributing inputs
internally. Your supplier relationships are a key factor in creating value here.
 Operations – These are the transformation activities that change inputs into outputs that are sold to
customers. Here, your operational systems create value.
 Outbound logistics – These activities deliver your product or service to your customer. These are things
like collection, storage, and distribution systems, and they may be internal or external to your
organization.
 Marketing and sales – These are the processes you use to persuade clients to purchase from you instead
of your competitors. The benefits you offer, and how well you communicate them, are sources of value
here.

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  Service – These are the activities related to maintaining the value of your product or service to your
customers, once it's been purchased.
Support activities

These activities support the primary functions above. In our diagram, the dotted lines show that each support, or
secondary, activity can play a role in each primary activity. For example, procurement supports operations with
certain activities, but it also supports marketing and sales with other activities.

 Procurement (purchasing) – This is what the organization does to get the resources it needs to operate. This
includes finding vendors and negotiating best prices.
 Human resource management – This is how well a company recruits, hires, trains, motivates, rewards, and
retains its workers. People are a significant source of value, so businesses can create a clear advantage with
good HR practices.
 Technological development – These activities relate to managing and processing information, as well as
protecting a company's knowledge base. Minimizing information technology costs, staying current with
technological advances, and maintaining technical excellence are sources of value creation.
 Infrastructure – These are a company's support systems, and the functions that allow it to maintain daily
operations. Accounting, legal, administrative, and general management are examples of necessary
infrastructure that businesses can use to their advantage.
Companies use these primary and support activities as "building blocks" to create a valuable product or service.

This figure provides examples of systems for both primary and support activities of a firm and of its value
partners that can add a margin of value to a firm’s products or services.
The business value chain model to identify areas where information systems will improve business processes and
also benchmark the business processes against the competitors or others in related industries, and identify and
implement industry best practices.

 Benchmarking involves comparing the efficiency and effectiveness of the business processes against
strict standards and then measuring performance against those standards.

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  Industry best practices are usually identified by consulting companies, research organizations,
government agencies, and industry associations as the most successful solutions or problem-solving
methods for consistently and effectively achieving a business objective.

A firm's value chain is linked to the value chains of its suppliers, distributors, and customers.

Information systems can be used to achieve strategic advantage at the industry level by working with other firms
to develop industry-wide standards for exchanging information or business transactions electronically, which
force all market participants to subscribe to similar standards. Such efforts increase efficiency, making product
substitution less likely and perhaps raising entry costs.,
Internet technology has made it possible to create highly synchronized industry value chains called value webs.
A value web is a collection of independent firms that use information technology to coordinate their value
chains to produce a product or service for a market collectively. It is more customer-driven and operates in a less
linear fashion than the traditional value chain.

Using Porter's Value Chain

To identify and understand your company's value chain, follow these steps.

Step 1 – Identify subactivities for each primary activity

For each primary activity, determine which specific subactivities create value. There are three different types of
subactivities:
 Direct activities create value by themselves. For example, in a book publisher's marketing and sales activity,
direct subactivities include making sales calls to bookstores, advertising, and selling online.
 Indirect activities allow direct activities to run smoothly. For the book publisher's sales and marketing
activity, indirect subactivities include managing the sales force and keeping customer records.
 Quality assurance activities ensure that direct and indirect activities meet the necessary standards. For the
book publisher's sales and marketing activity, this might include proofreading and editing advertisements.
Step 2 – Identify sub activities for each support activity.
For each of the Human Resource Management, Technology Development and Procurement support activities,
determine the subactivities that create value within each primary activity. For example, consider how human
resource management adds value to inbound logistics, operations, outbound logistics, and so on. As in Step 1,
look for direct, indirect, and quality assurance subactivities.
Then identify the various value-creating subactivities in your company's infrastructure. These will generally be
cross-functional in nature, rather than specific to each primary activity. Again, look for direct, indirect, and
quality assurance activities.
Step 3 – Identify links
Find the connections between all of the value activities you've identified. This will take time, but the links are
key to increasing competitive advantage from the value chain framework. For example, there's a link between
developing the sales force (an HR investment) and sales volumes. There's another link between order turnaround
times, and service phone calls from frustrated customers waiting for deliveries.
Step 4 – Look for opportunities to increase value
Review each of the subactivities and links that you've identified, and think about how you can change or enhance
it to maximize the value you offer to customers (customers of support activities can be internal as well as
external).

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