Types of Information Systems

TYPES OF INFORMATION SYSTEMS

Information system is a system that uses the resources of people, hardware, software and
telecommunications to perform input, output, process, storage and control activities that convert
data into information. Basically, information systems support operations, decision-making and
strategic advantage. Information systems roles have expanded overtime.

Need for information systems

Information systems are needed to support production of information for decision-making
in performance of activities. Information systems then depend on information needed and
activities supported.
To perform activities, organizations have established organizational structures depicting
managerial levels and functions. For these functions and levels there are different
information needs and information systems. Information in these structures has to flow
within an organization in a way that will help managers, and the organization, achieve
their goals. To this end, organizations are often structured horizontally and vertically-
horizontally to reflect functions and vertically to reflect management levels.

Functions

Organizations are divided into functions which consist of processes that consist of
activities. Staff could be assigned to one or more activities. Such a staff could have
supporting computer, software and data. An output of one activity could be an input of
another. No doubt, systems performing the activities are networked thus resulting in
computer networks.
Depending on the services or products they provide, most organizations have functions or
departments that perform five functions: research and development (R&D), production,
marketing, accounting and finance, and human resources (personnel). Information systems
are designed so as to provide the information needed by the specific department. Each function
or department tends to have an information system named after it. For instance, marketing
function would to have marketing information systems. This should apply to the functions
described below.
Research and development: The research and development (R&D) department does two
things:
(1) It conducts research, relating discoveries to the organization's current or new
products.
(2) It does product development and tests and modifies new products or services created
by researchers. Special software programs are available to aid in these functions.
Production: The production department makes the product or provides the service. In a
manufacturing company, it takes the raw materials and has people or machinery turn
them into finished goods. In many cases, this department uses CAD/CAM software and
workstations, as well as robotics. In another type of company, this department might
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manage the purchasing, handle the inventories, and control the flow of goods and
services.
Marketing: The marketing department oversees advertising, promotion, and sales. The
people in this department plan, price, advertise, promote, package, and distribute the
services or goods to customers or clients. The sales reps may use laptop computers, cell
phones, wireless e-mail, and faxes in their work while on the road.
Accounting and finance: The accounting and finance department handles all financial
matters. It handles cash management, pays bills and taxes, issues paychecks, records
payments, makes investments, and compiles financial statements and reports. It also
produces financial budgets and forecasts financial performance after receiving information
from other departments.
Human resources: The human resources, or personnel, department finds and hires people
and administers sick leave and retirement matters. It is also concerned with compensation
levels, professional development, employee relations, and government regulations.
Information system for each of the above functions should enable the firm to handle
information in respect of the function and support the operations in the function
including decision making. So by knowing what goes on in a function, you could
visualize what the information system for the function ought to facilitate.

Levels
The type of information required by decision makers in a company is directly related to the level
of management decision making and the structure in the decision situations they face. The
framework of the classic managerial pyramid applies even in today's downsized organizations
and flattened or nonhierarchical organizational structures. Levels of management decision
making still exist, but their size, shape, and participants continue to change as today's fluid
organizational structures evolve. Thus, the levels of managerial decision making that must be
supported by information technology in a typical business organization are shown in the diagram
and described as follows:

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Strategic Management
Managers at this level make strategic (long tern) decisions and face unstructured
(nonprogrammable) decisions. Thus they involve information with the following characteristics:
ad hoc, unscheduled, summarized, infrequent, largely external, forward looking, and wide in
scope.

Operational Management
Managers at this level at this level direct the performance of daily operations. They make
structured (programmable) decisions. Thus they involve information with the following
characteristics: scheduled, detailed, frequent, historical, internal, narrow focus.

Tactical Management
Managers at this level make tactical decisions. They break long term plans (from strategic
management) into implementable programs and use report (from transactions processed in low
level management) for control and they face semi structured (partially programmable-partially
non-programmable) decisions. Thus they involve information whose characteristics encompass
those of the top and low level management levels.
Decision making
Decision making may consist of four stages as follows: intelligence, design, choice, and
implementation.

Intelligence; consists of identifying and understanding the problems occurring in the

organization—why the problem, where, and with what effects. Traditional MIS systems that
deliver a wide variety of detailed information can help identify problems, especially if the sys-
tems report exceptions.
Design: during solution design, possible resolutions to the problems are developed. Smaller DSS
systems are ideal in this stage of decision making because they operate on simple models, can be
developed quickly, and can be operated with limited data.

Choice; consists of selecting from among solution alternatives. Here the decision maker might
need a larger DSS system to develop more extensive data on a variety of alternatives and
complex models or data analysis tools to account for all of the costs, consequences, and
opportunities.

Implementation; during solution implementation, when the decision is put into effect, managers
can use a reporting system that delivers routine reports on the progress of a specific solution.

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Support systems can range from full-blown MIS systems to much smaller systems, as well as
project-planning software operating on personal computers.

The stages of decision making do not necessarily follow a linear path. At any point in the
decision-making process, you may have to loop back to a previous stage. One can be in the
process of implementing a decision, only to discover that it is not working. In such a case, one is
forced to repeat the design or choice stage.

Decisions made tend to differ according to managerial levels. Decisions made at the operational
management level tend to be more structured, those at the tactical level more semitructured, and
those at the strategic management level more unstructured. Structured decisions involve
situations where the procedures to follow when a decision is needed can be specified in advance.
The inventory reorder decisions faced by most businesses are a typical example.

Unstructured decisions involve decision situations where it is not possible to specify in

advance most of the decision procedures to follow. At most, many decision situations are
semistructured. That is, some decision procedures can be prespecified, but not enough to lead
to a definite recommended decision. For example, decisions involved in starting a new line of E-
commerce services or making major changes to employee benefits would probably range from
unstructured to semistructured.

Types of information systems

Conceptually, the applications of information systems in the real world can be classified in several
different ways. For example, several types of information systems can be classified as either
operations or management information systems. Given the managerial levels and the decision
structures or situations (hence the characteristics of information needed in the levels) and
functions (with the activities that have to be performed), we can classify information systems as
shown in the diagram and described as follows:

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Operations support systems

Operations support systems produce a variety of information products for internal and external
use. However, they do not emphasize producing the specific information products that can best be
used by managers. Further processing by management information systems is usually required. The
role of a business firm's operations support systems is to efficiently process business transactions,
control industrial processes, support enterprise communications and collaboration, and update
corporate databases. These systems are therefore divided into the following systems:

1. Transaction processing systems: are basic business systems that serve the operational
level of the organization by recording the daily routine transactions required to conduct
business, such as payroll and sales receipts. They are an important example of operations sup-
port systems that record and process data resulting from business transactions. They process
transactions in two basic ways. In batch processing, transactions data are accumulated over a period
of time and processed periodically. In real-time (or online) processing, data are processed
immediately after a transaction occurs. Examples: sales and inventory processing and accounting
systems.
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Process control systems: These systems monitor and control physical processes. For example, a
petroleum refinery uses electronic sensors linked to computers to continually monitor chemical
processes and make instant (real-time) adjustments that control the refinery process.

Enterprise collaboration systems: These systems enhance team and workgroup communications
and productivity, and are sometimes called office automation systems. For example, knowledge
workers in a project team may use electronic mail to send and receive electronic messages, and
videoconferencing to hold electronic meetings to coordinate their activities. These systems
support team, workgroup, and enterprise communications and collaboration. Examples include e-
mail, chat, and videoconferencing groupware systems.

Management support systems

When information system applications focus on providing information and support for effective
decision making by managers, they are called management support systems. Providing
information and support for decision making by all types of managers and business professionals
is a complex task. Conceptually, several major types of information systems support a variety of
decision-making responsibilities: (1) management information systems, (2) decision support
systems, and (3) executive information systems.

Management information system: These systems serve middle managers' interests by providing
current and historical performance information to aid in controlling, and decision making at the
management level. MIS typically compress TPS data to present regular reports on the company's
basic operations. They provide information in the form of pre-specified reports and displays to
managers and many business professionals. For example, sales managers may use their networked
computers and Web browsers to get instantaneous displays about the sales results of their products
and to access their corporate intranet for daily sales analysis reports that evaluate sales made by
each salesperson. Other examples include production performance, and cost trend reporting
systems.

Management Information systems were the original type of information system developed to
support managerial decision making. An MIS produces information products that support many
of the day-to-day decision-making needs of managers and business professionals. Management
information systems provide a variety of information products to managers. Four major
reporting alternatives are provided by such systems.
• Periodic Scheduled Reports. This traditional form of providing information to managers
uses a prespecified format designed to provide managers with information on a regular
basis. Typical examples of such periodic scheduled reports are daily or weekly sales
analysis reports and monthly financial statements.
• Exception Reports. In some cases, reports are produced only when exceptional conditions
occur. In other cases, reports are produced periodically but contain information only about
these exceptional conditions. For example, a credit manager can be provided with a report
that contains only information on customers who exceed their credit limits. Exception
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reporting reduces information overload, instead of overwhelming decision makers with
periodic detailed reports of business activity.
• Demand Reports and Responses. Information is available whenever a manager demands it.
For example, Web browsers and DBMS query languages and report generators enable
managers at PC workstations to get immediate responses or find and obtain customized
reports as a result of their requests for the information they need. Thus, managers do not
have to wait for periodic reports to arrive as scheduled.
• Push Reporting. Information is pushed to a manager's networked workstation. Many
companies are using webcasting software to selectively broadcast reports and other
information to the networked PCs of managers and specialists over their corporate intranets.

3. Decision support system: These systems give direct computer support to managers during
the decision-making process. They help managers with non-routine decisions that are unique,
rapidly changing, and not easily specified in advance. DSS are more analytical than MIS, using a
variety of models to analyze internal and external data or condense large amounts of data for
analysis.

For example, advertising managers may use an electronic spreadsheet program to do what-if
analysis as they test the impact of alternative advertising budgets on the forecasted sales of new
products.
Decision support systems are computer-based information systems that provide interactive
information support to managers and business professionals during the decision-making process.
Decision support systems use (1) analytical models, (2) specialized databases, (3) a decision maker's
own insights and judgments, and (4) an interactive, computer-based modeling process to support
the making of semistructured and unstructured business decisions.

A DSS model base is a software component that consists of models used in computational and
analytical routines that mathematically express relationships among variables. A DSS model
base could include models and analytical techniques used to express relationships. For example,
it might contain linear programming models, multiple regression forecasting models, and capital
budgeting present value models. Such models may be stored in the form of spreadsheet models
or templates, or statistical and mathematical programs and program modules.

DSS software packages can combine model components to create integrated models that support
specific types of decisions. DSS software typically contains built-in analytical modeling routines
and also enables you to build your own models. Many DSS packages are now available in
microcomputer and Web-enabled versions. Of course, electronic spreadsheet packages also provide
some of the model building (spreadsheet models) and analytical modeling (what-if and goal-seeking
analysis) offered by more powerful DSS software. Among the applications of DSS is what if
analysis.

In what-if analysis, an end user makes changes to variables, or relationships among variables, and
observes the resulting changes in the values of other variables. For example, if you were using a
spreadsheet, you might change a revenue amount (a variable) or a tax rate formula (a relationship

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among variables) in a simple financial spreadsheet model. Then you could command the
spreadsheet program to instantly recalculate all affected variables in the spreadsheet.
Every DSS consists of at least data management, model management components, user interface,
and end users. A few advanced DSSs also contain a knowledge management component.

Executive information systems.

These systems provide a generalized computing and communications environment that help
senior managers address strategic issues and identify long-term trends in the firm and its
environment. ESS address nonroutine decisions requiring judgment, evaluation, and insight
because there is no agreed-on procedure for arriving at a solution. ESS present graphs and data
from many internal and external sources through an interface that is easy for senior managers to
use. Often the information is delivered to senior executives through a portal, which uses a Web
interface to present integrated personalized business content.
They also provide critical information from many sources tailored to the information needs of
executives. Examples: systems for easy access to analyses of business performance, actions of
competitors, and economic developments to support strategic planning. Executive information
systems (EIS) are information systems that combine many of the features of management
information systems and decision support systems. When they were first developed, their focus
was on meeting the strategic information needs of top management. Thus, the first goal of
executive information systems was to provide top executives with immediate and easy access to
information about a firm's critical success factors (CSFs), that is, key factors that are critical to
accomplishing an organization's strategic objectives. For example, the executives of a retail store
chain would probably consider factors such as its E-commerce versus traditional sales results, or
its product line mix to be critical to its survival and success. EIS could also be used in answering
question such as what business should we be in, what are the competitors doing? Etc. It consists
of workstations with menus, interactive graphics and communications capabilities that can access
historical and competitive data from internal corporate systems and external sources.

Executive information systems are becoming so widely used by managers, analysts, and other
knowledge workers that they are sometimes humorously called "everyone's information
systems." More popular alternative names are enterprise information systems (EIS) and
executive support systems (ESS). These names also reflect the fact that more features, such as
Web browsing, electronic mail, groupware tools, and DSS and expert system capabilities, are
being added to many systems to make them more useful to managers and business professionals.

The terms executive information system and executive support system mean different things to
different people, though they are sometimes used interchangeably. The difference might be seen
as follows:

An EIS is a computer-based system that serves the information needs of top executives. It
provides rapid access to timely information and direct access to management reports. An EIS is
very user friendly, is supported by graphics, and provides the capabilities of exception reporting
(reporting of only the results that deviate from a set standard) and drill down (investigating
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information in increasing detail). It is also easily connected with online information services and
electronic mail.

An ESS is a comprehensive support system that goes beyond EIS to include analysis support,
communications, office automation, and intelligence support. The following components exist in
an expert system: knowledge base, inference engine, blackboard (workplace), user interface, and
explanation subsystem (justifier). In the future, systems will include a knowledge-refining
component.

Other categories of information systems

One of the most practical and widely implemented applications of artificial intelligence in
business is the development of expert systems and other knowledge-based information systems. A
knowledge-based information system (KBIS) adds a knowledge base to the major components found
in other types of computer-based information systems. An expert system (ES) is a knowledge-
based information system that uses its knowledge about a specific, complex application area to act as
an expert consultant to end users. Expert systems provide answers to questions in a very specific
problem area by making humanlike inferences about knowledge contained in a specialized
knowledge base. They must also be able to explain their reasoning process and conclusions to a
user. So expert systems can provide decision support to end users in the form of advice from an
expert consultant in a specific problem area. In reality they provide expert advice and act as
expert consultants to users. Examples include credit application advisor, process monitor, and
diagnostic maintenance systems.

The components of an expert system include a knowledge base and software modules that perform
inferences on the knowledge and communicate answers to a user's questions.

The knowledge base of an expert system contains (1) facts about a specific subject area (for
example, John is an analyst) and (2) heuristics (rules of thumb) that express the reasoning
procedures of an expert on the subject (for example: IF John is an analyst, THEN he needs a
workstation).

An expert system software package contains an inference engine and other programs for refining
knowledge and communicating with users. The inference engine program processes the
knowledge (such as rules and facts) related to a specific problem. It then makes associations and
inferences resulting in recommended courses of action for a user. User interface programs for
communicating with end users are also needed, including an explanation program to explain the
reasoning process to a user if requested.

Using an expert system involves an interactive computer-based session in which the solution to a
problem is explored, with the expert system acting as a consultant to an end user. The expert
system asks questions of the user, searches its knowledge base for facts and rules or other
knowledge, explains its reasoning process when asked, and gives expert advice to the user in the
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subject area being explored.

Expert systems are being used for many different types of applications. Expert systems now help
diagnose illnesses, search for minerals, analyze compounds, recommend repairs, and do financial
planning. From a strategic business standpoint, expert systems can and are being used to improve
every step of the product cycle of a business, from finding customers to shipping products to
providing customer service.

Knowledge management systems. Knowledge-based systems that support the creation,

organization, and dissemination of business knowledge within the enterprise. Examples include
intranet access to best business practices, sales proposal strategies, and customer problem
resolution systems.
Strategic information systems. Support operations or management processes that provide a
firm with strategic-products, services, and capabilities for competitive advantage. Examples
include online stock trading, shipment tracking, and E-commerce Web systems.
Functional business systems. Support a variety of operational and managerial applications of
the basic business functions of a company. Examples include information systems that support
applications in accounting, finance, marketing, operations management, and human resource
management.

Cross-Functional business systems/ Enterprise wide systems

Integration of the enterprise has emerged as a critical issue for organizations in all business
sectors striving to maintain competitive advantage. It has been used to develop integrated
cross-functional enterprise systems that cross the boundaries of traditional business functions.
Enterprise applications as they are commonly referred to as, are systems that span
functional areas, focus on executing business processes across the business firm, and include
all levels of management. Enterprise applications help businesses become more flexible and
productive by coordinating their business processes more closely.
In addition many firms have moved to integrated cross-functional client-server applications.
There are four major enterprise applications:
1. Enterprise systems
2. Supply chain management systems
3. Customer relationship management systems
4. Knowledge management systems
Each of these enterprise applications integrates a related set of functions and business processes
to enhance the performance of the organization as a whole.

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Enterprise Resource Planning (ERP) System
ERP is a cross-functional enterprise system that serves as a framework to integrate and
automate many of the business processes that must be accomplished within the
manufacturing, logistics, distribution, accounting, finance, and human resources function.
ERP systems integrate the key internal business processes of a firm into a single software
system so that information flows seamlessly throughout the organization, improving
coordination, efficiency, and decision making.

Enterprise software is based on a suite of integrated software modules and a common

central database. The database collects data from and feeds the data into numerous
applications that supports nearly all of an organization's internal business activities. When
new information is entered by one process, the information is made available immediately to
other business processes.

FIGURE 12: HOW ENTERPRISE SYSTEMS WORK

Enterprise systems feature a set of integrated software modules and a central database that enables data to
be shared by many different business processes and functional areas throughout the enterprise.

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Enterprise software is built around thousands of predefined business processes that reflect best
practices. Best practices are the most successful solutions or problem-solving methods in an
industry for consistently and effectively achieving a business objective.

Organizations implementing commercial enterprise software first select the business processes
they wish to use from the software and map their own processes to these, using the software's
configuration tables. Although businesses may choose to rewrite portions of the software to
match their existing processes, this can degrade system performance and fail to reap the benefits
of this software.

Enterprise systems produce value by increasing organizational efficiency and by providing firm
wide information to help managers make better decisions. Enterprise systems create a foundation
for a more customer-driven organization by integrating firm data to enable quicker responses to
customer requests and information.

Enterprise systems:
• Use analytical tools to evaluate a firm's overall performance
• Use standard definitions, formats, and performance figures across the organization

Supply Chain Management (SCM) Systems

Supply chain management integrates supplier, distributor, and customer logistics requirements into one
cohesive process. The supply chain is a collection of entities, such as manufacturing plants, distribution
centers, conveyances, retail outlets, people, and information that are linked through processes such as
procurement or logistics to supply goods and services from source through consumption. Goods or services
start out as raw materials and move through the company's logistics and production systems until they
reach customers. To manage the supply chain, a company tries to eliminate delays and cut the amount
of resources tied up along the way. Information systems make supply chain management more efficient
by integrating demand planning, forecasting, materials requisition, order processing, inventory allocation,
order fulfillment, transportation services, receiving, invoicing, and payment. Supply chain management
can not only lower inventory costs but also can create efficient customer response systems that deliver the
product or service more rapidly to the customer.
In managing supply chains, IT provides two major types of software solutions for managing—
planning, organizing, coordinating, and controlling—supply chain activities. First is enterprise
resource planning (ERP) software, which helps in managing both the internal and the external
relationships with the business partners. Second is supply chain management (SCM) software,
which helps in decision making related both to internal segments and to their relationships with
external segments.

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Customer Relationship Management (CRM) Systems
CRM focus on coordinating the business processes surrounding a firm's interactions with its
customers in sales, marketing, and service to optimize revenue, customer satisfaction, and
customer retention. They consolidate customer data from multiple sources and communication
channels to help firms identify profitable customers, acquire new customers, improve service and
support, and target products and services more precisely to customer preferences. Customers can
be seen as an enterprise's most valuable asset, and customer relationship management systems
enable large firms to understand and work with their customers.

CRM systems capture and integrate customer data from all over the organization, consolidating
the data, analyzing the data, and then distributing the results to various systems and customer
touch points across the enterprise. A touch point (also known as a contact point) is a method of
interaction with the customer, such as telephone, e-mail, customer service desk, conventional
mail, Web site, or retail store. Well-designed CRM systems provide a single enterprise view of
the customer and provide customers with a single view of the company regardless of the touch
point the customer uses.

CRM uses IT to create a cross-functional enterprise system that integrates and automates many
of the customer-serving processes in sales, marketing, and product services that interact with a
firm’s customers. Included are tracking customer contacts, response managing, and helping
customers with product use etc.

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