Module 1 FUNDATIONS OF INFORMATION SYSTEMS 1 Introduction In todays world of ever increasing complexities of business, technology and management, every

business organization wants to grow and keep the firm in good strategic position. This is possible only if the firm has adequate, quick and reliable information about the contemporary business environment. Information technology and information system is one such tool to provide information required by the business organization and its stake holders so that managers can initiate decisions which help growth of the organization. The globalization context makes the product and market as global. The organizations are highly dependent on information technology and systems to make the business. In this context business managers and professionals rely on a variety of information systems that uses information technologies. In this chapter we understand the concepts of data, information, systems concept, information systems, and its resources, role of information in business, dimensions and attributes of information, different perspectives of information system and strategic objectives of information systems.

2 Concept of Data and information Data: Data consists of raw facts, such as an employees name and number of hours worked in week, inventory part numbers. Several types of data can be used to represent to represent these facts which are organized or arranged in a meaningful manner, they become information. Raw data from a supermarket checkout counter can be processed and organized to produce meaningful information such as the total sales of soap or the total sales revenue from soap for a specific stores or sales territory.

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

Data

Process

Information

Decision

Specific Action 2.2 Different types of information

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

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

c.

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

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2.3 Data versus Information Data: Streams of raw facts representing events such as business transactions. Once, enterprises get their data into shape, that data can more easily be turned into information. Information: Data that has been put into a meaningful and useful context. Usually, help to make a decision. Information is a cluster of facts that are meaningful and useful to human beings in the processes such as making decisions. Mission of the Information is time, in the right format. 3 Concept of System
3.1 Introduction to Systems

Information is power:

put the right information, in the right hands, at the right

Systems are diverse in nature like economic system, computer system, decision support system, communication system, transport system, educational systems. This means use live in an era of systems. A system is composed with set of interrelated components which has a clearly defined boundary and working together to achieve a common set of objectives by accepting inputs and producing outputs in an organized transformation process. The simple system is shown in figure 1.1.

Figure: 1.1. System 3|Page

The figure 1.1 shows the system has a set of elements like input, processing, output, feedback and control element. The output of the system is subjected to variations and will pass to the notice of input and processing stage to initiate corrective actions. The feedback element will do this job. A control element will exercise the control over the elements of the system to take care of feedback. Such a system is called closed loop or cybernetic system which has two important characteristics. One is self monitoring and other is self regulation to maintain the system objectives. Thus a system is a group of elements or components joined together to fulfill certain functions. A system is an assemblage of procedures, processes, methods, routine techniques. A system is made up of sub systems. These subsystems may be composed of further subsystems. Various types of systems Systems Transport Sub-systems Air transport, rail transport, Usefulness water To provide movement of goods and passengers data for

transport Computer

Physical components like inputs, outputs Processing storage information departments like

Business

Various

production Production of goods and

marketing, finance and Human resource. services

3.2 Characteristics of a system In general, the characteristics of a system is may be listed as follows. 1. A set of interrelated components 2. With a clearly defined boundary 3. Working together 4. To achieve a common set of objectives 5. By accepting inputs and producing outputs 6. In an organized transformation process
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4 Information system An information system has a set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making and control in an organization. An information system has an organized combination of People, Hardware and Software, Communication networks, Data resources and Policies and procedures. Therefore, information system is stores, retrieves, transforms, and disseminates information in an organization. The simple information system is shown in figure 1.2.The Information System transforms the input of data resources into an output of information and its products. The processed data as information shall be stored for further uses.

Figure 1.2.Information system

4.1 Components of Information System Various components of Information Systems is presented in Figure 1.3. Components of Information Systems are Data, Hardware, Software, Telecommunications and network, People and Procedures. Table 1.1 indicates the roles of various Components of Information Systems.

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Table 1.1. The roles of various Components of Information Systems.

Data: Input that the system takes to produce informati information Hardware: A computer and its peripheral equipment: input, output, and storage devices. Hardware includes data communication equipment Software: Set of instructions that tell the computer how to take data in, how to process it, how to display information, , and how to store data and information Telecommunications and network: Hardware and software that facilitate fast transmission and reception of text, pictures, sound and animation in the form of electronic data People: Information systems professionals and users who analyse organisational information needs, design and construct information systems, write computer programs, operate the hardware, and maintain software. Procedures: Rules for achieving optimal and secure op operations erations in data processing. Procedures include priorities in dispensing software applications and security measures.

Figure 1.3.: Various components of Information Systems is presented

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5 Classification of Information Systems Information Systems may be broadly classified as Operations support systems and Management Support Systems. They may be further classified as mentioned below. The figure 1.4 represents the classification of Information Systems. 1. Operations support systems process data generated erated by business operations Major categories are: i) Transaction processing systems ii) Process control systems iii) Office automation systems 2. Management Support Systems provide information and support needed for effective decision making by managers Major categories are i) ii) iii) Management Information System Decision Support Systems Executive Information System

Figure 1.4: Classification of Information Systems 7|Page

6 Major roles of business applications of information systems The three important roles business applications of information systems which are the vital roles that information can perform for the enterprises are mentioned below. 1. Support Business Process and Operations. 2. Support Business Decisions. 3. Support strategies for competitive advantages The three important roles business applications of information systems are illustrated in Figure 1.5.

Support strategies for Supportcompetitive Business Decisions. advantages

Support Business Process and Operations

Figure 1.5 Major roles of business applications of information systems

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

Figure 1.6 Role of IT in IS. 9|Page

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

Three important reasons why IT makes a difference to the success of a business are mentioned below. 1. Foundation of doing business 2. Productivity 3. Strategic opportunity and advantage

7.1. Foundation of doing business Most businesses today could not operate without extensive use of information systems and technologies. The organizations more specifically using e-commerce and e-business like Amazon.com, e-bay, wall-mart and such organizations would have not exist without IT. IT can help a business become a high-quality, low-cost producer and hence to increase market share. IT is vital to the development of new products. There is a growing interdependence between a firms information systems and its business capabilities. Changes in strategy, rules, and business processes increasingly require changes in hardware, software, databases, and telecommunications. Often, what the organization would like to do depends on what its systems will permit it to do. Down the line five years the firms strategic growth and profit level depends on how the company implements the IT and build the IT capabilities in the firm and hence IT acts as a Interdependence between Organizations and Information Systems. This Interdependence between Organizations and Information Systems is presented in figure 1.7.

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Figure 1.7.Interdependence between Organizations and Information Systems

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

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

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Further, Strategic Opportunity and Advantage may be viewed with following points. Create competitive advantage: IT makes it possible to develop competitive advantages. New Business Models: Dell Computer has built its competitive advantage on an IT enabled build-to-order business model that other firms have not been able to imitate. Create new services: IT makes it possible to develop Create and develop new services. E.g. E Bay has developed the largest auction trading platform for millions of individuals and businesses. Differentiate the organization from the competitors: IT and its innovation may be adopted as uniqueness in their business to differentiate the organization from the competitors. Amazon has become the largest book retailer in the United States on the strength of its huge online inventory and recommender system. Amazon, eBay, Dell, Wal-Mart and Apple's iTunes are just a few firms that have built and maintained technology-based advantages.

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

1. Internet growth and technology Convergence. 2. Transformation of Business Enterprises. 3. Growth of a globally connected economy (Globalization). 4. Growth of knowledge and information-based economies 5. Emergence of the digital firm

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Further, above impacts are discussed briefly in the below sections.

8.1. The Internet and Technology Convergence Internet is bringing about rapid changes in markets and market structure: financial services and banking such as eTrade.com. Internet resulted growth in e-business, ecommerce, and e-government. The Internet is not emerged and burst but it will

continue to be a flat form to do the business. The Internet is making many traditional business models obsolete. 8.2 Transformation of Business Enterprises. Along with rapid changes in markets and competitive advantages are changes in the firm themselves. The internet and new markets are changing the cost and revenue structure of the traditional firms and are hastening the demise of traditional business models. In addition to the above some more transformations are also caused due to the technological convergence in the traditional business in terms of its structure, management, technology adoption etc. These transformations are presented in the encapsulated manner below.
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Organizations are becoming Flattening Organizations are becoming Decentralization Organizations are becoming Flexibility Location independence Low transaction and coordination costs Empowerment Collaborative work and teamwork

8.3 Globalization Globalization results various organizations to distribute core business functions in product design, manufacturing, finance and customer supports to locations in other countries where the work may be performed cost effectively. The Globalization leads the management and control in a global marketplace, competition in world markets, global workgroups and global delivery systems which essentially based on digital technology. 8.4 Rise of the Information Economy Todays country economy is not only dependent on manufacturing sectors business but also on Knowledge and information-based products. Knowledge and information provides more value the new products and services. In Knowledge and informationbased economies, the firms capability and market value will be assessed on new products and services launched by the firm and firms Knowledge as a central productive and strategic asset. 8.5 The Emerging Digital Firm A digital firm is one in which nearly all of the organisations significant business relationships with customers, suppliers and employees are digitally enabled and mediated. Core business which involve set of logically related tasks and behaviours that organisations develop over time to produce specific business results and the unique manner are organised and coordinated. Core processes are accomplished through digital networks spanning the entire organisation or linking multiple organisations. In a digital firm, any piece of information required to support key business decisions is available at any time and any where in the firm. Key Corporate Assets of digital firm are Intellectual property, core competencies, and financial and human assets are managed through digital means. A frame work of Digital Firm is presented in Figure 1.8.
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Figure 1.8. A frame work of Digital Firm

8.51 Key benefits of digital firms may be listed as below. 1. They sense and respond to the changing business environments more rapidly than traditional firms, giving them flexibility to survive in turbulent times. 2. The firms offer extraordinary opportunities for more flexible global organisation and management. 3. Time shifting (business being conducted 24x7) and space shifting (business being conducted globally or beyond traditional geographic boundaries) are the norms in the organisations.

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8.52 The characteristics of digital firm A digital firm usually possess the flowing characteristics. 1. Digitally enabled relationships with customers, suppliers, and employees 2. Core business processes accomplished using digital networks 3. Digital management of key corporate assets 4. Agile sensing and responding to environmental changes 5. Seamless flow of information within the firm, and with strategic partners

9 Data versus Information Data consists of raw facts, such as an employees name and number of hours worked in week, inventory part numbers. Several types of data can be used to represent to represent these facts which are organized or arranged in a meaningful manner, they become information. Raw data from a supermarket checkout counter can be processed and organized to produce meaningful information such as the total sales of soap or the total sales revenue from soap for a specific stores or sales territory. Information Information can be defined as the data which is organized and presented at a time and place so that the decision maker may take necessary action. Information in other wards is the result/product of processing data. Figure 1.9 illustrates the differences between data and information

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Figure 1.9 Differences between data and information

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

Attributes Timeliness Currency Frequency

Requirements Information should be provided when it is needed Information should be up-to-date when it is provided Information should be provided as often as needed

Time Period Accuracy Relevance

Information should be provided about past, present, and future time periods Information should be free from errors Information should be related to the information needs of a specific recipient for a specific situation

Completeness

All the information that is needed should be provided

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Conciseness Scope

Only the information that is needed should be provided Information can have broader or narrow scope, or an internal or external focus

Performance

Information can reveal performance by measuring activities accomplished, progress made, or resources accumulated.

Clarity Detail Order Presentation. Media

Information should be provided in a form that is easy to understand Information can be in detail or summary form Information can be arranged in a predetermined sequence Information can be presented in narrative, numeric, graphic, or other forms. Information can be provided in the form of printed paper, documents, video displays, or other media

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10 Perspectives on Information Systems Perspectives on Information Systems are discussed under the views of Technological based, Computer-Based Information System (CBIS) based and Business based Perspectives. The brief descriptions of each perspective are discussed below. 10.1 Technology perspective: A set of interrelated components that collect (or

retrieve), process, store, and distribute information to support decision making and control in an organization. Information System Stores, retrieves, transforms, and disseminates information in an organization. 10.2 Computer-Based Information Systems (CBIS) Earlier days there was a usage of manual information system which essentially depend on the human skills and intellectual capabilities of individuals. Unlike manual information system, Computer-Based Information System has fixed definitions of data and procedures. Computer-Based Information System (CBIS) rely on computer hardware and software and performs processing operations as defined by the pre established set of procedures, and sequences of instructions and thus disseminate the information to the organization or to end users. 10.3 Business perspectives of Information Systems Following points are worth to note under the view of Business Perspective on Information Systems. Information Systems based on information technology require significant investments but provides thus organizational and management changes and innovations to meet the contemporary business needs and hence to meet the changing business environment. Information Systems create value primarily by changing business processes and management decision making behavior and process. Businesses organizations invest in Information Systems in order to create value and hence to increase profitability. Information systems are more than just technology. Information systems are an organizational and management solution to business challenges that arise from the business environment. Major Business Functions Rely on Information Systems are Sales and marketing, Manufacturing, Finance, Accounting, and Human resources.
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10.4 The Business Information Value Chain The figure 1.20 shows the Business Information Value Chain (BVIC). It may be noted that from the business perspective, Information Systems are part of a series of valueadding activities for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance and, ultimately, increase firms profitability. As shown in figure, raw information is systematically acquired and then transformed through various stages of business process and management functions so that value shall be added to that information.

The Business Information Value Chain

Figure 1.20 Business Information Value Chain (BVIC).

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

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

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Operational level people make daily, routine and programmed decisions which do not significantly affect the organizations strategic growth, while middle level management people will take tactical decisions and top level personnel shall take strategic decisions which will affect the organizations performance in the long range. Table 1.3 shows some examples of three kinds levels and associated objectives and decisions. Table 1.4 shows some examples of different functions of the organizations and associated Operations, Tactics, Strategy Decisions.

Table 1.3. Examples of three levels and associated decisions. Decision Level Strategic Competitive advantage, New product that will change the External sales, trends. Expenses, schedules, events, costs rivals, quality, Description Example Type of Information

become a market leader. Long-term outlook. Tactical Improving operations without restructuring the company.

industry. New tools to cut costs or improve efficiency.

sales, models, forecasts.

Operations

Day-to-day actions to keep the company functioning.

Scheduling employees, ordering supplies.

Transactions, accounting, human resource

management, inventory.

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Table 1.4 Examples of functions and associated Operations, Tactics, Strategy Decisions. Sector Production Operations Machine settings Worker schedules Maintenance sch. Accounting Categorize assets Assign expenses Produce reports Marketing Reward salespeople Survey customers Monitor promotions Tactics Rearrange work area Schedule new products Change inventory method Inventory valuation Depreciation method Finance short/long term Determine pricing Promotional campaigns Select marketing media Strategy New factory New products New industry New A/C system Debt vs. equity International taxes Monitor competitors New products New markets

Senior management makes long-range strategic decisions and ensures the firm's financial performance. Middle management carries out the plans of senior management and operational management monitors the firm's daily activities. Knowledge workers such as engineers and scientists design products and create and distribute new knowledge for the organization. Data workers such as secretaries process the organization's paperwork. Production or service workers produce the products or services. Experts are employed for the major business functions: the specialized tasks performed by organizations, which consist of sales and marketing, manufacturing and production, finance and accounting, and human resources. An organization coordinates work through its hierarchy and business processes. These processes may be documented and formal. Each organization has a unique culture, or fundamental set of assumptions, values, and ways of doing things, that are accepted by most of its members. Part of an organization's culture can be found in its information systems. For example, UPS's organizational focus on customer service can be found in the package tracking system available to customers.

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

11.2 The Management Dimension of Information Systems The Management Dimension of Information Systems is viewed managers as mentioned below. Managers are: 1. Sense makers 2. Decision makers 3. Planners 4. Innovators of new processes 5. Leaders: set agendas 11.3 The Technology Dimension of Info Systems The Technology Dimension of Info Systems considers Information technology is one of the tools managers use to cope with change. The resources and its roles of information system is described briefly below. Hardware: Physical equipment Software: Detailed preprogrammed instructions Storage: Physical media for storing data and the software Communications technology: Transfers data from one physical location to another Networks: Links computers to share data or resources

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12 Functions of an Information System 1. An information system contains information about an organization and its surrounding environment. Three basic activitiesinput, processing, and outputproduce the information that organizations need. 2. Feedback is returned to appropriate people or activities in the organization to evaluate and refine the input. 3. Environmental factors, such as customers, suppliers, competitors,

stockholders, and regulatory agencies, interact with the organization and its information systems. 4. Functions of an Information System is presented in figure 1.22

Figure 1.22 Functions of an Information System

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13 Information systems to achieve strategic business objectives: Business firms invest heavily in information systems to achieve six strategic business objectives: 1. Operational excellence: Efficiency, productivity, and improved changes in business practices and management behavior. Eg. Wall-Mart. 2. New products, services, and business models: A business model describes how a company produces, delivers, and sells a product or service to create wealth. Information systems and technologies create opportunities for products, services, and new ways to engage in business. E.g. iPod, iTunes music Service, and the iPhone. 3. Customer and supplier intimacy: Improved communication with and service to customers raises revenues and improved communication with suppliers lowers costs (Hotel). 4. Improved decision making: Without accurate and timely information, business managers must make decisions based on forecasts, best guesses, and luck, a process that results in over and under-production of goods, raising costs, and the loss of customers. 5. Competitive advantage: Implementing effective and efficient information systems can allow a company to charge less for superior products, adding up to higher sales and profits than their competitors (Toyota). 6. Survival: Information systems can also be a necessity of doing business. A necessity may be driven by industry-level changes, as in the implementation of ATMs in the retail banking industry. A necessity may also be driven by governmental regulations, such as central or state statutes requiring a business to retain data and report specific information.

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14 Information technology and Internet Information technology is one of the many tools used by management to cope with change. A firm's information technology (IT) infrastructure is a technology platform or foundation on which a firm can build its information systems. The Internet is the world's largest and most widely used network. The Internet is a global network that uses universal technology standards to connect many private and public networks. The universal standards and technologies used in the Internet are also used in systems and networks within the firm. Intranets are internal corporate networks based on Internet technology, and extranets are corporate networks extended to authorized users outside of the firm.

Recommended Books 1. Management Information Systems, Kenneth J Laudon, Jane P. Laudon, Pearson/PHI,10/e, 2. Management Information Systems, James A. O Brien, Tata McGraw Hill, 7th Edition, 2007. 3. Management Information Systems, W. S. Jawadekar, Tata McGraw Hill Edition, 3/e, 2007 Reference Books 1. Management Information Systems, S.Sadagopan, PHI, 1/e, 2005.

2. Management Information Systems, Effy Oz, Thomson Course Technology, 3/e, 2003 3. Corporate Information Strategy and Management, Lynda M AppleGate, Robert D Austin et al, Tata McGraw Hill, 7th Edition. **********

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