Information Systems Basics

What is an Information System?

  • An information system (IS) is a set of interrelated components that collect (or retrieve), process, store and distribute information to support decision making and control in an organization.
  • Information vs data:
    • Information: data that have been shaped into a form that is meaningful and useful to the business.
    • Data: streams of raw facts representing people, places and events occurring in organizations.
  • An IS automates business processes and supports actors (employees, managers, customers) in the business process.
  • IS contain information about significant people, places and events within the organizations.
    • By information, we mean data that have been shaped into a form that is meaningful and useful to the business.
    • Data in contrast are streams of raw facts representing people, places and events occurring in organizations.
  • Core functions of an IS:
    • Input: capture or retrieve data
    • Processing: convert data into meaningful form
    • Output: present information to users or other processes
    • Storage: store data for future or further processing and retrieval
  • In addition to decision support, IS may also help managers and workers analyze problems, visualize complex subjects and create new products.
  • Information systems automate business processes and support actors – employees, managers, customers – in the business process.

Why Information Systems Are Essential

  • IS have become the backbone of most organizations; many essential activities rely on IS (e.g., banks process payments, governments collect taxes, supermarkets stock shelves).
  • In the United States, more than 23 \text{ million} managers and 113 \text{ million} workers in the labor force rely on information systems to conduct business.
  • Why are IS so essential today? They underpin everyday work, communication, information gathering, and decision making; to answer this, we revisit traditional and general business models and consider the role of data flow alongside material flow.

Traditional Model and Material Flow

  • Why do businesses exist? They offer products (goods or services) to customers to make money.
  • Traditional model is founded on material flow:
    • Businesses acquire raw materials and supplies from suppliers.
    • Raw materials are transformed (value creation/addition) into goods and services.
    • Goods and services are sold to customers.
  • Material flows from suppliers to customers through the business.

Business Processes

  • Businesses transform raw inputs to valuable outputs through a series of activities.
  • What are business processes?
    • A group of logically related tasks that use resources of the organization to provide defined results in support of organization’s objectives (Harrington 1983).
    • A complete and dynamically coordinated set of collaborative and transactional activities that deliver value to customers (Smith and Finger 2002).
  • Traditionally, business processes were a complex coordination of manual routines involving human judgment and heuristics.
  • Problems with the traditional business processes:
    • Error prone
    • Sub-optimization of organizational goals
    • Obsolete assumptions

Three Major Processes in the Traditional View

  • Acquisition process: Purchasing and paying for raw materials and supply services.
  • Production process: Transforming raw materials into valuable goods and services.
  • Sales process: Provision of goods and services to customers and collecting payment.

Porter’s Value Chain

  • Michael Porter (1985) introduced the value chain model to better understand processes that take a product to market.
  • Porter’s value chain splits activities into primary/core and support activities.
  • Primary processes directly support core competencies:
    • Inbound logistics
    • Operations
    • Outbound logistics
    • Marketing and sales
    • Service
  • Support processes do not directly create products or services but facilitate execution of core/primary processes:
    • Procurement (purchasing), Technology, Human resources, Firm infrastructure

Primary/Core Processes with Examples

  • Inbound logistics: receiving, storing and distributing materials that are inputs to the product/service (e.g., for a pharmaceutical company, handling incoming chemicals and ingredients).
  • Operations: transforming inputs into products/services (e.g., combining chemicals and human/equipment work to produce the finished drug product).
  • Outbound logistics: distributing products/services to customers (e.g., packaging and shipping drugs to drug stores and hospitals).
  • Marketing and Sales: activities that help the customer buy the product (channel selection, advertising, pricing).
  • Service: after-sale activities that add value (customer support, repair). Note: pharma rarely repairs products but may provide advisory services to pharmacies.

The Value Chain (Manufacturing Perspective)

  • Upstream management includes Raw materials, Inbound Logistics, Inbound Tracking Systems, Warehouse and Storage.
  • Production includes Raw Material Inventory, Control Systems.
  • Downstream management includes Outbound Logistics, Customer Service Tracking & Control Systems, Finished Product Storage, Promotion Planning Systems, Distribution Planning Systems, Automated Storage & Retrieval Systems.
  • The figure represents how material flow and data/equipment systems work together across upstream and downstream activities.

Data Flow and Data Accumulation

  • Both traditional material flow models and Porter’s value chain describe material flow.
  • In modern organizations, large volumes of data accumulate alongside material flow: data about products, customers, employees, deliveries, and other sources.
  • These data must be stored, managed and processed, which is the role of information systems.

Examples of Data Generated in Corporate Cycles

  • Revenue cycle
  • Expenditure cycle
  • Production cycle
  • Financing cycle
  • Human Resource/Payroll cycle

Systems Thinking and Information Systems

  • General System Theory (GST) concepts apply to IS.
  • GST emphasizes analyzing the system as a whole, not only individual parts.
  • Systems are composed of subsystems (groups of processes) that interact and are interdependent.
  • Example: a stock control system must consider linkages between production control, replenishment, and stock control.

Systems Thinking: Hierarchy and Interdependence

  • Systems are hierarchical; subsystems are made of smaller parts; moving down the hierarchy increases detail.
  • Changes in one part or rule/policy can affect unrelated subsystems; all subsystems are interrelated and should work toward the goals of higher systems.
  • Key features of the systems approach: whole-system view, interdependencies, and alignment with higher-level objectives.

The Basic Elements of Systems

  • All systems are composed of inputs, processes, and outputs.
  • It is not usually necessary to consider all inputs/outputs;
    • Focus on outputs with business relevance (most linked to system objectives)
    • Focus on inputs with significant effects on the important outputs
  • Always start with output requirements first, then identify inputs to transform to achieve those outputs.

Material Flow to Data Flow: The IS Perspective

  • The idea that material flow (raw materials to finished goods) enabled by business processes can be represented by data flow hints at what an information system is and the role it plays.
  • Formal definition: An information system is a set of interrelated components that collect (or retrieve), process, store and distribute information to support decision making and control in an organization.

The Role of Information in IS

  • IS support decision making, coordination and control.
  • In addition, they help managers/workers analyze problems, visualize complex subjects and create new products.
  • IS contain information about significant people, places and events within the organization.
  • Data vs information:
    • Information: data that have been shaped into a form meaningful and useful to the business.
    • Data: streams of raw facts representing people, places and events.

Clinical Information System (Illustrative Example)

  • Patient as customer; product is health care; the business process describes the medical treatment.
  • Five activities:
    1) patient informs the doctor about symptoms
    2) doctor examines the patient
    3) doctor diagnoses
    4) determines treatments
    5) doctor enters data into the software system
  • The doctor is a participant; information is the patient symptoms; data are entered into the system; the doctor’s software system is the information system involved.

Interdependence Between Organizations and IS

  • There is growing interdependence between a firm’s ability to use IS and its ability to implement corporate strategies and achieve corporate goals.
  • What a business wants to do in five years often depends on what its systems will be able to do.
  • Achieving higher market share, higher quality or lower cost, new product development, and increased productivity depend more on the kinds and quality of IS in the organization.
  • Changes in strategy, rules, and business processes increasingly require changes in hardware, software, databases and telecommunications – information systems.

Strategic Objectives of Information Systems

  • The main strategic objectives include:
    • Increase market share
    • Become a high-quality or a low-cost producer
    • Develop new products
    • Increase employee productivity
  • These objectives depend on the kinds and quality of information systems in the organization.

The Main Components of an Information System

  • Three core activities produce the information needed for decisions, control, problem analysis, and new product/service creation:
    • Input: facts about people, events, places and things from within the organization or its external environment
    • Processing: routines that convert raw input into meaningful information
    • Output: transfers processed information to the people or activities that will use it
  • Storage components store data for future and/or further processing and retrieval

The Information System Model

  • An information system consists of the three activities (input, processing, output) plus storage.
  • Not all inputs and outputs are always necessary; start with outputs relevant to system objectives, then identify inputs that affect those outputs.

Factors in Choosing the Method of Communication

  • Urgency: How urgent/critical is the information? What would delay cause?
  • Security/Confidentiality: Is content confidential or sensitive? Could unauthorized access cause problems?
  • Nature/Complexity: Is the message detailed/complex and easy to misinterpret?
  • Number of recipients: One person or a group?
  • Record: Is a written record necessary?
  • Distance: Internal use or needs wider transmission?

Factors in Choosing the Method of Communication (Additional)

  • Impression/Appearance: Formal vs informal; recipient expectations
  • Feedback: Is instantaneous response required? How interactive is needed?
  • Cost: What is the cost relative to urgency/importance?

Mapping the Conceptual Model to Real World IS Applications

  • Inventory Management System (IMS)
    • Stock tracking information (e.g., average daily usage)
    • Stock organizing information (e.g., safety stock, lead time)
    • Reorder information (e.g., quantity, date)
    • Inputs: Raw facts about stocks (e.g., Stock Keeping Unit, SKU)
    • Processes: Ordering, etc.
  • School Management System (SMS)
    • Entities: students, faculty and staff, facilities and amenities
    • Processes: Tuition invoices, class schedules, ID cards, transcripts, tax statements
    • Inputs & Outputs defined per process
  • Payroll Transaction Process System
    • Inputs: Hours worked; Pay rate; Payroll data
    • Processes: Payroll transaction processing; generation of payroll checks
    • Outputs: Pay statements/checks

Information Systems Value Propositions: Key Ways IS Help Organizations

  • Informed decision-making: Access to the most accurate, up-to-date information; real-time information and forecasting capabilities support future-oriented decisions.
  • Better record-keeping: Centralized storage, revision histories, and traceable records aid regulatory/compliance requirements and forecasting.
  • Improves employee productivity: Employees spend less time gathering data; more time on value-added tasks.
  • Improves business efficiency: Automation of manual steps saves time and reduces costs.

IS and Competitive Advantage

  • IS enables automation of steps previously done manually (e.g., invoices, shipping, labeling), reducing costs and increasing profitability.
  • IS creates competitive advantage via:
    • New product or service creation
    • Enhancement of existing products or services
    • Differentiation of products or services
  • IS provides insightful business information to support performance-based management:
    • Establish strategic performance objectives
    • Measure performance
    • Collect, analyze, review, and report performance data
    • Use data to drive continuous improvement
  • Three Stages in the Use of IS (as described):
    1) automation of steps to reduce costs and increase profitability
    2) achieve competitive advantage through new/augmented/differentiated offerings
    3) provide insightful, data-driven management to drive performance improvements

Modern Businesses and Information Systems

  • Modern organizations cannot survive long without IS to manage massive amounts of data.
  • Information systems (or information management systems) support processes, operations, intelligence, and IT; they move data and manage information; they are core to the information age.
  • IS produce data-driven reports to help business leaders make timely, informed decisions.

Major Types of Information Systems

  • Executive Information System (EIS)
  • Business Intelligence System (BIS)
  • Customer Relationship Management System (CRM)
  • Transaction Processing System (TPS)
  • Knowledge Management System (KMS)
  • Human Resource Management System (HRMS)
  • Supply Chain Management System (SCM)

Information Systems Reports: Three Basic Kinds

  • Scheduled reports: created regularly using predefined rules; allow analysis over time, location, or other parameters.
  • Ad-hoc reports: one-off reports created to answer a specific question; can be turned into scheduled reports if useful.
  • Real-time reports: monitor changes as they occur (e.g., call center volume spikes) to prompt immediate actions.

Real World Examples of Information System Value

  • HelloFresh (Organization example):
    • Problem: Data analysis in Excel with data from Google Analytics and multiple MySQL databases; weekly/daily reporting was time-consuming (1–4 hours per region).
    • Solution: Centralized information system reduced manual reporting; automated reporting saved $10$–$20$ hours per day across regions and enabled region-specific, timely marketing campaigns.
  • Des Moines Public Schools (Organization example):
    • Problem: Manual Excel reporting hindered timely intervention (attendance, student outcomes).
    • Solution: An intelligent IS with a BI platform and visualization supported a regression model (dropout coefficient) to predict at-risk students; enabled targeted intervention and improved dropout management.

How Effective Managers Use Information Systems

  • IS project failures often stem from users having a limited view of how the system should be used; success depends on managerial usage.
  • Managers should focus on leveraging IS to increase effectiveness within the organization.

How Effective Managers Use Information Systems (Continued)

  • IS should support strategic decisions through metrics and forecasts to identify trends.
  • MIS can improve the accuracy and integrity of financial statements and performance reports.
  • MIS enables handling of massive data, allowing pattern discovery and scenario simulations without committing to a plan.
  • MIS saves time by centralizing information and reducing proliferation of spreadsheets and databases.
  • MIS provides a common data language and standardized reporting to improve communication across users and managers.

How Analysts Consider Designing Systems

  • Systems should be designed to:
    • Support strategy decisions (tactical decisions with insight into future events via MIS/BI)
    • Create regular financial statements with accuracy and integrity
    • Collate large data sets for pattern recognition and scenario analysis
    • Save time and centralize data
    • Provide a common language for users (standardized data language)

Class Activity (Guidance)

  • Identify information system applications in use at the university.
  • Identify inputs, processes, and outputs of the system.
  • Determine what manual processes are eliminated by these systems.
  • Analyze how the systems create value for users and the university (cost reduction, time saving, efficiency).
  • Present your solution.

Summary

  • Business processes transform inputs to outputs; from a material-flow perspective, inputs are raw materials and outputs are physical goods/services; from a data-flow perspective, inputs are raw facts about people, places and events, and outputs are information.
  • An information system is a software system that automates a business process by capturing, transmitting, storing, retrieving, manipulating or displaying information, thereby supporting people, organizations or other software systems; it consists of input, processing and output components.
  • There is increasing interdependence between a firm’s information systems and its business capability: changes in corporate strategies often prompt changes in information system designs.
  • An information system is not a standalone tool; it aligns with business strategies, supports decision making, and drives value across time through data-driven insights and efficient operations.