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Information Systems Basics

Information Systems Basics – Comprehensive Notes

What is an Information System? (Overview)

  • An information system (IS) can be defined as a set of interrelated components that collect (or retrieve), process, store and distribute information to support decision making and control in an organization.
  • IS may also help managers and workers analyze problems, visualize complex subjects and create new products.
  • Information = data that have been shaped into a meaningful and useful form for the business; Data are streams of raw facts.
  • IS automate business processes and support actors (employees, managers, customers) in the business process.
  • Core idea: IS exist to move data into information that supports decision making and action.

Quantitative note: In the US, information systems are relied upon by more than 23{,}000{,}000 managers and 113{,}000{,}000 workers to conduct business.

Why Information Systems Are Essential

  • IS have become the backbone of most organizations; many critical operations depend on them (e.g., banks processing payments, governments collecting taxes, supermarkets stocking shelves).
  • Everyday work, communication, information gathering and decision making rely on information systems.
  • This central role prompts substantial investment in information systems and technologies.

Traditional Model of Business and Material Flow

  • Purpose of business: to offer products (goods or services) to customers to make money.
  • Traditional model of a business is founded on material flow: raw materials → transformed into goods/services → sold to customers.
  • Material flows from suppliers to customers through the business.
  • Businesses transform raw inputs into valuable outputs through a series of activities called business processes.

What Are Business Processes?

  • A group of logically related tasks that use organizational resources to provide defined results in support of the organization’s objectives (Harrington, 1983).
  • A complete and dynamically coordinated set of collaborative and transactional activities that deliver value to customers (Smith & Finger, 2002).
  • Traditional processes were often manual, involving human judgment and heuristics.
  • Problems with traditional processes:
    • Error prone
    • Sub-optimization of organizational goals
    • Obsolete assumptions

The Traditional View of Businesses: Core Processes

  • Acquisition process: purchasing and paying for raw materials and supply services.
  • Production process: transforming raw materials into valuable goods/services.
  • Sales process: provision of goods/services to customers and collection of payment.

Porter’s Value Chain (1985)

  • Michael Porter introduced the value chain model to understand how activities create value and competitive advantage.
  • Value chain splits processes into Primary/Core and Support activities.
  • Primary activities directly support core competencies: inbound logistics, operations, sales and marketing, service, and outbound logistics.
  • Support activities do not directly create products/services but facilitate core processes: procurement, technology, human resources, and firm infrastructure.

Primary/Core Processes (examples)

  • Inbound logistics: receiving, storing and distributing inputs to the organization (e.g., handling chemicals in a pharmaceutical company).
  • Operations: transforming inputs into products/services (e.g., combining chemicals with labor/equipment to produce drugs).
  • Outbound logistics: distributing products to customers (e.g., packaging and shipping drugs to stores/hospitals).
  • Marketing and sales: activities that help customers purchase (channel selection, advertising, pricing).
  • Service: after-sale activities that add value (e.g., customer support, repair).
    • Note: For some products like drugs, servicing may involve advisory services rather than repair; the service process can include ongoing support.

Support/Infrastructure Activities

  • Procurement (purchasing inputs for the value chain)
  • Technology (R&D, IT infrastructure, automation)
  • Human Resources (HR management, training, staffing)
  • Firm Infrastructure (finance, planning, governance, quality management)

Data Flow in Modern Organizations

  • Both the traditional material-flow model and Porter’s value chain describe material flow, but modern organizations generate and rely on massive data flows as well.
  • Data about products, customers, employees, deliveries, and other sources accumulate and must be stored, managed, and processed by information systems.
  • Data flow is an additional layer atop the material flow in many contemporary organizations (e.g., a modern pizzeria has data flows in addition to food/material flows).

Examples of Data Generated by Business Cycles

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

Systems Thinking and Information Systems

  • General Systems Theory (GST) emphasizes viewing the system as a whole, not just its parts.
  • Systems are composed of subsystems (groups of processes) that interact and are interdependent.
  • Example: stock control system analysis requires considering production control, replenishment, and stock control linkages.
  • Systems are hierarchical: subsystems are made of smaller parts; detail increases as you go down the hierarchy.
  • Changes in one department’s rules/policies can affect seemingly unrelated subsystems; subsystems should align with higher-system goals.
  • Key takeaway: all subsystems are interrelated and should work toward the goals of their higher systems.

The Transformation Process: Inputs, Processes, Outputs

  • All systems share the same basic elements: inputs, processes, and outputs.
  • Not all possible inputs/outputs are necessary; focus on those with business relevance.
  • Analysis sequence:
    • Start with output requirements first (directly tied to system objectives).
    • Then determine the inputs necessary to achieve those outputs.
  • Transformation model (informal):
    • Inputs → Processing (transformation routines) → Outputs
    • Storage keeps data for future processing/retrieval.
  • Expressed succinctly: O = f(I) or more explicitly Output = Processing(Inputs) with storage as a supporting element.

What Are Information Systems? (Expanded)

  • An information system can be seen as a set of interrelated components that collect, process, store, and distribute information to support decision making and control.
  • In addition to decision support, IS help coordinate and control and may help analyze problems, visualize complex subjects, and create new products.
  • IS contain information about significant people, places and events within organizations; data become information when shaped into meaning for business use.

Example: Clinical Information System

  • Patient as customer; product is health care; process describes medical treatment steps.
  • Five activities in the process: patient informs doctor about symptoms, doctor examines, doctor diagnoses, determines treatments, and doctor enters data into the software system.
  • Roles: doctor as participant; data points: symptoms and treatment data; the IS involved is the doctor’s software system.

Interdependence Between Organization and Information Systems

  • An organization’s ability to execute corporate strategies increasingly depends on its information systems.
  • Strategic choices (e.g., market share, quality, cost leadership, new products, productivity) rely on what the IS can support.
  • Strategic changes often require updates to hardware, software, databases, and telecommunications.

Main Components of an Information System

  • Three activities produce the information organizations need: input, processing, and output.
    • Inputs: facts about people, events, places, and things from internal/external sources.
    • Processing: routines that convert raw input into meaningful information.
    • Output: information delivered to users or used in processes.
  • Storage components store data for future use and retrieval.

Information System Value Propositions (Benefits)

  • Informed decision-making: access to accurate, up-to-date information for future forecasting; includes real-time information.
  • Better record-keeping: easier, faster, more accurate records with versioning, audit trails, and stored documents; supports regulatory/compliance needs and forecasting.
  • Improves employee productivity: reduces time spent gathering data; enables faster action.
  • Improves business efficiency: automates manual processes, saving time and reducing costs.

Three Stages in the Business Use of Information Systems

1) Automation and process simplification: IS automate steps previously done manually (e.g., invoicing, shipping orders, labeling) and reduce costs, increasing profitability.
2) Competitive advantage: IS enables creation/enhancement/differentiation of products or services.
3) Insight-driven management: IS provides data-driven reports that support performance-based management and strategic decisions.

How IS Help Modern Organizations

  • IS automate steps in business processes, reducing manual labor and errors.
  • IS enables competitive advantage through product/service innovation, differentiation, and enhanced offerings.
  • IS supports performance-based management via metrics, forecasting, and data-driven decision making.

Three Core Types of Information Systems (Major 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)

Reports in Information Systems

  • There are three basic kinds of reports:
    • Scheduled: Created regularly using predefined rules; useful for time-based or location-based analysis.
    • Ad-hoc: One-off reports to answer a specific question; can be turned into scheduled reports if useful.
    • Real-time: Reports that monitor changes as they occur (e.g., call center volume spikes) to support timely actions.

Real-World Examples of IS Value Propositions

  • HelloFresh (Global meal kit provider):
    • Problem: Data analysis in Excel from multiple sources (Google Analytics, MySQL databases) and manual daily/weekly performance reporting causing 1–4 hours of manual work per region.
    • Solution: Centralized Information System reduced 10–20 working hours per day across 10 regions by automating reporting; enabled regional, individualized marketing campaigns.
  • Des Moines Public Schools (DMPS):
    • Problem: Manual Excel reporting hindered timely insight into attendance and outcomes.
    • Solution: Intelligent IS with a regression model (dropout coefficient) to predict at-risk students; used BI platform and data visualization to target interventions.

Common Reasons IS Projects Fail (And How to Avoid Them)

  • Often fail when users have a limited view of how the system should be used; success hinges on how managers actually use the system to increase effectiveness.
  • The difference between success and failure is the extent to which managers use the system to improve organizational effectiveness.
  • Important implication for system analysts: design and implement systems that align with how managers will use them, not just how they are technically built.

Designing and Using Information Systems to Support Management

  • Systems should support strategy decisions by providing metrics and forecasts to identify trends.
  • MIS helps create regular financial statements with accuracy and integrity for monitoring strategic decisions.
  • MIS enables collating massive data, identifying patterns, and running simulations to test scenarios without commitment to a single plan.
  • Time savings: centralize information to reduce scattered spreadsheets/databases and improve communication through a common data language.

Mapping Conceptual Models to Real-World IS Applications

  • Inventory Management System (IMS)
    • Inputs: stock facts (e.g., SKU, average daily usage)
    • Processes: ordering, stock tracking, safety stock calculations, lead time management
    • Outputs: reorder information, stock levels, replenishment plans
  • School Management System (SMS)
    • Inputs: student, faculty, facilities data; processes: tuition invoicing, class schedules, ID cards, transcripts, tax statements
    • Outputs: invoices, schedules, IDs, transcripts, statements
  • Payroll Transaction Process System
    • Inputs: hours worked, pay rate
    • Processes: payroll calculation, payroll transaction processing, payroll checks
    • Outputs: pay stubs, payroll reports

How Information Systems Support Operations and Strategy

  • IS enable organizations to automate steps in business processes, reducing manual work and cost.
  • IS offers competitive advantage through new/differentiated products and enhanced services.
  • IS provides insightful information that supports performance-based management and strategic planning.

Class Activity Prompts (Practice Thinking About IS in Your University)

  • Identify one or more examples of Information System Applications in use at the University.
  • Identify inputs, processes, and outputs of the system.
  • What manual processes have been eliminated by the use of these systems?
  • How do the systems create value for users and the university (cost reduction, time saving, efficiency)?

Summary – Key Takeaways

  • Information systems are the backbone that links material flow with data flow in modern organizations.
  • The traditional model focuses on material flow (raw materials to finished goods), while the data flow layer captures the data generated at each stage.
  • Systems thinking emphasizes viewing organizations as interrelated, hierarchical systems with interdependent subsystems; changes in one area affect the whole.
  • The transformation process in IS relies on inputs, processing, outputs, and storage; relationships can be summarized as Output = Processing(Inputs) with storage enabling future use.
  • Porter’s Value Chain differentiates primary activities (inbound logistics, operations, outbound logistics, marketing & sales, service) from support activities (procurement, technology, HR, firm infrastructure).
  • Information systems provide value through informed decision-making, better record-keeping, increased productivity, and enhanced efficiency; they automate processes, enable competitive advantage, and support performance-based management.
  • Modern organizations rely on a set of IS types (EIS, BIS, CRM, TPS, KMS, HRM, SCM) and generate various report types (Scheduled, Ad-hoc, Real-time).
  • Real-world examples (HelloFresh, Des Moines Public Schools) illustrate how centralized IS solutions automate reporting, enable data-driven decisions, and improve outcomes.
  • Successful IS deployment hinges on managerial use and alignment with strategy; poor adoption is a common cause of failure.
  • Designing IS involves supporting strategic decisions, enabling reliable financial reporting, and enabling data-driven simulations, while saving time and standardizing data language.

Notable Numerical References (from the Transcript)

  • Information systems reliance in the United States:
    • Managers: 23{,}000{,}000
    • Workers: 113{,}000{,}000
  • Porter’s Value Chain introduced in: 1985.
  • HelloFresh regional scope: operating in 10 international markets.

Connections to Foundational Principles

  • The five-component model of IS (hardware, software, data, people, procedures) underpins the broader discussion of how IS enable process automation and decision support.
  • The distinction between data (raw facts) and information (meaningful data) is central to understanding why information systems matter.
  • The link between business strategy and IS design is emphasized repeatedly: strategy changes drive IS changes and vice versa.
  • Ethical and governance considerations, while not deeply explored in the transcript, are implicit in data management, privacy, and regulatory compliance when discussing record-keeping and data-driven decision making.