TYPES OF BUSINESS INFORMATION SYSTEMS

An Information System should produce useful, accurate, and timely information to

orgamizations on three levels: lower-level (operational), middle (management/tactical), and top
(strategic).

The primary objective of an information system is to satisfy the needs of management at the
various levels. Generally the information needs to be (1) more summarized and relevant to the
specific decisions that need to be made than the information normally produced in an
organization and (2) available soon enough to be of value in the decision making process. The
information flows up and down through the three levels of management and is made available in
various types of reports.

Each level of management can be differentiated by the types of decisions made, the time frame
considered in the decisions, and the types of report information needed to make decisions.

LOWER MANAGEMENT (Operational Level)

The largest level of management, lower (operational) management, deals mostly with
decisions that cover a relatively narrow time frame.

Lower management, also called supervisory management, actualizes the plans of middle
management and controls daily operations - the day-to-day activities and business transactions
that keep the organization humming.

Examples of a lower-level manager are the warehouse manager in charge of inventory

restocking and the materials manager responsible for seeing that all necessary materials are on
hand in manufacturing to meet production needs.

Most decisions at this level require easily defined information about current status and
activities within the basic business functions - for example, the information needed to decide
whether to restock inventory. This information is generally given in detail reports that contain
specific information about routine activities. These reports are structured, so their form can
usually be predetermined. Daily business operations data is readily available, and its processing
can be easily computerized.

Managers at this level typically make structured decisions. A structured decision is a

predictable decision that can be made by following a well-defined set of predetermined, routine
procedures. For example, a clothing store floor manager`s decision to accept your credit card to
pay for some new clothes is a structured decision based on several well-defined criteria:
1. Does the customer have satisfactory identification?
2. Is the card current or expired?
3. Is the card number 011 on the store`s list of stolen or lost cards?
4. Is the amount of purchase under the cardholder`s credit limit?

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MIDDLE MANAGEMENT (Tactical Level)
The middle level of management deals with decisions that cover a somewhat broader range
of time and involve more experience. Some common titles of middle managers are plant
manager, division manager, sales manager, branch manager, and director of personnel.

The information that middle managers need involves review, summarization, and analysis of
historical data to help plan and control operations and implement policy that has been formulated
by upper management. This information is usually given to middle managers in two forms:
(1) summary reports, which show totals and trends- for example, total sales by office, by
product, by salesperson, and total overall sales-and (2) exception reports, which show out-of-the-
ordinary data-for example, inventory reports that list only those items that number fewer than 10
in stock. These reports may be regularly scheduled (periodic reports), requested on a case-by-
case basis (on-demand reports), or generated only when certain conditions exist (exception
reports).

Periodic reports are produced at predetermined times-daily, weekly, monthly, quarterly, or

annually. These reports commonly include payroll reports, inventory status reports, sales reports,
income statements, and balance sheets. On-demand reports are usually requested by a manager
when information is needed for a particular problem. For example, if a customer wants to
establish a large charge account, a manager might request a special report on the customer`s
payment and order history. Exception reports indicate a change in conditions that requires
immediate attention, such as an out-of-stock report or a report on an equipment breakdown.

Managers at the middle level of management are often referred to as tactical decision
makers who generally deal with structured and semistructured decisions. A semistructured
decision is a decision that includes some structured procedures and some procedures that do not
follow a predetermined set of procedures. In most cases, a semistructured decision is complex,
requiring detailed analysis and extensive computations. For eg., deciding how much stock to
maintain for a product will involve an analysis of prior usage (programmable) but this may then
have to be adjusted if a competitor has recently gone out of business and we expect additional,
but unknown, demand.
At least some of the information requirements at this level can be met through computer-
based data processing.

TOP MANAGEMENT (Strategic Level)

The top level of management deals with decisions that are the broadest in scope and cover
the widest time frame. Typical titles of managers at this level are chief executive officer (CEO),
chief operating officer (COO), chief financial officer (CFO), treasurer, controller, chief infor-
mation officer (CIO), executive vice president, and senior partner. Top managers include only a
few powerful people who are in charge of the four basic functions of a business - marketing,
accounting and finance, production, and research and development. Decisions made at this level
are mostly unstructured in nature – they are unpredictable, long-range, and related to the future,
not just past and/or current activities. Therefore, they demand the most experience and judgment.

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 A company`s information system must be able to supply information to top management as
needed - periodic reports, exception reports, and on-demand reports. The information must show
on a much broader scale as compared to reports for the middle level, how all the company`s
operations and departments are related to and are affected by one another. The major decisions
made at this level tend to be directed toward (1) strategic planning - for example, how growth
should be financed and which new markets should be tackled first; (2) allocation of resources,
such as deciding whether to build or lease office space and whether to spend more money on
advertising or the hiring of new staff members; and (3) policy formulation, such as determining
the company`s policy on hiring and providing employee incentives. Managers at this level are
often called strategic decision makers.

Examples of unstructured decisions include deciding five-year goals for the company,
evaluating future financial resources, and deciding how to react to the actions of competitors.

At the higher levels of management, much of the data required to make decisions comes
from outside the organization (for example, financial information about other competitors).

Types of Information Systems

We will now briefly look at the most common types of CBIS in business today. Three
main categories of information systems serve to provide information at the different
organizational levels:
Operational level systems – Information systems that support operational managers, keeping
track of the elementary activities and business transactions of the organization. Example: Sales,
invoices, payroll, deposits, withdrawals, reservations, registrations etc. Transaction processing
systems function at the operational level of the organization.

Tactical level systems – Information systems that serve the monitoring, controlling, decision
making, and administrative activities of middle level managers of the organization. Management
information systems function at the tactical level and provide managers with reports based
primarily on data from transaction processing systems. Decision support systems function at the
tactical level and provide analytical models and data analysis tools to provide support for semi-
structured and unstructured decision making activities.

Strategic level systems – Information systems that support the long range planning activities of
senior management and help them deal with strategic issues. Executive support systems function
at the strategic level, and support unstructured decision making.

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 Policies on human resource
development and training

Methods of financing

Search for new

markets; analysis of
competitors’ strategy

Order Processing Employee

Payroll,
Recordkeeping
Accounts Payable

Sales and Marketing Finance and Accounting Human Resources

Use of Information systems in various Functional areas

 Transaction Processing Systems

Since the 1950’s computers have been used to perform common business application.
The objective of many of these early systems was to reduce costs. This was done by automating
many routine, labor-intensive business systems. A transaction is any business-related exchange
such as payments to employees, sales to customers, and payments to suppliers. Thus, processing
business transactions was the first application of computers for most organizations. A
transaction processing system (TPS) is an organized collection of people, procedures, databases
and devices used to record business transactions.

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 One of the first business systems to be computerized was the payroll system. The
primary inputs for a payroll TPS could be the numbers of employee hours worked during the
week and pay rate. The primary output consists of paychecks. Early payroll systems were able to
produce employee paychecks, along with important employee-related reports required by
agencies such as the Internal Revenue Service.
Simultaneously, other routine processes, including customer billing, and inventory
control, were being computerized as well. Because these early systems handled and processed
daily business exchanges, or transactions, they were called transaction processing systems
(TPSs). In improved form, these TPSs are still vital to most modern organizations. Consider
what would happen if an organization had to function without its TPS for even one day. How
many sales would be recorded and processed? Transaction processing systems represent the
application of information concepts and technology to routine, repetitive, and usually ordinary
business transactions, but transactions that are critical to the daily functions of that business.

 Management Information Systems

Most organizations realized that transaction processing systems were worth their cost in
computing equipment, computer programs, and specialized personnel and supplies. They sped
the processing of business activities and reduced clerical costs. Although early accounting and
financial transaction processing systems were available, it soon became clear that the data stored
in these systems could be used to help managers make better decisions in their respective
business area, whether human resources, marketing, or administration.
A management information system (MIS) is an organized collection of people,
procedures, databases, and devices used to provide routine information to managers and decision
makers. The focus of an MIS is on operational efficiency, ie., doing routine tasks faster or more
cheaply. Marketing, production, finance, administration are linked by management information
systems and linked through a common database. Management information systems typically
provide standard reports generated with data and information from the transaction processing
system.

 Decision Support Systems

By the 1970s and 1980s, dramatic improvements in technology resulted in information
systems that were less expensive but more powerful than earlier systems. People at all levels of
organizations began using personal computers to do a variety of tasks; they were no longer
dependent on the information systems department for all their information needs. During this
time, people recognized that computer systems could support additional decision-making
activities. A decision-support system (DSS) is an organized collection of people, procedures,
databases, and devices used to support problem-specific decision making. The focus of a DSS is
on decision-making effectiveness – helping to making sure that the right decisions are made.
A DSS goes beyond a traditional MIS which merely produces reports. A DSS can
provide immediate assistance in solving complex problems that were not supported by a
traditional MIS. Many of these problems are unique and not straightforward. For instance, an
auto manufacturer might try to determine the best location to build a new manufacturing facility,

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or an oil company might want to discover the best place to explore for oil. Traditional MIS
systems are seldom of use in solving these types of problems; a DSS can help by suggesting
alternatives and assisting final decision making.

 Executive Support Systems

An executive Support system (ESS), also referred to as executive information system (EIS) is
a type of information system that facilitates and supports senior management in their information
and decision making needs. The decisions that they make are generally unstructured, and the
problems and situations that they face are fluid and changing constantly. The EIS provides
flexibility and ease of manipulation. It provides easy access to internal and external information
relevant to their needs.

The EIS emphasizes graphical displays and easy-to-use user interfaces. It not only supplies
summarized information that executives need, but also provides the ability to drill down to more
detail, if necessary. In general, ESS are enterprise-wide DSS that help top-level executives
analyze, compare, and highlight trends in important variables so that they can monitor
performance and identify opportunities and problems.

As we move from transaction processing to management information systems, decision

support systems, executive support systems and expert systems, we see less routine, more
decision support, less input and output, and more sophisticated and complex processing and
analysis.

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Digital Dashboards

Business managers and owners use a number of different tools to track their progress and
determine how well the business is performing. The business dashboard is one of these tools that
provides a snapshot of most of the important numbers needed to conduct effective business
analysis. Dashboards can be used in all levels of business management but are typically most
important to higher level managers who need a quick glimpse at how the company is performing.

The primary function of the dashboard used in business is similar to the function of a
dashboard used in an automobile. Business dashboards provide various gauges that are readouts
of how the business "engine" is performing. These gauges read what business analysts and
managers call key performance indicators, or measurable numbers that are used to determine
business success and failure. Key performance indicators need special consideration because
they are high-level measurements of how well an organization is doing in achieving critical
success factors – in other words, the goals or targets set by an organization in their strategic plan
For instance, it is possible to track profitability by examining revenue forecasts and
achievements during each quarter of the business year. Some of the most useful key
performance indicators that can be tracked include improvements or decline in sales numbers
and total revenue, and profitability by product or region or department..

. Many different sectors of many different businesses benefit from dashboards.. From the
production line worker on the manufacturing plant floor, to the sales force in the field, and all the
way up to the CEO deciding where to channel funds, everyone can benefit from dashboard use.
Dashboards can provide an effective solution to the overwhelming amount of data that business
users experience every day.

A dashboard is composed of data visualization tools like charts, tables, and maps that
display the current status of metrics and key performance indicators (KPIs) for an
enterprise. Dashboards consolidate and arrange numbers, metrics and sometimes performance
scorecards on a single screen. The essential features of a dashboard product include a
customizable interface and the ability to pull real-time data from multiple sources.

Features of an effective executive dashboard include:

 An intuitive graphical display that is thoughtfully laid-out and easy to navigate.

 A logical structure behind the dashboard that makes accessing current data easy and fast.
 Displays that can be customized and categorized to meet a user’s specific needs.
 Information from multiple sources, departments or markets.

Oracle and Microsoft are among the vendors of business intelligence dashboards. BI dashboards
can also be created through other business applications, such as Excel.

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Digital dashboards offer the following capabilities:

Consolidation is the aggregation of data from simple roll-ups to complex groupings of

interrelated information. For example, data for different sales representatives can be rolled up to
an office level, then a state level, then a regional sales level.

Drill-Down enables users to view details, and details of details, of information. This is the
reverse of consolidation; a user can view regional sales data and then drill down all the way to
each sales representative’s data at each office. Drill-down capability lets managers view
monthly, weekly, daily, or even hourly information.

Slice-and-Dice is the ability to look at information from different perspectives. One slice of
information could display all product sales during a given promotion. Another slice could display
a single product’s sales for all promotions. Slicing and dicing is often performed along a time
axis to analyze trends and find time-based patterns in the information.

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(Source: http://searchbusinessanalytics.techtarget.com/tip/Real-life-examples-of-effective-dashboard-
design)

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 Artificial Intelligence and Expert Systems

In addition to TPS, MIS, DSS, and ESS, organizations also use systems based on the
notion of artificial intelligence (AI) where the computer system takes on the characteristics of
human intelligence. The field of AI includes several subfields:

 Robotics is an area of AI where machines take over complex, routine, or boring tasks, such
as welding car frames.
 Vision systems allow robots and other devices to have “sight” and process visual images.
Such systems could be used in the area of Quality Control in a manufacturing environment
where they can find defects in the products.
 Natural language processing involves the ability of computers to understand and act on
verbal or written commands in a human language.
 Learning systems give computers the ability to learn from past mistakes or experiences, and
are used in areas such as playing games, or making business decisions.
 Neural networks is a branch of AI that allows computers to recognize and act on patterns or
trends. Stock traders use neural networks to spot trends and make them more profitable with
their investments.
 Finally, expert systems give the computer the ability to make suggestions and act like an
expert in a particular field. The unique value of expert systems is that they allow
organizations to capture and use the wisdom of experts and specialists.

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