UNIT I

BUSINESS INFORMATION SYSTEMS

OBJECTIVES:

At the end of the unit, the student should be able to:

1) Explain why information systems are essential to business

2) Describe how computers process data into useful information for problem
solving and decision making

3) Identify functions of different types of information systems

4) Describe how different information systems serve different levels within an

organization

5) Evaluate how telecommunication and database technology can help implement

the goals of information systems

6) Recognize the role of information technology in e-commerce; and

7) List major factors to consider when evaluating information systems and their
roles in organizations
 UNIT I
BUSINESS INFORMATION SYSTEMS

Information systems pervade almost every aspect of our lives. Whether we are withdrawing money
from a bank’s automatic teller machine or surfing the World Wide Web, hardly a day goes by without our
feeding data into, or using information generated by, an information system.

In business especially, computer-based information systems generate most of the information we use.
These systems have become essential to successful business operations.

WHAT IS INFORMATION SYSTEMS

People require information for many and varied reasons. For instances, you probably seek information for
entertainment and enlightenment by watching television, seeing movies, browsing the Internet, listening to
the radio and reading newspaper, magazines, and books. In business, however, people and organization
seek and use information specifically for the purpose of sound decision making and problem solving –
two closely related practices that form foundation of every successful company.

What is a problem? A problem is any undesirable situation. When you are stuck in the middle of
nowhere with a flat tire, you have a problem. If you know that some customers do not pay their debts on
time, but you don’t know who or how much they owe, you have a problem. You can solve both problems
with the aid of information. In the first case, you can call a towing company, which may use a
computerized tracking system to send the tow truck close to your location; in the second case, simple
accounting software can help.

An organization or individual that finds more than one way to solve a problem must make a
decision. The problem “2+2=?” does not require decision making because it has only one solution.
However, as a manager, you may face another sort of dilemma: “Which is the best way to promote the
new car – television advertising, radio advertising, newspaper advertising, Web advertising, auto shows,
direct mail, or any combination of these methods. This case calls for decision making.

Both problem solving and decision making requires information. Gathering the right information
efficiently, storing it so that it can be used and manipulated as necessary, and using it to help an
organization achieve its business goals are the keys to success in business today. As a future professional,
you need to understand and apply these information fundamentals to succeed.

DATA, INFORMATION AND SYSTEMS

We use the words data, information and system always. Understanding what these terms mean, both
generally and in the business context, is necessary if you are to use information effectively in your career.

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 Data vs. Information
The terms data and information do not mean the same thing. Data is the plural of the Latin datum,
literally a “given”, or fact, which may take the form of a number, a statement, or a picture. Data
are the raw materials in the production of information. Information, on the other hand, is data
that have meaning within context. Information can be raw data or data manipulated through
tabulation, addition, subtraction, division, or any other operation that leads to greater
understanding of a situation.

Data Manipulation
Here’s a simple example that demonstrates the difference between data and information. Assume
that your work for a car manufacturer. Last year, the company introduced a new vehicle to the
market. Because management realizes that keeping a loyal customer base requires continuous
improvement of products and services, it periodically surveys large sample of buyers. It sends
questionnaires that includes 30 questions in several categories, including demographic data (such
as gender, age, and annual income); complaints about different performances areas (such as ease
of handling, braking, and the quality of the sound system); features that satisfy buyers most; and
courtesy of the dealer’s personnel.
Reading through all these data would be extremely time consuming and not very helpful.
However, if the data are manipulated, they may provide highly useful information. For example,
by categorizing complaints by topic and totaling the number of complaints for each type of
complaint and each car, the company may be able to pinpoint a car’s weakness. The company can
then pass the resulting information along the appropriate engineering or manufacturing unit.
Also, the company may already have sufficient data on dealers who sold cars to the
customers surveyed, the car models they sold, and the financing method for each purchase. But
with the survey results, the company can generate new information to improve marketing. For
instances, by calculating the average age and income of current buyers and categorizing them by
the car they purchased, marketing executives can better target advertising to groups most likely to
purchase each car. If the majority of buyers of a particular type of car do not ask for financing,
the company may wish to drop this service option for that car and divert more loan money to
finance purchases of other cars. In this way, the company generates useful information from data.

Generating Information
In the example just cited, calculating totals and average of different complaints or purchases’ ages
reveals trends associated with customers. These calculations are processes. A process is any
manipulation of data, usually with the goal of producing information. Some processes, however,
produce yet another set of interim data. Hence while data are raw material, information is output.
Sometimes, data in one context is considered information in another context. For
example, if an organization needs to know the age of every person attending a basketball game,
then a list of that data is actually information. But if the same organization wants to know the
average price of tickets each age group purchases, the list of ages is only data, which the
organization must process to generate information.

Information in Context
Information is an extremely important resource for both individuals and organizations, but not all
information is useful. Consider the following story. Two people who took a tour in a hot air
balloon encountered unexpected wind that soon blew them off course. When they managed to

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lower their balloon, they shouted to farmer on the ground, “Where are we?” “You are right above
a corn field!” he answered. The balloonists looked each other and one groaned, “Some
information! Highly accurate and totally useless!” to be useful, information must be relevant,
complete, accurate and current. And in business, information must also be obtained economically,
that is, cost effectively.

Characteristics of Useful Information

1. Relevant – information must pertain to the problem at hand. For example, the total
number of years of education may not be relevant to a person’s qualifications for a new
job.
2. Complete – partial information is often worse than no information. For example,
marketing data about household incomes lead to bad decisions if not accompanied by
vital information on the consumption habits of the targeted population.
3. Accurate – erroneous information may lead to disastrous decisions. For example, an
inaccurate record of a patient’s reaction to penicillin may lead a doctor to harm the
patient while believing that she is helping him.
4. Current – decisions are often based upon the latest information available, but what was a
fact yesterday may no longer be one today. For example, a short term investment
decision to purchase a stock today on yesterday’s stock prices may be costly mistake if
the stock’s price has risen in the interim.
5. Economical – in a business setting, the cost of obtaining information must be
considered as one cost element involved in any decision. For example, demand for a new
product must be researched to reduce risk of marketing failure, but if market research is
too expensive, the cost of obtaining the information may diminish profit from sales.

What is a System?
Before discussing information systems, we need to explore the meaning of the two words. You
probably used the word system many times. Simply put, a system is an array of components that
work together to achieve a common goal, or multiple goals, by accepting input, processing it, and
producing output in an organized manner. Consider the following example:
● A sound system consists of many electronic and mechanical parts, such as a laser head,
an amplifier, an equalizer, and so on. This system uses input in the form of electrical
power and sound recorded on tape or CD, and processes the input to reproduce music
and other sounds. The components work together to achieve this goal.

Systems and Subsystems

Needless to say, not every system has a single goal. Often, a system consist of several subsystems
– components of a larger system – with sub goals, all contributing to meeting the main goal.
Subsystems can receive input from, and transfer output to, other systems or subsystems.

Consider the different departments of a manufacturing business. The marketing

department tries to promote sales of the organization’s products; the engineering department tries
to design new products and improve existing ones; the finance department tries to plan a clear
budget and earn interest on every unused penny at the end of the day. Each department is a

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subsystem with its own goal, which is a sub goal of a larger system (the company), whose goal is
to maximize profit.

Now consider the goals of a manufacturing organization’s information system, which

stores and processes operational data and produces information about all aspects of company
operations. The purpose of its inventory control subsystem is to let managers know what
quantities of which items are available; the purpose of its production control subsystem is to track
the status of manufactured parts; and the assembly control subsystem presents the bill of material
(a list of all parts that make up a product) and the status of assembled products. The entire
system’s goal is to help deliver finished goods at the lowest possible cost within the shortest
possible time.
Closed vs. Open Systems
Systems are closed or open, depending upon the nature of information that flows within an
organization. A closed system stands alone, with no connection to another system: nothing
flows in from another system; nothing flows out to another system. An open system interfaces
and interacts with other systems. For example, an accounting system that records accounts
receivable, account payable, and cash flow is open if it receives its payroll figure from the payroll
system. Subsystems, by definition, are always open, because as components of a bigger system,
they must receive information form, and give information to, other subsystems.

Information and Systems

With an understanding of the words information and system, the definition of an information
system is almost intuitive: an information system (IS) is all components that work together to
process data and produce information. Almost all business information systems consist of many
subsystems with sub goals, all contributing to the organization’s main goal.

Information and Managers

Thinking of an organization in terms of its sub organizations or subsystem – called systems
thinking – is a powerful management approach because it creates a framework for both excellent
problem solving and excellent decision making. To solve problems, managers need to isolate
them, which they do by recognizing the subsystems in which the problems occur and solving the
problems within those subsystems’ constraints and strengths.
System thinking can also help keep managers focused on the overall goals and operations
of a business. It encourages them to consider the entire system, not only their specific subsystem,
when solving problems and making decisions. A satisfactory solution for one subsystem may be
inadequate for the business as a whole. For example, when the sales department creates a Website
to take online customer orders, it automates a formerly labor-intensive activity of the sales
subsystems. This saves cost. With systems thinking, improving the sales process could also
improve other company processes. Without system thinking, managers form other departments
aren’t involved in the decision, so they don’t benefit. In the case of the sales department, if other
managers are involved in planning for automated Internet ordering, they could suggest that sales
data recorded on the database connected to the Web also be accessible to other departments,
such as shipping and manufacturing. The shipping department could use the records to expedite
packaging and shipping, thanks to the information that appears on a computer monitor rather
than a piece of paper. The manufacturing units could use the order records for resource planning
such as laborers and inventory. Figuratively, by applying system thinking, effective managers view

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their areas of responsibility as puzzle piece. Each piece is important and should fit well with
adjacent pieces, but the entire picture should always be kept in view.
In the information map of a modern business – that is, in the description of data and
information flow within an organization – is a network of information subsystems that exchange
information with each other and with the world outside the system. In an ideal organization, no
human would need to retrieve information from one IS and transfer it to another. The
organization would capture only new raw data, usually from its operations or from outside the
organization. Then data captured at any point in the system would automatically become available
to any other subsystem that needs it. Thus, system thinking is served well by information
technology (IT), a term that refers to all technologies that collectively facilitate construction and
maintenance of information systems.

The Benefits of Human-Computer Synergy

It is important to remember that computers can only carry out instructions that human give
them. Computers can process data accurately at far greater speeds than people can, yet they are
limited in many aspects – most importantly they lack common sense. However combining the
strengths of these machines with human strengths creates synergy.
Some people cal synergy the 2 + 2 = 5 rule. Synergy (from the Greek “work together”)
occurs when combined resources produce output that exceeds the sum of the outputs of the
same resources employed separately. A computer works quickly and accurately; humans work
relatively slowly and make mistakes.
A computer cannot make independent decisions, however, or formulate steps for solving
problems. Thus, human-computer combination allows results of human thought to be translated
into efficient processing of large amounts of data.

What are Information Systems?

In an organization, an information system consists of data, hardware, software,
telecommunications, people, and procedures. Generally defined, the term information system
does not have to include electronic equipment. However, “information system” has become
synonymous with “computer-based information system,” a system with a computer at its center
to which peripheral equipment is connected. In a computer-based information system, computers
collect, store and process data into information, according to instruction people provide via
computer programs.

Components of an Information System

1. Data – input that the system takes to produce information.
2. Hardware – a computer and its peripheral equipment: input, output and storage
devices. Hardware includes data communication equipment.
3. Software – sets of instructions that tell the computer how to take data in, how to
process it, how to display, and how to store data and information.
4. Telecommunication – hardware and software that facilitates fast transmission and
reception of text, pictures, sound and animation in the form of electronic data.
5. People – Information systems professionals and users, who analyze organizational
information needs, design and construct information systems, write computer program,
operate hardware, and maintain software.
6. Procedures – rules for achieving optimal and secure operations in data processing.
Procedures include priorities in dispensing software applications and security measures.

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 The Four Stages of Processing
All information systems operate in the same basic fashion whether they include a computer or
not. However, the computer provides a convenient means to execute the four main operations of
information systems:
● Entering data into the IS (input)
● Changing and manipulating the data in the IS (data processing)
● Getting information out of the IS (output)
● Storing data and information (storage)
A computer-based IS also uses a logical process to decide which data to capture and how to
process them.

Input and Transaction Recording

The first step in producing information is collecting and introducing data, known as input, into
the IS. Most data an organization uses as input to its IS are generated and collected within the
organization. These data result from transactions undertaken in the course of business. A
transaction is a business event: a sale, a purchase, the hiring of a new employee, and the like.
These transactions can be recorded on paper and later entered into a computer system, or they
may be directly recorded through terminals of transaction processing systems (TPS’s), such as
cash registers and order entry terminals. A TPS is any system that records transactions. Often, the
same system also processes the transactions, summarizing and routing information to other
systems; therefore, these systems are transactions processing systems, not just transaction
recording systems.
An input device is a tool used to enter data into an IS. Input devices include the keyboard
(currently the most widely used input device) infrared devices that sense bar codes and voice
recognition system. The trend has been to shorten the time and ease the effort of input by using
devices that allow visual or auditory data entry.

Processing
The computer’s greatest contribution to ISs is efficient processing of data, which is essential to a
robust IS. The computer’s speed and accuracy let organizations process millions of pieces of data
in several seconds; in the past, such quantities of data could not have been processed quickly
enough to be meaningful. For example, managers of a national retail chain can receive up-to-date
information on inventory levels of every item the chain carries and order accordingly; in the past,
obtaining such information would take days. These astronomic gains in the speed and
affordability of computing have made information the essential ingredient for an organization’s
success.

Output
Output is the information an IS produces and displays in the format most useful to an
organization. The most widely used output device is the video display, or video monitor, which
displays output visually. Often, information is printed on paper, which makes it a hard copy.
However, computers can communicate output through speakers in the form of music or speech
and can also transmit it to another computer or electronic device in computer-coded form, for
later interpretation.

Storage

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One of the greatest benefits of using computers is their ability to store vast amounts of data and
information. Computers store information on both devices that are internal to the machine and
those that are external. The computer’s internal memory stores data and programs while
processing them. For longer storage periods, the computer transmits data external storage devices
such as magnetic and optical discs and tapes, in a form that lets the computer retrieve and process
them. Technically, storing a library of millions of volumes on optical discs is not inconceivable.

Computer Equipment for Information Systems

The four basic components of the computer system within an IS:
● Input devices introduce data into the IS.
● The computer processes data through the IS.
● Output devices display information.
● Storage devices store data and information.
In addition to communication that takes place between computer components,
communication occurs between computers over great distances (called telecommunications).
Communications technology lets users not only access multiple input, output, and storage
devices with a single computer but access data and resources of more than one computer as
well. This way, a computer’s power may be augmented with the power of an entire computer
network.
IS’S: FROM RECORDING TRANNSACTIONS TO PROVIDING EXPERTISE

There are many different types of information systems – for different types of organizations, for
different functions within organizations, for different business need, and different management levels of
an organization. Business enterprises differ in their objectives, structures, interests, and approaches.
However, ISs can be generally categorized based on the level of a systems’ complexity and the type of
functions it serves. ISs in business range from the basic transaction processing system that records events
such as sales, to sophisticated expert systems, such as computer programs that provide advice and reduce
the need for the expensive services of a human expert.

Transaction Processing Systems

The earliest electronic information systems in business consisted of computers and programs used to
record and report transactions. Called transaction processing systems, or TPSs, they are the most widely
used information systems. TPSs predominant function is to record data collected at the boundaries of
organizations, in other words, at the point where the organization transacts business with other parties.
TPSs include cash registers, which record sales; automatic teller machines, which record cash withdrawals,
deposits, and transfer; and purchase order systems, which record purchases. After these data are collected,
the IS either automatically processes the data into information or stores it for later processing on demand.

Management Information Systems

In the 1970s, managers realized that they could use computer-based information systems for planning,
control, decision making and problem solving, rather than just for reporting transactions. These new types
of information systems came to be known as management information systems, or MISs. Any
information system that helps managers and other professionals plan, control and makes decisions comes
under the umbrella of management information systems. (Transaction processing systems on their own do
not serve managers in their daily work; therefore, while they are ISs, they are not considered management

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information systems.) MIS’s complexity levels vary. To some degree, the type of MIS one uses depends on
one’s management level.

On-demand Output
Probably one of the greatest improvements in using MISs was in the reporting – or output – part of the
system. Early management information systems were programmed to automatically produce only periodic
reports (weekly, monthly, bimonthly and so on). Additional reporting could be quite expensive. Now
managers can obtain current standings online, while on-screen readouts often eliminate the need for
printouts. In fact, many organizations stopped distributing paper reports altogether. Modern MISs
requires only simple instructions to generate prescribed reports. With the click of a mouse, managers can
instruct computers to produce reports tailored to their needs at virtually any time. This flexibility gives
them tighter control of processes and the ability to react to problems and seize opportunities quickly.
For example, the vice president of a manufacturing company doesn’t need to know about minute-
by-minute or hour-by-hour activities at his 25 plants. However, each plant’s manager can check inventory
and production status throughout any given day to track changes that need immediate addressing.
There is still a place for periodic reports – to allow an organization to coordinate the analysis of
its operations. However, managers may also request unplanned, special reports to help solve specific
problems, called on-demand reports, or ad hoc reports. Periodic or ad hoc reports that flag facts or
numbers that deviate from preset standards are called exception reports. They allow managers to save
time by focusing on exceptions and take care of a situation that caused an unplanned event.

Decision Support Systems

Middle and senior managers often need to select one course of action from many alternatives.
Because managers have neither the time nor the resources to study and absorb long, detailed
reports of data and information, organizations started to build information systems specifically
designed to help managers make decisions. These systems are called decision support systems
(DSSs) and executive information systems. Executive information systems are specific types of
DSSs, serving the highest level of decision making. Expert systems support the most knowledge
intensive decision-making processes.
Decision support systems help find the optimal course of action and answer “What if?”
questions. What if we purchased raw materials overseas? What if we merged our warehouses?
What if we doubled our shifts and cut our staff? These questions seek answers like, “This is how
this action will impact our revenue, or our market share, or our costs.” DSSs are programmed to
process raw data, make comparisons and generate information to help managers glean the best
alternatives for financial investment, marketing strategy, credit approval, and the like. However, it
is important to understand that a DSS is only a decision aid, not an absolute alternative to human
decision making.
Often, a group of managers must make a decision. To reach consensus, the managers
may use group decision support systems (GDSSs), programs that help a group, rather than an
individual, make decisions. GDSSs help managers work collaboratively to brainstorm, generate
ideas, prioritize various suggested actions, and reach a decision acceptable to all, or most, decision
makers.

Executive Information Systems

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Executive information systems (EISs), or executive support systems (ESSs), help high
ranking officers direct an organization. Often programmed to integrate thousands of pieces of
data and produce summary reports, these systems evolved in the mid 1970s to help executives
focus on long range strategic planning within an organization. For example, executives in a
hospital chain may receive bed occupancy rates for each quarter, month, or day. When they notice
a persistently low occupancy rate for a certain hospital, they may start asking hospitals
management questions in order to pinpoint the problem.

Expert Systems
Although powerful decision-making tools, DSSs and EISs only include quantitative formulas, or
models, that process data. Often, however, managers or other workers may need expertise to
make certain decisions, not just formulas. In the past, only human’s experts in a specific line of
work could provide advice to decision makers. Now, ISs can be developed that incorporate
human expertise. These systems are called expert systems (ESs). Highly structured decision
making makes it easy to choose the one alternative from many that will yield the best results,
thanks to a previously proven set of steps. Expert systems, on the other hand, are used when
decision making is not structured. One example of structured decision making is determining how
to spend television advertising dollars during Super Bowl week. In this case, data show that every
dollar spent on television advertising during the Super Bowl increases sales 10 times as much as
advertising during regular prime-time programming. How to spend advertising dollars during
Super Bowl week is easy decision.
However, many environments are not sufficiently structured to let an IS use data to
provide the one best answer. For instance, stock portfolio management takes place in a highly
uncertain environment. No single method exists to determine which securities portfolio is best,
that is, which one will yield the highest return. Medical care is another unstructured environment.
There may be many methods of diagnosing a patient on the basis of his or her symptoms. Indeed,
a patient with a particular set of symptoms may receive as many different diagnoses as the
number of doctors he or she visits.
Using expert systems saves a company the high cost of employing human experts. After
gathering expertise from experts and building a program, the program can be distributed and used
repeatedly. The expertise resides in the program in the form of a knowledge base consisting of
facts and relationships among the facts.

Geographic Information Systems

In some cases, the information decision makers need is related to a map. In such cases, special ISs
called geographic information systems (GISs) can be used to tie data to physical locations. A
GIS application accesses a database that contains data about part of a city, a city, a country, a
state, a country, or even the entire world. By representing data on a map in different graphical
forms, a user is able to promptly understand a situation taking place in that part of the world and
act upon it. Examples of such information include population levels, the number of police
officers deployed, probabilities of finding minerals, transportation routes, and vehicle allocation
for transportation or distribution systems. While GISs are often used to manage daily operations,
their main use is planning and decision making. However, they have also been used to provide
service via the Web, such as helping residents find locations of different services on a city map or
plan travel routes.

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 INFORMATION SYSTEMS IN BUSINESS

Without exception, every business function in every business sector uses information systems. From
government agencies to manufacturing, from accounting to marketing, information systems are key tools
in transaction processing, decision making, problem solving, and operations of all organizations.

Information Systems in Functional Business Areas

Different types of ISs serve different purposes throughout an organization in what are known as
“functional business areas” – in house services that support an organization’s main business. Functional
business areas include, but are not limited to, accounting, marketing, finance, and human resources; they
exist in most companies in one form to another.

Accounting
In accounting, information systems help record business transactions, produce periodic financial
statements, and create reports required by law, such as balance sheets and profit-and-loss statements. They
also help create reports that may not be required by law but help managers understand changes in an
organization’s finances. Accounting ISs contain controls to ascertain adherence to standards, such as
double entry.

Finance
While accounting systems focus on recording and reporting financial changes and states, the purpose of
financial systems is to facilitate financial planning and business transactions. In finance, information
systems help organize budgets, manage cash flow, analyze investments, and make decisions that could
reduce interest payments and increase revenues from financial transactions.

Marketing
Marketing’s purpose is to pinpoint the people most likely to purchase what the organization sells and to
promote the appropriate products and services to those people. For instance, marketing information
systems help analyze demand for various products in different regions and population groups, to more
accurately market the right product to target consumers. Marketing MISs provides information that helps
management decide how sale representatives to assign to specific products in specific geographical areas
may. The systems identify trends in the demand for the company’s products and services. They also help
answer such questions as, “How can an advertising campaign affect our profit?” The web has created
excellent opportunities both to collect marketing data and to promote products and services by displaying
information about them. That is why organizations conduct so much of their marketing efforts through
ISs linked to the Web.

Human Resources
Human resource management systems help mainly in record keeping and employee evaluation. Every
organization must maintain accurate employee records. Human resource management systems maintain
such records, including employees’ pictures, employee status and tax information, and other data that
other systems such as payroll may use.
Performance evaluation systems provide essential checklists that managers can use to assess their
subordinates. These systems also offer a scoring utility to quantify workers’ strengths and weaknesses.

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 Information Systems in Different Business Sectors

This preceding section reviewed information systems by how they are used; this section discusses the
business sectors in which they are used. A business sector is defined by the general activity that takes place
or by the type of organizations in which the activity takes place. Different business sectors use
information systems of all types. Also, systems are often adapted for specific needs of the sector in which
they are used.

Manufacturing
Information systems are used throughout a manufacturing operation, from inventory control to paying
suppliers. ISs help allocate resources, such as personnel, raw material, and time, to optimize productivity.
Inventory control systems help plan optimal reorder quantities of raw materials so that the company does
not pay too much for materials it will not use for a long time, while ensuring that materials are available
when required. Manufacturing operations use information systems to process customer orders, prepare
production schedules, perform quality assurance, and prepare shipping documents.
In a fiercely competitive global environment, keeping costs low may make the difference between
a manufacturing organization’s success or failure. Resource planning information systems play a vital role
in determining which resource to use where and when. If a machine stands idle for even a few minutes,
the company incurs costs that do not contribute to revenue. The problem worsens if the machine is a
station in a production line performing a sequence of operations: an entire production line may then be
idle. Information systems can help minimize the occurrence of such mishaps. Warehouses are now
managed by computers.
Specialized information systems automatically report every item whose quantity reaches a re-order
level. These ISs also automatically report each item’s economic order quantity (EOQ), which is the
quantity sufficient to prevent an out-of-stock situation, while minimizing the value of warehoused
products and the cost of warehousing. The item is then ordered immediately to avoid production
stoppage. More sophisticated systems connect directly to suppliers’ systems, so suppliers keep an eye on
inventory and ship low level items without much effort by the client’s warehouse employees.
ISs had been used to manage each activity separately: inventory planning, purchasing, payment,
billing, and so on. In recent years, systems’ thinking has led many manufacturing and other organizations
to adopt systems that fulfill all these functions together. They are commonly called enterprise application
systems. One IS, consisting of several subsystems, uses input such as sales forecasts and payment terms to
help plan resources, make payments, and collect debts.
Service
Information systems play such a central role in the service sector that they are often the backbone of
service organizations. Imagine an airline without an information system – it would be unable to reserve
seats for passengers and schedule flights. Think for a moment what banks would do without ISs. We
could argue that the only thing banks “manufacture” is information. Bank information systems’ inputs
include the type of account as well as dates and quantities of deposits and withdrawals; their output
consists of statements, which show interest paid or owed, balances, and other information. People even
make cash withdrawals, in most cases through information systems called automated teller machines
(ATMs). Banks give less and less information to customers in paper form. Clients can now receive
information about their accounts directly from information systems over the phone and through their
home computers. In fact, the “home banking” phenomenon owes its growth to information systems. In
general, the service sector has harnessed IT to increase productivity more than any other sector.

Retail

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Because ISs enable a large retail chain to run as a single big store, retail chains gained significant
economies of scales using ISs; that is, they could cut costs thanks to their overall size. Retail chains
invested billions of dollars in information systems in the past decade. The major purpose of these systems
is to minimize under stocking and over stocking in any of the chains’ stores. Getting chain wide
information is done mainly by linking stores’ systems to combine their data and by connecting the chain’s
systems to suppliers’ systems. For example, Wal-Mart and Kmart stores link to communication networks
by satellite. Management can promptly determine which items sell quickly and which do not. Information
is available store-by-store, on a regional and national basis. Using this information, stores can remove
slow-moving items from inventory and stock popular items in greater quantities to improve profit.
Because of the availability of online information, the manager of a store that has sold out a certain item
can quickly restock with inventory from a nearby store. Interfacing cash registers and databases enables
managers to receive information for decision making daily, rather than weekly or monthly. Retail experts
argue that Wal-Mart became the world’s largest and most efficient retail chain almost solely because it
utilized innovative ISs.

New Business
ISs’ impact on business goes beyond mere automation. Many firms implemented ISs to provide new
products and services that are economical only with the development of information technology. Credit
history firms, such as Experian, Equifax, and TransUnion, use ISs to record important credit information
on millions of credit-card holders and borrowers. They sell information to banks and other financial
institutions. Some airlines sell reservation systems services to travel agencies. Shipping companies provide
tracking services to their clients to locate their parcels. These are just three examples of services that
would not be available without ISs. And the Internet has spawned thousands of small businesses and
home-based, information systems-based businesses, as well some of the world’s largest corporations.
Amazon.com, eBay and Yahoo! Exist only thanks to development in information technology and
telecommunications. The entire phenomenon of online businesses would not exist without information
systems.

Government
Over the past four decades government and commercial organizations have installed computer-based ISs
to automate processes and replace human labor. The business of government depends heavily on ISs for
collecting taxes, paying social security, and purchasing goods and services for various departments.
In 2000, 282 million people lived in the U.S. About 105 million paid taxes and made social
security payments. The federal government keeps hundreds of millions of records containing details about
taxpayers and social security recipients. It would be unable to do so effectively without using information
technology. Beginning in 1989, taxpayers could file their returns electronically. In 2001, an estimated 30
percent did so, allowing the Internal Revenue Service to credit taxpayers’ bank accounts within a week
rather than three to six weeks and saving the IRS millions of dollars by not having to file and handle
paper. With ISs, tax authorities can use sophisticated programs to cross-reference taxpayers’ fillings with
other federal, state, and local authorities. National insurance and welfare agencies track payments from
taxpayers and fund transfers to eligible recipients.
Defense departments also depend on ISs to plan equipment procurement and training activities.
Economic organizations, such as departments of commerce and labor, and central banks use ISs for
planning so they can advise decision makers on economic policy. Immigration authorities track people
who cross national borders. ISs facilitate all these activities and many more.
The Internet provides a great opportunity for government agencies to improve service while
saving labor cost. For example, the US Internal Revenue Service provides every imaginable tax from via

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the Web. The U.S. Patent and Trademark Office’s Web site lets any one access a huge database containing
records of all U.S. registered patents. This saves the enormous time once spent on searches to determine
whether a device or method is already patented or to use existing patented technology.

E-COMMERCE

The most exciting intersection of IT and business in recent years is electronic commerce, or as it is
popularly called e-commerce. E-commerce is not a new concept; it has existed between businesses for
years but was limited in scope and restricted to business-to-business activities for a number of reasons.
For instance, complicated and costly dedicated communication lines were required for businesses to
conduct computer-to-computer operations over large distances. In addition, early e-commerce required a
significant investment in special software. And because of the high costs, many smaller businesses resisted
the adoption of e-commerce. The development of the World Wide Web and the opening of the Internet
to commercial activities spawned huge surge in business-to-business and business-to-customer electronic
trade. Suddenly, electronic data interchange was no longer the privilege of large and rich corporations that
could pay for private and third-party managed computer networks. Now, every individual and small
business can afford to use a network for business: the Internet.
The Internet is a vast network of computers connected across the globe that can share both
information and processing. The Web is capable of displaying text but also graphics, sounds, and moving
images. The Web has enticed thousands of businesses to become involved in commercial, social, and
education initiatives.
Many businesses use their powerful database management systems to engage in e-commerce in
order to better serve customers and improve their own internal operations. Database management systems
are powerful tools for data manipulation and storage. They are the core technology of many service
companies and an essential technology in practically every business. By taking in key company data and
making other data and information accessible over the Internet, databases have new value with the growth
of online business operations.

WHY STUDY INFORMATION SYSTEMS?

The view that professionals should specialize in their own domains, such as finance or marketing, and that
information systems are the domain of IS a specialist only is no longer valid. Managers and professionals
in virtually every field use information systems daily to facilitate their work. Many go “beyond the call of
duty” to learn about new hardware, software and methods to improve their performance.
The proliferation of ISs has helped knowledge workers work well. Knowledge workers main function
is to generate information based on knowledge in their respective fields. These people include
professionals such as scientist, budget planner, project leaders and marketing directors. To take advantage
of information technology, you must be familiar with, and knowhow to use, different types of information
systems. Without this knowledge, you will lag behind your peers who can work more efficiently, using less
time and effort to accomplish more. Increasingly, organizations expect personnel to solve many efficiency
problems on their own, using friendly IS software. Software packages’ easy-to-learn features help users
tailor computer programs to their specific needs. You need not be an IS professional to understand and
operate these systems, but your chances of finding a rewarding position are slim if you are unfamiliar with
the technology.

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 Demand for computer literacy is especially great among knowledge workers. College graduates in any
field find obtaining rewarding positions almost impossible without minimal knowledge of information
systems. And employers no longer settle for word-processing and electronic spreadsheet skills. Their
expectations of new hires’ command of software applications grow steadily.

Additional Readings from the INTERNET

1). http://en.wikipedia.org

References:
1) Oz, Effy: Management Information Systems Third edition, Thomson Learning Center, 5
Shenton Way UIC Building, Singapore 2002.

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