Information Systems
2.1 Information and information systems
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UTCOMESThis part of the syllabus attracts a 20% weighting and covers a variety of areas associ-ated with information systems. This chapter addresses information systems as a significant functional area of business, outlines major developments and introduces some important tools and techniques. By completing this chapter you should be assisted in your stud-ies and be better able to discuss the wider business context within which information systems operate. You should also be able to analyse how information systems can be implemented in support of the organisation’s strategy. Specifically you should be able to:
! identify the value of information and information systems in today’s organisations,
! discuss the reasons for organisations’ increased dependence on information systems,
! discuss the transformation of organisations through technology,
! discuss ways for overcoming problems in IS implementation,
! discuss ways of organising and managing IS activities in the context of the wider organisation.
Information Systems
2.1 Information and information systems
The hunger for information has never been greater than for today’s organisations, likewise the value of information systems that deliver this information has never been more keenly felt. The dependence of modern day organisations on information and information sys-tems is underlined by Hellriegel and Slocum (1992) as follows:
Today’s organizations store and process vast amounts of data, which managers and other employees must turn into useful information. In turn, this information enables them to perform their jobs better.
Pesola’s (2004) explains:
businesses increasingly run their databases over offi wide networks, link employees’ computers via offi ce-wide wireless-LAN (local area network) connections, sell goods and run support services over the internet and rely on receiving customer commissions by email
The increase in more sophisticated information and technological solutions has led to the emergence of the automated offi ce, teleworking and the ‘information superhighway’ as
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INFORMATION SYSTEMS
facts of organisational life. It follows that information technology (IT) and information systems (IS) assume increasing managerial importance within the modern organisation.
It is at this stage worthwhile explaining the relationship between data, information tech-nology (IT) and information systems (IS).
Data are facts or fi gures in a raw, unprocessed format. To become useful to a decision-maker, data must be transformed into information. Information is data presented in a form that is useful for decision-making, adding value to the decision-maker by reducing uncer-tainty and increasing knowledge.
The process of turning data into information may include the following stages:
● Data collection: raw data is collected from both the internal and the external environment.
● Data evaluation: collected data is fi ltered for relevance.
● Data analysis: different dimensions of the data are analysed, e.g. comparison with budget, with the historical record, with industry best.
● Data interpretation: meaning added to the data.
● Data reporting: information is disseminated to users.
Hellriegel and Slocum (1992) explain that IT involves:
any devices or systems that help individuals or organisations assemble, store, transmit, process and retrieve data (raw facts and fi gures) or information
Information technology allows organisations to operate a number of different types of organ-isational information systems each designed with a specifi c purpose in mind. Information Systems are therefore products of Information Technology and normally take the form of software programs. Clegg (2003) explains that technology is just a delivery option and it may be feasible to have a viable IS strategy without computers, because the ‘quality of information is more important than technology.’ Despite Clegg’s comments it is diffi cult to imagine an organisation of any size operating effectively without IT.
Within the factory, computer aided design (CAD) and computer aided (or automated) manufacturing (CAM) offer integrated solutions in product design and control of machin-ery. This allows fl exibility and the elimination of waste factors integral to a ‘lean philoso-phy’ and constant improvement. An integrated approach combining both CAD and CAM can lead to the use of robots and computerised inventory management. The problems of economic machine loading and provision of customer and stockists’ requirements is one of the most complex in modern factory management but can be easily facilitated through IS.
The offi ce, like the factory before it, has been subject to huge technological advance-ments in recent years. ‘Offi ce automation’ is a term that refers to the use of computers, communications and network technology in managing the organisation’s operations and information resources. In recent years this has resulted in the combination of data, text, image and sound into offi ce-built multimedia systems. Many organisations have made use of network technology, specifi cally electronic data interchange (EDI). EDI is the computer-to-computer transmission of data contained in standard business documents and reports, such as customer invoices and purchase orders. EDI replaces conventional business doc-umentation with structured data transmitted electronically over networks (‘paperless trading’). Obvious advantages of EDI include saving cost and speeding of transactions, potentially reducing lead times for material purchases (and stock holding) better customer service and improved responsiveness to changes in customer demands.
Many forms of automation and other technology are commonly found in most offi ce environments. Some are refl ected in Table 2.1.
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INFORMATION SYSTEMS
2.1.1 The role of information systems in organisations
An organisation’s information system serves two important purposes. First, the information system records and monitors actions in the operational system, by processing, storing and reporting day-to-day transactions. The second major function of the organisation’s infor-mation system is to support managerial activities, such as decision-making, planning and control. Information systems play a vital role in modern day organisations at a number of levels, whether:
● improving operations and manufacturing,
● contributing to enhanced products and services,
Table 2.1 Examples of offi ce automation
Application Description Comments
Teleconferencing The ability to conduct meetings, business negotiations and
presentations without the participants having to be at the same location.
Relatively inexpensive means of
communication, allowing a number of telephone participants to hold multiple-way communication. One potential diffi culty is the lack of visible identifi cation and recognition of participants.
Videoconferencing As above. Videoconferencing overcomes the problems cited above by screening images of participants. It is still relatively expensive and requires special equipment. Advantages include savings in cost and time for participants, fast communication and timelier decision-making.
The Internet A virtual network that links millions of computers all over the world.
Many organisations now use the Internet to advertise, trade and search for information about competitors, customers and suppliers.
The World Wide Web exists on the Internet and consists of pages of information that can be found at websites, which can be accessed through the use of a web browser by using a unique address called a universal resource locator (URL). The fl exibility and accessibility makes it a particularly useful tool for business.
e-mail Electronic mail. The primary form of organisational
communication. It offers speed, versatility, the elimination of distance as an impediment, and the potential for an immediate response. It can signifi cantly reduce the volume of paper. A potential diffi culty of e-mail is the risk of computer viruses being transmitted through the opening of rogue messages.
e-mails popularity may have eclipsed the fax.
Fax transmissions allows the sending of an exact copy of a document.
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INFORMATION SYSTEMS
● offering the opportunity for cost reduction,
● improving communication, or
● allowing managers to make better informed decisions.
Decision-making is an important aspect of any organisation. The process of decision-making includes three stages: identifying decision problems, developing decision alterna-tives and making appropriate choices. Each level of the organisation has different types of decisions to make and therefore requires different types of information. Classically, three levels of decision-making are normally identifi ed, strategic, tactical and operational, each resulting in different informational requirements and information sources:
Information attribute Strategic Tactical Operational
Orientation Mainly externally oriented Internal and external Internal
Planning time Long term Short to medium term Immediate
Performance focus Predictive rather than historical performance
Historical and current activities
Current activities Coverage Whole organisation Groups of activities within
departments/functions
Specifi c activities Level of detail Highly summarised Some detail/some summarised Very detailed Uncertainity High due to the long-term
focus
Moderate levels Low levels
Objectivity High levels of subjectivity Combination of subjective and objective information
Objectively measured data
Accuracy Less critical Moderate accuracy High accuracy
Decisions may be defi ned in terms of frequency (e.g. volume) and their signifi cance on the organisation. Operational (low-level) decisions occur most frequently in an organisa-tion (e.g. on a daily basis). Strategic decisions are less frequently made. On the other hand, strategic decisions are potentially more signifi cant and far-reaching for the whole organisa-tion, whereas operational decisions are likely to have a lesser impact on the organisation as a whole, but are likely to have a signifi cant impact on the particular operational function in which they are made. (It is important to recognise that there is unlikely to be a clear dis-tinction of levels in practice, the disdis-tinction between operational and tactical decisions and between strategic and tactical decisions is often a matter of judgement and interpretation).
As good decision-making is at the heart of good management the hierarchy of systems available to support managers are worthy of consideration at this stage. They range from straightforward data processing systems to highly sophisticated expert systems. The hierar-chy of potential systems and their uses are refl ected in Table 2.2.
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INFORMATION SYSTEMS
Exercise 2.1
Identify the benefi ts of having good MIS and good EIS.
Solution
The value of having good MIS includes:
● Potentially more effective operations and improved management control;
● More complete information available to managers to improve decision-making;
● Improved satisfaction and motivation amongst managers;
● Better information leading to improved budgetary control, stock control, improved fore-casting, etc.
The processing of repetitive tasks using well-defi ned and structured information that is relatively easy to capture and store in large volumes.
Provides fi rst line managers with vital day-to-day information about effi ciency of operations and activities, but is limited due to the infl exible nature of information produced.
Examples: payroll systems, purchase/sales order entry systems and stock control systems Management
information systems (MIS)
Report-producing packages that use information from the same source as the DPS.
Provides middle managers with information to monitor and control the organisation’s activities and to report this to the senior-level managers.
Useful for decision-making, planning, programme implementation and control.
Examples: forecasting, reporting, budgeting and control information (exception reports, variance reports, etc.)
Executive information system (EIS)
Powerful software for supporting the types of high-risk, unstructured decisions that are made by strategic-level managers. EIS combines information from within the organisation and from its external environment, then organises, analyses and presents it.
Provides senior-level managers with strategic-level information to help them make strategic decisions. Presents output using text and graphics (e.g. bar charts and histograms), which can be tailored and customised.
Examples: key performance indicators (KPIs) through user-friendly interface graphical user interface (GUI)
Decision support systems (DSS)
Possesses interactive capabilities, assists in solving ‘ad hoc’ queries and provides data-modelling facilities.
Provides managers with information to support unstructured, one-off decisions by retrieving and analysing data. The complex mathematical models used are designed to simulate the behaviour of an organisational activity in an unpredictable situation. DSS generate a number of potential solutions, enabling managers to carry out ‘what if?’ analysis.
Expert systems
(ES). A system that simulates the problem-solving techniques of human experts, by applying human expertise and knowledge to a range of specifi c problems about a particular area of expertise.
Higher degree of support than that provided by the EIS or DSS. The major benefi ts of expert systems include a preservation of knowledge and its distribution.
Examples: investment appraisal decisions
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INFORMATION SYSTEMS
The value of having good EIS includes:
● Ability to make informed, potentially signifi cant decisions of strategic signifi cance;
● Maintaining a competitive advantage over rival companies who do not make this investment;
● Improved ability to recognise opportunities or external challenges;
● Ability to track key performance indicators (KPIs) meaning that monitoring and control at strategic level is more effective.
Information systems should possess a number of important features in order that they ful-fi ll a useful role within the organisation. These include:
● Relevance. Relevant information is capable of making a difference in a decision by reduc-ing uncertainty and increasreduc-ing knowledge about that decision. For example, makreduc-ing a decision about offering credit to a new customer might include an analysis of the cus-tomer’s fi nancial statements or previous credit history. An analysis of the cuscus-tomer’s staff levels would not be relevant.
● Timeliness. Information must be provided to the decision-maker in suffi cient time for it to be used in the decision-making process. Information that is presented to the decision-maker before it loses its infl uence on the decision being taken has timeliness.
Information has to be available in order to be timely.
● Understandability. Understandable information is presented in a form that permits the user to apply it effectively to a decision-making situation. Information needs to be clear so that the user can recognise how important the information is to a particular decision.
● Comparability. This is the quality of information that enables users to identify the simi-larities and differences in various pieces of information. If we can compare information about the same object or event collected at two or more points in time, then the infor-mation is also consistent. Consistency aids comparability in decision-making.
● Accuracy. This is the degree to which there is agreement between the information and the events or activities that the information is meant to represent. Information must be suf-fi ciently accurate for it to be relied upon by the manager, and for the purpose for which it is intended. It is important to assess the level of accuracy required by managers before pro-viding the information, as the accuracy requirements will differ between decisions.
● Completeness. This is the degree to which information includes data about every relevant event necessary to make the decision.
● Neutrality. This means that information is not biased towards one particular perspective or from one particular source or location. Biased information is likely to lead the decision-maker to the wrong decision or an incomplete decision.
● Meaningful. The content of information, particularly, if the information is provided to managers, should be of strategic importance, meaningful and actionable. Meaningful information is synthesised from various pieces of data and is usually interpreted.
● Effectiveness. Effective information is that which is relevant and pertinent to the business process, as well as being delivered in a timely, correct and consistent manner.
● Effi ciency. Effi cient information is provided through the optimal use of resources.