Applied Information Systems
Inquire: Information in the Machine
An information system is designed to collect, process, store, and distribute information. Although information systems need not be computerized, information technology (IT) plays an increasingly important role in organizations due to the fast pace of technological innovation. Today, most information systems beyond the smallest are IT-based because modern IT enables efficient operations as well as effective management in organizations of all sizes. In this lesson, we cover the definition of information systems and look at some examples of their applications for businesses and individuals.
How can society manage the 2.5 quintillion bytes of data created every day?
Watch: The Information Web
Read: Information What?
Information systems are collections of interrelated components designed to collect, process, create, store, and distribute useful data. These systems are designed to analyze stored data and to facilitate the creation of information or knowledge for an organization or an individual. Some of the different information systems used include decision support systems, communication systems, collaboration systems, knowledge management systems, and data visualization systems.
There are two major organizational goals for information systems:
- To enhance efficiency (doing things right)
- To improve effectiveness (doing the right thing)
Efficiency is often referred to as doing things right and can be defined in general terms as the ratio of output to input. In other words, it is more efficient when you can produce more with the same amount of resources or, even better, produce more output with less input.
For example, a hospital can use an information system to manage patient information. Without a system to manage patients’ personal and historical information, a doctor would need to ask a patient the same questions about allergies, family history, etc. each time the person visits the hospital, even if the patient has been to the same hospital and visited the same doctor a number of times before. As a result, the doctor’s time would be wasted in asking redundant questions each time the patient visited.
The most immediate solution to this information management problem is to create and maintain a folder for the patient containing their medical history, which can then be used by any doctor treating the same patient in the future. The doctor can retrieve the patient’s historical information from the folder and save time by not needing to ask the same questions again.
With this simple information system, a doctor can serve more patients (more output) within the same amount of time (same input). An even higher degree of efficiency can be achieved by using a computerized information system (i.e., doctors enter the patients’ clinical results into a computerized database instead of writing on a piece of paper and filing the paper in a folder). When a patient returns to the hospital in the future, a doctor can obtain the patient’s information at the click of a mouse. As a result, doctors can serve even more patients, since they do not need to search through all patients’ folders in order to find the specific information needed.
Effectiveness is often referred to as doing the right thing and can be defined as the ability of an organization to achieve its stated goals and objectives. Typically, a more-effective organization is one that makes better decisions and is able to carry them out successfully.
An organization can create or refine its products and services based on data collected from customers as well as information accumulated from its operations. In other words, information systems help organizations to understand their customers better and provide products and services customers desire. Doing so even helps organizations to provide personalized service if the organization collects customer data at the individual level.
An online bookstore is a good example of the potential to use information systems to support effectiveness. The bookstore information system can accumulate data about what customers have purchased in the past and analyze it to find out which items tend to sell well and at what times. The system can also analyze what types of interactions encourage customers to purchase more products (e.g., marketing emails, book suggestions, or sharing top 10 lists). What did the customer search for that brought them to the website? Knowing all of this information can help the bookstore better refine inventory and marketing to become more effective.
Information in the System
Information systems for large and small organizations are surprisingly similar in structure, even though some are much different in their size and scale. A small local bookstore and Amazon both need to track similar information:
- Inventory, including how many, cost, price, and purchasing vendor
- Customers, including contact information, amount owed, and payment history
- Orders, including who wants what, how many, itemized price, and total price
- Billing, including who bought what, how much they owe from all orders, and when it is due
- Payables, including who the company ordered items from, and how much the company owes its vendors
- Human Resources, including payroll, employee contact information, and taxes
Additionally, every organization needs to manage the processes it uses to get the work done. Consider the process of any bookstore when restocking inventory. All of the following steps can be integrated into business information systems to increase efficiency.
- Check the inventory of books for sale and identify the needed items
- Call individual suppliers for quotes and possible delivery dates
- Compare prices and delivery dates quoted among several suppliers for the same goods
- Select one or more suppliers for each of the needed items based on the terms of the agreement (e.g., availability, quality, delivery)
- Call the suppliers and place the orders
- Receive the goods upon delivery, checking the accuracy and quality of the shipped items; pay the suppliers
Reflect: Effective or Efficient?
Expand: Information Systems in Action
Managing a company’s information needs falls to management information systems: users, hardware, and software that support decision making. Information systems collect and store the company’s key data and produce information that managers need for analysis, control, and decision making.
Business Management Systems
Companies typically have several types of information systems, starting with systems to process transactions. Management support systems are dynamic systems that allow users to analyze data to make forecasts, identify business trends, and model business strategies. Office automation systems improve the flow of communication throughout the organization. Each type of information system serves a particular level of decision making: operational, tactical, and strategic. The image below shows the relationship between transaction processing and management support systems as well as the management levels they serve.
Transaction Processing Systems (TPS)
A firm’s integrated information system starts with its transaction processing system (TPS). The TPS receives raw data from internal and external sources and prepares these data for storage in a database. The database management system tracks the data and allows users to query the database for the information they need. TPS can include systems for accounting, payroll, and point-of-sale systems. These systems automate routine and tedious back-office processes such as accounting, order processing, and financial reporting. They reduce clerical expenses and provide basic operational information quickly. TPS is primarily used by customer-facing staff like sales associates, but it can also be used directly by customers through online purchasing user interfaces.
Management Support Systems (MSS)
Also called management information systems, MSS uses the internal master database to perform high-level analyses that help managers make better decisions. These services can include information-reporting systems that use summary data collected by the TPS to produce both regularly scheduled and special reports. MSS includes systems for sales management, human resources, inventory control, and budgeting. MSS is primarily used by middle managers to evaluate organizational performance and make tactical decisions (for example, how much inventory to order, scheduling sales, and evaluating employees).
Decision Support Systems (DSS)
A decision support system helps managers make decisions using interactive computer models that describe real-world processes. These systems are designed to analyze existing data and project potential outcomes or problem resolution. They are an important step in creating information and knowledge about an organization. These systems include financial planning, logistics, revenue projection, and even medical diagnosis. DSS is used by senior management and executives as a tool for answering what-if or how-to questions for strategic management or organizational change.
Executive Information Systems (EIS)
Although similar to a DSS, an executive information system is customized for an individual executive. These systems provide specific information for strategic decisions. For example, the EIS of a chief executive officer (CEO) may include special spreadsheets that present financial data comparing the company to its principal competitors and graphs showing current economic and industry trends.
An expert system gives managers advice similar to what they would get from a human consultant. Artificial intelligence enables computers to reason and learn to solve problems in much the same way humans do, using what-if reasoning. These systems are used when the cost of hiring enough people to do these ongoing analytical tasks would be prohibitively expensive. For example, expert systems help airlines appropriately deploy aircrafts and crews critical to the carrier’s efficient operations. Expert systems also have been used to help explore for oil, schedule employee work shifts, and diagnose illnesses. Some expert systems take the place of human experts, while others are designed to assist humans in making decisions.
Personal Information Management Systems (PIM)
Just as organizations use information systems to manage their daily activities and plan for the future, individuals also need to manage their information. PIMs help to capture, store, and organize information, as well as process it to help in planning and decision making for individuals and small groups. These systems include productivity software suites (Microsoft Office or Google Docs), email, photo management, music management, calendars, note taking, and planners.
Check Your Knowledge
Use the quiz below to check your understanding of this lesson’s content. You can take this quiz as many times as you like. Once you are finished taking the quiz, click on the “View questions” button to review the correct answers.
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A point-of-sale system is what type of information system?CorrectIncorrect
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Information systems are designed to process…CorrectIncorrect
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A __________ helps managers make decisions using interactive computer models that describe real-world processes.CorrectIncorrect
Additional Resources and Readings
A look at the different dimensions of what makes information big data
A short video discussing transaction processing systems
A tutorial explaining types of information systems, organizational levels that use them, and characteristics of each information system
- chief executive officer(or CEO); the highest ranking executive or administrative officer in an organization; the leader of the organization including, strategy, decision making, communication, and key policies
- collaboration systems(or collaborative software or groupware); supports the creation and sharing of documents and content within an organization; allows for multiple users to work on a single task
- communication systemssupports the sharing of data or information between information systems, between individuals, or between a system and an individual
- data visualization systemssupports the creation and study of data through visual representations designed to help users analyze data (e.g., charts, graphs, diagrams, and descriptive statistics)
- database management systema piece of computer software, or a suite of software, designed to manage a database
- knowledge managementsupports the sharing of organizational knowledge; supports the gathering of more than just data, but also contextualized information from individuals within an organization
License and Citations
Authored and curated by Stacy Zemke for The TEL Library. CC BY NC SA 4.0
Title: Introduction to Business – 13.3 Management Information Systems. Rice University, Openstax CNX. License: CC BY 4.0
|Server Digitization Mainframe||dlohner||Pixabay||CC 0|
|Business Working Laptop||StockSnap||Pixabay||CC BY 4.0|
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|Calculator Calculation Insurance||stevepb||Pixabay||CC 0|
|Clinician Writing Medical||rawpixel.com||Pexels||CC 0|