General-purpose and specialized systems: convert raw data into useful information for decision-making
An Information System (IS) is a set of interrelated components that work together to collect, process, store and disseminate information to support decision-making. They also support the coordination, supervision, analysis and visualization of an organization.
Furthermore, IT technology describes any technology that drives or enables the storage, processing and flow of communication within an organization. Everything related to computers—software, networks, intranets, websites, servers, databases and telecommunications—falls under the IT paradigm.
Most modern-day companies depend to a great extent on these systems for the management of their operations and decision-making, from email to database and website administration.
Information starts out as raw data, representing events that occur in organizations or in the physical environment; it has not yet been organized in a way that people can understand and use. This is the raw material for processing and refers to facts, events and transactions. Therefore, the purpose of an IS is to convert raw resources into useful information that can be used to make decisions in an organization.
For example, hospitals have large patient databases to be able to efficiently track medical histories. Universities have systems for the management of staff, students, and payments, as well as expanding networks for campus administration. Even a small business for home delivery of food needs a system for order management and tracking.
While Information Systems may differ in the way they are used within an organization, they all have the following components:
- Hardware: systems use local hardware such as a computer or Cloud services for their execution.
- Software: these are the programs used for administration, processing and analysis.
- Databases: systems work with resources organized in tables and files.
- Network: different resources must be connected to each other, especially if many different people in an organization use the same system.
- Procedures: they describe how specific data and resources are processed and analyzed to obtain the responses for which the system is designed (“business logic”).
Types of information systems
A database management system (DBMS) is a combination of software that allows for the administration and analysis of data. There are some general types of information systems.
An electronic spreadsheet is a tool for basic analysis; it is based on formulas that define relationships between resources. It can be used to calculate averages for a set of values or to see how a value changes over time.
In contrast, there are a number of specialized systems that have been specifically designed to support a particular process within an organization or to carry out very specific analysis tasks such as Enterprise Resource Planning (ERP): a system used to integrate management of the entire internal and external supply chain throughout an organization.
Another example is a Geographic Information System (GIS) which is used to manage and analyze all kinds of geographic data.
Decision Support Systems (DSS) are software applications used by senior and middle management to gather information from a wide range of sources and processes to support problem-solving and decision-making. A DSS is used primarily for unstructured and semi-structured decision problems.
Executive Information Systems (EIS) are reporting tools that provide quick access to reports and summarized processes, coming from all levels and departments of the company, such as accounting, human resources and operations.
There are more specialized systems, designed specifically to manage marketing, accounting systems and human resource management systems, to name a few.
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References:
Salem Al-Mamary, Yaser Hasan & Shamsuddin, Alina & Aziati, A. ResearchGate. (2014). The Role of Different Types of Information Systems In Business Organizations
//www.researchgate.net/publication/264556488_The_Role_of_Different_Types_of_Information_Systems_In_Business_Organizations_A_Review accessed September 2019.
A good example of the benefits of business information systems is the success of Walmart. Since its inception, the massive retail corporation has led the industry in adapting new information technology to business use.
Walmart “was a pioneer in barcode scanning and analyzing point of sale information, which was housed in massive data warehouses,” according to data professional Anthony B. Smoak.
“Walmart launched its own satellite network in the mid-1980s, which led to profound business practice impacts with respect to its supply chain management process. Strategic systems … enabled data integration and sharing between Walmart and its suppliers. These systems also enabled the concept of vendor-managed inventory,” Smoak writes.
The retail giant is at the forefront of a field that offers value to many types of businesses. Since the onset of the Internet Age, the importance of information in business cannot be overstated. Harvard Business Review editor Nicholas Carr even likened information technology to a new, necessary commodity, like electricity, in his 2003 article, “IT Doesn’t Matter.” A decade and a half later, companies that don’t invest heavily in business information technology may struggle to stay afloat.
Defining What Information Systems Can Do for Business
Information systems, in the business sense of the term, are complementary networks and interconnected components that amass, disseminate, and otherwise make data useful to bolster management’s decision-making processes.
Information systems have evolved over time, requiring redefinitions as new technologies (Web 2.0, for example) have proliferated.
Information systems are not just technological, however. “Besides the components of hardware, software, and data, which have long been considered the core technology of information systems, it has been suggested that one other component should be added: communication,” writes researcher Dave Bourgeois.
“An information system can exist without the ability to communicate—the first personal computers were standalone machines that did not access the internet. However, in today’s hyper-connected world, it is an extremely rare computer that does not connect to another device or network,” Bourgeois continues.
To integrate communication, Bourgeois suggests adding people and process to the traditional hardware, software, and data components of information systems. Business executives in nearly every industry have discovered that the processes they use, particularly the “as-a-service” cloud analytics services, and the active participation of customers who want to customize their experiences more each year are inseparable from business information systems.
Once all the elements are integrated, every information system plays several roles for businesses with varying degrees of importance depending on a company’s needs. Tech writer Julie Davoren details them on Chron.com as follows:
- Store and analyze information: Sophisticated and comprehensive databases, sometimes cloud-based, are used to store and analyze information pertaining to business functions, customers, transaction data, and both employee and customer activity. The results of these analyses provide insight that can help decision-makers solve current and future issues.
- Assist with making decisions: Information systems can compare in-house analyses to external sources to, for example, compare internal insights to information about the general state of the economy or competitors’ financial reports. Decision-makers use these insights to review the adequacy and quality of their strategic decisions.
- Assist with business processes: Information systems are used to develop value-added systems for business functions. Business processes can be simplified and unnecessary activities can be streamlined through the use of information systems adapted to common business tasks, such as manufacturing, supply chain, and employee processes.
As information systems become more entrenched in the world of business, companies’ managerial staffs and executives are expected to familiarize themselves thoroughly with business information systems and what they have to offer. Accordingly, many MBA classes have added information technology to their curriculum.
Information systems are complementary networks that make data useful to corporate decision-making.
Management Information Systems Capabilities
Managers of business departments that benefit from information systems need to know the basic capabilities of information technology, data analytics, and business intelligence systems. Management information systems use all of these capabilities in a way tailored to managerial and executive decision-making.
Tech writer Ian Linton breaks information system capabilities down into categories in an AZ Central article:
- Information access: Managers need to have easy and fast access to information including customer records, sales data, market research, financial records, manufacturing and inventory data, and human resources records to make informed decisions.
- Data collection: Management information systems collect and collate data from both outside and inside an organization. This data is pooled together and housed in data warehouses, which are then networked together for purposes of analytics.
- Collaboration: One of the most useful functions of information systems is the ease by which different departments and distributed teams can collaborate on decisions, taking into account massive amounts of data from a number of different sources, departments, or even industries.
- Interpretation: After a decision has been made, information systems can help managers understand the potential implications of that decision by constantly updating raw data and predicting possible future benefits or problems.
- Presentation: Most information systems, especially those intended for use by managers, include tools designed to create easy-to-understand reports for review by higher-level managers or C-suite executives.
Managers can also take advantage of information systems that are specifically designed for business functions that affect their department or position. Marketing information systems, product subsystems, sales forecasting, and product design systems all generate information that is invaluable to managers.
About WSU’s Online Master of Business Administration Program
Washington State University’s Carson College of Business offers one of the top-ranked MBA programs in the nation. WSU’s online MBA degree program is designed to equip students with the tactics, knowledge, skills, and strategies used by today’s most high-profile business leaders.
By the time they graduate, MBA students should be familiar with new technologies, such as information systems, and also the tried-and-true business skills that have long produced effective and productive business leaders.
The program offers several MBA concentrations—marketing, finance, hospitality business management, international business, and general MBA. For more information, visit WSU’s online MBA website.