Fundamentals of Information Systems:
Business Information Systems
Types of Business Information Systems
Information systems are crucial for organizations to operate efficiently and effectively. They can
be categorized in various ways, including by the level of management they support and the type
of decisions they facilitate.
Organizational Hierarchy and Information Systems
Organizations can be viewed as a hierarchy with different levels of management, each requiring
different types of information and support.
Strategic Management:
Business Concern: Competitiveness, long-term strategy.
Nature of Information: Unstructured, external, and internal.
Examples of Decisions: What products to manufacture, who to sell them to.
Supporting Systems: Executive Support Systems (ESS), which provide high-level
summaries and external data.
Tactical Management:
Business Concern: Effectiveness, mid-term planning.
Nature of Information: Semi-structured, aggregated.
Examples of Decisions: How to schedule production to meet demand and maximize
profits.
Supporting Systems: Decision Support Systems (DSS), which help with problem-specific
analysis and "what-if" scenarios.
Operations Management:
Business Concern: Efficiency, day-to-day operations.
Nature of Information: Structured, detailed.
Examples of Decisions: Are production levels too low? Are there stock variances?
Supporting Systems: Management Information Systems (MIS) and Transaction
Processing Systems (TPS).
Anthony's Triangle and Information Systems
This model further refines the relationship between management levels and information
systems:
Strategic Level: Supported by Executive Support Systems (ESS). These systems support
long-term, strategic decisions made by senior managers.
Tactical Level: Supported by Decision Support Systems (DSS). These systems support mid-
term decisions made by middle managers.
Operational Level: Supported by Management Information Systems (MIS) and Transaction
Processing Systems (TPS). These systems support the day-to-day running of the firm.
Transaction Processing Systems (TPS)
Definition: Systems that facilitate the collection, processing, storage, and retrieval of data
about an organization's routine business activities (operations).
Transactions: Business-related exchanges like payments, sales, and orders.
Purpose: Support the daily operational tasks and routine decisions.
Outputs: Documents (e.g., invoices, picking slips) and operational reports (e.g., inventory
status).
Examples: Point-of-sale terminals, payroll systems, order processing systems, procurement
systems.
Processing Type: Online Transaction Processing (OLTP) – capturing, processing, storing, and
updating transaction data. OLTP focuses on the raw facts within a single business process.
Management Information Systems (MIS)
Definition: Systems that deliver routine information to managers, supporting structured
decision-making activities.
Purpose: Focus on operational efficiency and monitoring what is happening.
Inputs: Data stored in TPS are key inputs for MIS.
Outputs:
Scheduled reports (daily, weekly, monthly).
Demand reports (current status).
Exception reports (identify anomalies).
Drill-down reports (focus on specific details).
Examples: Marketing management information system, manufacturing management
information system, financial management information system.
Decision Support Systems (DSS)
Definition: Information systems that support problem-specific decision-making, focusing on
decision-making effectiveness.
Purpose: Support unstructured or semi-structured decisions, often asking "what would
happen if?" or "what should be done?".
Key Features:
What-if analysis: Examining the impact of changes in variables on a model.
Optimization: Finding the best configuration of products to maximize profits.
Sensitivity analysis: Studying the impact of changes in one part of a model on other parts.
Goal-seeking analysis: Finding the inputs necessary to achieve a specific goal.
Data Usage: Can use transactional data or analytical information, often performing Online
Analytical Processing (OLAP).
Executive Support Systems (ESS) / Executive Information
Systems (EIS)
Definition: Specialized DSS that support senior-level executives.
Purpose: Support strategic decision-making.
Key Features:
Integrate information from internal and external sources.
Primarily use highly summarized (coarse) information.
Often feature digital dashboards for quick status updates.
Examples: Dashboards showing key performance indicators (KPIs), running graphs of
planned vs. actual performance, market trends.
Enterprise Resource Planning (ERP)
Purpose: To solve the problem of unintegrated information systems by providing a set of
integrated software applications.
Benefits: Manages business operations across all functional areas, enabling coordinated
planning, inventory control, production, and ordering.
The Organization as a Value Chain
The value chain model views an organization horizontally, focusing on the series of activities that
transform inputs into outputs with higher relative value.
Value Chain Activities: Inbound logistics, warehouse and storage, production, finished
product storage, outbound logistics, marketing and sales, customer service.
Upstream Activities: Closer to suppliers (e.g., inbound logistics, raw material inventory
control).
Downstream Activities: Closer to the customer (e.g., marketing and sales, customer service).
Information System Role: IS can improve linkages between activities, manage supply chains,
and enhance customer relationships.
Supply Chain Management (SCM)
Focus: Determining required supplies, quantities, and how to manufacture finished products.
Customer Relationship Management (CRM)
Focus: Managing all aspects of customer encounters, including marketing, sales, service,
feedback, loyalty, and profiling.
Business Benefits of Information Systems
Investing in information systems should yield tangible benefits for an organization.
Efficiency
Definition: A measure of what is produced divided by what is consumed. Maximizing outputs
given the inputs available.
Goal: Achieve more using the same or fewer resources; eliminate waste, errors, delays, and
rework.
How IS Helps:
Serving more customers without increasing staff.
Scheduling activities to avoid delays.
Automating repetitive tasks.
Preventing rework and corrections.
Effectiveness
Definition: The extent to which an organization achieves its goals, often from the customer's
perspective.
Focus: The quality of the outputs; doing the "right things."
Contrast with Efficiency: Efficiency is about doing things right (optimal resource use);
effectiveness is about doing the right things (achieving goals). They are interrelated but not
interchangeable.
How IS Helps:
Improving managerial decision-making.
Monitoring progress towards objectives.
Achieving desired outputs economically (cost-effectiveness).
Competitive Advantage
Definition: An organization's ability to earn higher profits than its industry competitors.
Strategies:
Lowering costs (cost leadership).
Differentiating products/services.
Creating barriers to entry.
Altering bargaining power of buyers/suppliers.
Redefining industry structure.
Creating strategic alliances.
Developing new or improving existing products/services.
Data and Information Processing
Understanding the distinction between transactional data and analytical information, and how
they are processed, is crucial.
Transactional Data vs. Analytical Information
Transactional Data:
Raw facts within a single business process or unit of work.
Primary purpose: Support daily operational tasks.
Examples: Stock purchase price, reservation number, bank account balance.
Processing: Online Transaction Processing (OLTP).
Analytical Information:
Summarized or aggregated transactional data, plus external information.
Primary purpose: Support analysis tasks and strategic decision-making.
Examples: Sales trends by region, growth projections, market statistics.
Processing: Online Analytical Processing (OLAP).
Online Transaction Processing (OLTP)
Captures, processes, stores, and updates transaction and event data.
Focuses on capturing every detail of transactions.
Associated with the operational level of an organization.
Online Analytical Processing (OLAP)
Analyzes summarized or aggregated information to support analytical and strategic decision-
making.
Involves capabilities like:
Consolidation: Aggregating information into complex groupings.
Drill-down: Viewing details of details.
Slice-and-dice: Looking at information from different perspectives.
Associated with managerial and strategic levels of an organization.
Business Process Improvement
Information systems play a vital role in improving business processes.
Business Process Management (BPM)
A systematic approach to making an organization's workflows more effective, efficient, and
capable of adapting to an ever-changing environment.
Information systems can help model, analyze, and optimize business processes.
Business Process Re-engineering (BPR)
A fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in critical measures of performance, such as cost, quality, service, and speed.
IS can enable radical changes to how processes are executed.
Business Process Modelling
The activity of creating a business process model, which is a representation of a company's
business processes.
IS tools can be used to create and analyze these models.