MBA 5106 – Management Information Systems

Session 03 – Enhancing Decision Making through Information Systems (Part II)

Learning Objectives
After studying this chapter, you should be able to:
• Explain the business environment and the role of Information Systems.
• Describe the major business functions.
• Explain why organizations need different Information Systems.
• Identify Information Systems used in different functional areas.
• Explain systems used by different management levels.
• Understand Transaction Processing Systems (TPS), Management Information Systems (MIS),
Decision Support Systems (DSS), and Executive Support Systems (ESS).
• Explain enterprise-wide integrated information systems.

1. Business Environment
Definition
The business environment consists of all internal and external factors that influence an organization's
operations and performance.
Organizations depend on their environment for:
• Capital
• Employees
• Raw materials
• Customers
• Information
• Technology

Types of Business Environment

A. Broader (Macro) Environment
These factors affect every organization.
Examples:
• Technological changes
• Economic conditions
• Political environment
• International business
• Scientific developments
Example:
Artificial Intelligence has transformed banking, healthcare, education, and manufacturing.

B. Immediate (Micro) Environment

These directly influence the organization.
Examples:
• Customers
• Suppliers
• Competitors
• Government regulators
 • Shareholders
Example:
If suppliers increase raw material prices, production costs also increase.

Exam Definition
The business environment includes all external factors that influence business decisions and organizational
performance.

2. Role of Information Systems in Business

Organizations invest heavily in Information Systems because they provide several strategic benefits.
1. Achieve Operational Excellence
Improve efficiency by reducing cost, time, and errors.
Example:
Automated payroll processing.

2. Develop New Products and Services

Information Systems help companies innovate.
Example:
Netflix uses customer viewing data to create new shows.

3. Improve Customer Intimacy

Organizations understand customer needs through databases and CRM systems.
Example:
Amazon recommends products based on previous purchases.

4. Improve Decision Making

Managers receive accurate and timely reports.
Example:
Sales dashboards.

5. Gain Competitive Advantage

Organizations perform better than competitors.
Example:
Uber's mobile application.

6. Ensure Business Survival

Organizations must adopt digital technologies to remain competitive.
Example:
Online banking.

7. Support ESG (Environmental, Social, and Governance) Goals

Information Systems help organizations:
• Reduce paper usage
• Monitor carbon emissions
• Improve transparency
 • Enhance corporate governance

3. Four Major Business Functions

Every business performs four fundamental functions.

A. Sales and Marketing

Purpose:
Generate revenue by attracting and retaining customers.
Activities:
• Advertising
• Market research
• Customer relationship management
• Order processing
• Sales forecasting

B. Manufacturing and Production

Purpose:
Convert raw materials into finished goods.
Activities:
• Production planning
• Inventory control
• Quality assurance
• Scheduling
• Maintenance

C. Finance and Accounting

Purpose:
Manage financial resources.
Activities:
• Budgeting
• Payroll
• Financial reporting
• Cash management
• Auditing

D. Human Resource Management

Purpose:
Manage employees.
Activities:
• Recruitment
• Training
• Performance evaluation
• Salary administration
• Employee records
4. Why Do Organizations Need Different Information Systems?
No single system can satisfy every organizational need because:
• Different departments perform different functions.
• Managers require different types of information.
• Decision-making varies by management level.
• Operational and strategic decisions require different data.
Example:
A warehouse supervisor needs inventory information.
A CEO needs company-wide financial forecasts.

5. Types of Business Information Systems

Information Systems can be classified into three categories.
A. Systems by Functional Area
Designed for individual departments.
• Sales & Marketing Systems
• Manufacturing Systems
• Finance & Accounting Systems
• Human Resource Systems

B. Systems by Management Level

Designed according to users.
• TPS
• MIS
• DSS
• ESS

C. Enterprise-wide Systems
Integrate all departments into one unified system.
Example:
Enterprise Resource Planning (ERP).

6. Functional Information Systems

A. Sales and Marketing Information System
Purpose
Support marketing and sales activities.
Major Functions
• Order processing
• Customer management
• Sales forecasting
• Pricing
• Market analysis
• Promotion
Major Applications
• Customer Relationship Management (CRM)
• Order Processing System
 • Sales Analysis System
• Marketing Information System
Example
When a customer places an online order:
• Stock is updated.
• Invoice is generated.
• Delivery is scheduled.

B. Manufacturing and Production Information System

Purpose
Support production activities.
Major Functions
• Production planning
• Inventory management
• Scheduling
• Quality control
• Purchasing
• Maintenance
Major Applications
• Inventory Control System
• Production Planning System
• Manufacturing Resource Planning (MRP)
• Quality Control System
Example
Inventory automatically decreases after production.

C. Finance and Accounting Information System

Purpose
Manage organizational finances.
Major Functions
• Budgeting
• Payroll
• Cash management
• Financial reporting
• Accounts payable
• Accounts receivable
Major Applications
• Payroll System
• General Ledger
• Budgeting System
• Accounts Receivable System
• Financial Reporting System
Example
Monthly financial statements generated automatically.
D. Human Resource Information System (HRIS)
Purpose
Manage employee information.
Major Functions
• Recruitment
• Employee records
• Performance evaluation
• Salary administration
• Leave management
• Training
Major Applications
• Employee Database
• Payroll System
• Attendance System
• Recruitment System
• Performance Management System
Example
Employees apply for leave through the HR portal.

7. Information Systems by Management Level

A. Transaction Processing System (TPS)
Definition
TPS records and processes daily business transactions.
Users:
Operational managers
Characteristics
• Handles routine work
• Processes large transaction volumes
• Highly accurate
• Produces data for other systems
Examples
• Payroll
• POS systems
• Employee records
• Banking transactions
Importance
TPS is the foundation of all other Information Systems because it supplies operational data.

B. Management Information System (MIS)

Definition
MIS summarizes data from TPS and provides managers with reports for monitoring and control.
Users
Middle managers
Characteristics
• Weekly reports
 • Monthly reports
• Annual reports
• Performance summaries
Advantages
• Better planning
• Better monitoring
• Performance evaluation
Example
Monthly sales report.

C. Decision Support System (DSS)

Definition
DSS helps managers make semi-structured decisions using analytical models and data.
Users
Middle and senior managers
Characteristics
• Interactive
• Flexible
• Supports "What-if" analysis
• Assists decision making
Examples
• Investment analysis
• Sales forecasting
• Budget planning

D. Executive Support System (ESS)

Definition
ESS supports strategic decisions made by senior executives.
Users
Top management
Characteristics
• External information
• Future-oriented
• Graphical dashboards
• Long-term planning
Examples
• Economic forecasts
• Competitor analysis
• Business expansion

8. Relationship Between TPS, MIS, DSS and ESS

Executive Support System (ESS)
↑
Decision Support System (DSS)
↑
Management Information System (MIS)
↑
Transaction Processing System (TPS)
Flow of Information:
• TPS collects operational data.
• MIS summarizes TPS data.
• DSS analyzes MIS data.
• ESS provides strategic insights for executives.

9. Enterprise-Wide Integrated Systems

Modern organizations integrate all departments using enterprise systems.
Advantages
• One centralized database
• Better communication
• Faster decision making
• Eliminates duplicate data
• Improves efficiency
• Supports real-time reporting
Example
ERP integrates:
• HR
• Finance
• Sales
• Production
• Inventory

10. Comparison of TPS, MIS, DSS, and ESS

Feature TPS MIS DSS ESS
Operational Middle & senior
Users Middle managers Top executives
managers managers
Structured/Semi-
Decisions Structured Semi-structured Unstructured
structured
Time
Daily Weekly/Monthly Medium-term Long-term
Horizon
Output Transaction records Summary reports Analytical models Strategic dashboards
Business expansion
Example Payroll Monthly sales report Investment analysis
planning

Frequently Asked 20-Mark Questions

Q1. Explain the role of Information Systems in modern organizations.
Discuss operational excellence, customer intimacy, innovation, decision making, competitive advantage,
business survival, and ESG with examples.
Q2. Explain the four major business functions and the Information Systems supporting each function.
Describe Sales & Marketing, Manufacturing & Production, Finance & Accounting, and Human Resources,
along with their objectives, activities, and application systems.
Q3. Explain the different types of Information Systems used by different management levels.
Compare TPS, MIS, DSS, and ESS in terms of users, decisions supported, outputs, and examples.
Q4. Why do organizations require different types of Information Systems?
Explain the differences in organizational functions, management levels, and information needs, and discuss
the benefits of enterprise-wide integrated systems.
Q5. Explain how Transaction Processing Systems (TPS) and Management Information Systems (MIS) work
together.
Describe how TPS captures operational data, how MIS summarizes that data into managerial reports, and
why this relationship is essential for effective decision making.