Why are there different types of Information System?

In the early days of computing, each time an information system was needed it was 'tailor made' -
built as a one-off solution for a particular problem. However, it soon became apparent that many
of the problems information systems set out to solve shared certain characteristics. Consequently,
people attempted to try to build a single system that would solve a whole range of similar
problems. However, they soon realized that in order to do this, it was first necessary to be able to
define how and where the information system would be used and why it was needed. It was then
that the search for a way to classify information systems accurately began.

How do you identify the different types of information system in an organization?

The different types of information system that can be found are identified through a process of
classification. Classification is simply a method by which things can be categorized or classified
together so that they can be treated as if they were a single unit. There is a long history of
classification of things in the natural world such as plants or animals, however, Information
systems are not part of the 'natural' world; they are created and acquired by man to deal with
particular tasks and problems. The classification of information systems into different types is a
useful technique for designing systems and discussing their application; it not however a fixed
definition governed by some natural law. A 'type' or category of information system is simply a
concept, an abstraction, which has been created as a way to simplify a complex problem through
identifying areas of commonality between different things. One of the oldest and most widely
used systems for classifying information systems is known as the pyramid model; this is described
in more detail below.

How many different kinds of Information System are there?

As can be seen above, there is not a simple answer to this. Depending on how you create your
classification, you can find almost any number of different types of information system. However,
it is important to remember that different kinds of systems found in organizations exist to deal
with the particular problems and tasks that are found in organizations. Consequently, most
attempts to classify Information systems into different types rely on the way in which task and
responsibilities are divided within an organization. As most organizations are hierarchical, the
way in which the different classes of information systems are categorized tends to follow the
hierarchy. This is often described as "the pyramid model" because the way in which the systems
are arranged mirrors the nature of the tasks found at various different levels in the organization.

For example, this is a three level pyramid model based on the type of decisions taken at different
levels in the organization.
Three level pyramid model based on the type of decisions taken at different levels in the organization

Similarly, by changing our criteria to the differnt types of date / information / knowledge that are
processed at different levels in the organization, we can create a five level model.
Five level pyramid model based on the processing requirement of different levels in the organization

What are the most common types of information system in an organization?

While there are several different versions of the pyramid model, the most common is probably a
four level model based on the people who use the systems. Basing the classification on the people
who use the information system means that many of the other characteristics such as the nature of
the task and informational requirements, are taken into account more or less automatically.

Four level pyramid model based on the different levels of hierarchy in the organization

A comparison of different kinds of Information Systems

Using the four level pyramid model above, we can now compare how the information systems in
our model differ from each other.

1. Transaction Processing Systems

What is a Transaction Processing System?

Transaction Processing System are operational-level systems at the bottom of the pyramid.
They are usually operated directly by shop floor workers or front line staff, which provide
the key data required to support the management of operations. This data is usually
obtained through the automated or semi-automated tracking of low-level activities and
basic transactions.

Functions of a TPS
 TPS are ultimately little more than simple data processing systems.

Functions of a TPS in terms of data processing requirements

Inputs Processing Outputs
Validation
Sorting Lists
Transactions Listing Detail reports
Events Merging Action reports
Updating Summary reports?
Calculation

Some examples of TPS

o Payroll systems
o Order processing systems
o Reservation systems
o Stock control systems
o Systems for payments and funds transfers

The role of TPS

o Produce information for other systems

o Cross boundaries (internal and external)
o Used by operational personnel + supervisory levels
o Efficiency oriented

2. Management Information Systems

What is a Management Information System?

For historical reasons, many of the different types of Information Systems found in
commercial organizations are referred to as "Management Information Systems". However,
within our pyramid model, Management Information Systems are management-level
systems that are used by middle managers to help ensure the smooth running of the
organization in the short to medium term. The highly structured information provided by
these systems allows managers to evaluate an organization's performance by comparing
current with previous outputs.

Functions of a MIS

MIS are built on the data provided by the TPS

Functions of a MIS in terms of data processing requirements

Inputs Processing Outputs
Internal Transactions Sorting Summary reports
Internal Files Merging Action reports
Structured data Summarizing Detailed reports
 Some examples of MIS

o Sales management systems

o Inventory control systems
o Budgeting systems
o Management Reporting Systems (MRS)
o Personnel (HRM) systems

The role of MIS

o Based on internal information flows

o Support relatively structured decisions
o Inflexible and have little analytical capacity
o Used by lower and middle managerial levels
o Deals with the past and present rather than the future
o Efficiency oriented?

3. Decision Support Systems

What is a Decision Support System?

A Decision Support System can be seen as a knowledge based system, used by senior
managers, which facilitates the creation of knowledge and allow its integration into the
organization. These systems are often used to analyze existing structured information and
allow managers to project the potential effects of their decisions into the future. Such
systems are usually interactive and are used to solve ill structured problems. They offer
access to databases, analytical tools, allow "what if" simulations, and may support the
exchange of information within the organization.

Functions of a DSS

DSS manipulate and build upon the information from a MIS and/or TPS to generate
insights and new information.

Functions of a DSS in terms of data processing requirements

Inputs Processing Outputs
Modelling
Internal Transactions Summary reports
Simulation
Internal Files Forecasts
Analysis
External Information? Graphs / Plots
Summarizing

Some examples of DSS

o Group Decision Support Systems (GDSS)

o Computer Supported Co-operative work (CSCW)
o Logistics systems
o Financial Planning systems
o Spreadsheet Models?
 The role of DSS

o Support ill- structured or semi-structured decisions

o Have analytical and/or modelling capacity
o Used by more senior managerial levels
o Are concerned with predicting the future
o Are effectiveness oriented?

4. Executive Information Systems

What is an EIS?

Executive Information Systems are strategic-level information systems that are found at the
top of the Pyramid. They help executives and senior managers analyze the environment in
which the organization operates, to identify long-term trends, and to plan appropriate
courses of action. The information in such systems is often weakly structured and comes
from both internal and external sources. Executive Information System are designed to be
operated directly by executives without the need for intermediaries and easily tailored to
the preferences of the individual using them.

Functions of an EIS

EIS organizes and presents data and information from both external data sources and
internal MIS or TPS in order to support and extend the inherent capabilities of senior
executives.

Functions of a EIS in terms of data processing requirements

Inputs Processing Outputs
External Data Summarizing Summary reports
Internal Files Simulation Forecasts
Pre-defined models "Drilling Down" Graphs / Plots

Some examples of EIS

Executive Information Systems tend to be highly individualized and are often custom made
for a particular client group; however, a number of off-the-shelf EIS packages do exist and
many enterprise level systems offer a customizable EIS module.

The role of EIS

o Are concerned with ease of use

o Are concerned with predicting the future
o Are effectiveness oriented
o Are highly flexible
o Support unstructured decisions
o Use internal and external data sources
o Used only at the most senior management levels
A three level pyramid model of different types of Information Systems based on the type of
decisions taken at different levels in the organization. The first level represents transaction
processing systems focused on operational decisions.
The second level represents management information systems focused on tactical decisions. The
third level represents executive information systems focused on strategic decisions.
"Information system (IS) is the study of complementary networks of hardware and software (see
information technology) that people and organizations use to collect, filter, process, create, and
distribute data.
The study bridges business and computer science using the theoretical foundations of information
and computation to study various business models and related algorithmic processes within a
computer science discipline.
Computer information system(s) (CIS) is a field studying computers and algorithmic processes,
including their principles, their software and hardware designs, their applications, and their
impact on society while IS emphasizes functionality over design.
Any specific information system aims to support operations, management and decision making.
In a broad sense, the term is used to refer not only to the information and communication
technology (ICT) that an organization uses, but also to the way in which people interact with this
technology in support of business processes."

A four level pyramid model of different types of Information Systems based on the different levels
of hierarchy in an organization. The first level represents transaction processing systems for
workers. The second level represents management information systems for middle managers. The
third level represents decision support systems for senior menegers. The fourth level represents
executive information systems for executives.
"The "classic" view of Information systems found in the textbooks in the 1980s was of a pyramid of
systems that reflected the hierarchy of the organization, usually transaction processing systems at
the bottom of the pyramid, followed by management information systems, decision support
systems, and ending with executive information systems at the top. Although the pyramid model
remains useful, since it was first formulated a number of new technologies have been developed
and new categories of information systems have emerged, some of which no longer fit easily into
the original pyramid model.
Some examples of such systems are: data warehouses, enterprise resource planning, enterprise
systems,expert systems,search engines,geographic information system, global information
system,office automation."

A five level pyramid model of different types of Information Systems based on the information
processing requirement of different levels in the organization. The first level represents
transaction processing systems to process basic data. The second level represents office support
systems to process information in office. The third level represents management information
systems to process information by managers. The fourth level represents decision support systems
to process explicit knowledge. The fifth level represents executive information systems to process
tacit knowledge.
"A Computer(-Based) Information System is essentially an IS using computer technology to carry
out some or all of its planned tasks. The basic components of computer based information system
are:
(1) Hardware - these are the devices like the monitor, processor, printer and keyboard, all of
which work together to accept, process, show data and information.
(2) Software - are the programs that allow the hardware to process the data.
(3) Databases - are the gathering of associated files or tables containing related data.
(4) Networks - are a connecting system that allows diverse computers to distribute resources.
(5) Procedures - are the commands for combining the components above to process information
and produce the preferred output.
The first four components (hardware, software, database and network) make up what is known as
the information technology platform. Information technology workers could then use these
components to create information systems that watch over safety measures, risk and the
management of data. These actions are known as information technology services."
A typical organization is divided into operational, middle, and upper level. The information
requirements for users at each level differ. Towards that end, there are number of information
systems that support each level in an organization.

Operational management level

The operational level is concerned with performing day to day business transactions of the
organization.
Examples of users at this level of management include cashiers at a point of sale, bank tellers,
nurses in a hospital, customer care staff, etc.

Users at this level use make structured decisions. This means that they have defined rules that
guides them while making decisions.

For example, if a store sells items on credit and they have a credit policy that has some set limit on
the borrowing. All the sales person needs to decide whether to give credit to a customer or not is
based on the current credit information from the system.

Tactical Management Level

This organization level is dominated by middle-level managers, heads of departments,

supervisors, etc. The users at this level usually oversee the activities of the users at the operational
management level.

Tactical users make semi-structured decisions. The decisions are partly based on set guidelines
and judgmental calls. As an example, a tactical manager can check the credit limit and payments
history of a customer and decide to make an exception to raise the credit limit for a particular
customer. The decision is partly structured in the sense that the tactical manager has to use
existing information to identify a payments history that benefits the organization and an allowed
increase percentage.

Strategic Management Level

This is the most senior level in an organization. The users at this level make unstructured
decisions. Senior level managers are concerned with the long-term planning of the organization.
They use information from tactical managers and external data to guide them when making
unstructured decisions.

Transaction Processing System (TPS)

Transaction processing systems are used to record day to day business transactions of the
organization. They are used by users at the operational management level. The main objective of a
transaction processing system is to answer routine questions such as;

 How printers were sold today?

 How much inventory do we have at hand?
 What is the outstanding due for John Doe?

By recording the day to day business transactions, TPS system provides answers to the above
questions in a timely manner.

 The decisions made by operational managers are routine and highly structured.
 The information produced from the transaction processing system is very detailed.

For example, banks that give out loans require that the company that a person works for should
have a memorandum of understanding (MoU) with the bank. If a person whose employer has a
MoU with the bank applies for a loan, all that the operational staff has to do is verify the
submitted documents. If they meet the requirements, then the loan application documents are
processed. If they do not meet the requirements, then the client is advised to see tactical
management staff to see the possibility of signing a MoU.

Examples of transaction processing systems include;

 Point of Sale Systems – records daily sales

 Payroll systems – processing employees salary, loans management, etc.
 Stock Control systems – keeping track of inventory levels
 Airline booking systems – flights booking management

Management Information System (MIS)

Management Information Systems (MIS) are used by tactical managers to monitor the
organization’s current performance status. The output from a transaction processing system is
used as input to a management information system.

The MIS system analyzes the input with routine algorithms i.e. aggregate, compare and
summarizes the results to produced reports that tactical managers use to monitor, control and
predict future performance.

For example, input from a point of sale system can be used to analyze trends of products that are
performing well and those that are not performing well. This information can be used to make
future inventory orders i.e. increasing orders for well-performing products and reduce the orders
of products that are not performing well.

Examples of management information systems include;

 Sales management systems – they get input from the point of sale system
 Budgeting systems – gives an overview of how much money is spent within the
organization for the short and long terms.
 Human resource management system – overall welfare of the employees, staff turnover,
etc.

Tactical managers are responsible for the semi-structured decision. MIS systems provide the
information needed to make the structured decision and based on the experience of the tactical
managers, they make judgement calls i.e. predict how much of goods or inventory should be
ordered for the second quarter based on the sales of the first quarter.

Decision Support System (DSS)

Decision support systems are used by senior management to make non-routine decisions.
Decision support systems use input from internal systems (transaction processing systems and
management information systems) and external systems.

The main objective of decision support systems is to provide solutions to problems that are unique
and change frequently. Decision support systems answer questions such as;

 What would be the impact of employees’ performance if we double the production lot at
the factory?
 What would happen to our sales if a new competitor entered the market?
Decision support systems use sophisticated mathematical models, and statistical techniques
(probability, predictive modeling, etc.) to provide solutions, and they are very interactive.

Examples of decision support systems include;

 Financial planning systems – it enables managers to evaluate alternative ways of achieving

goals. The objective is to find the optimal way of achieving the goal. For example, the net
profit for a business is calculated using the formula Total Sales less (Cost of Goods +
Expenses). A financial planning system will enable senior executives to ask what if
questions and adjust the values for total sales, the cost of goods, etc. to see the effect of the
decision and on the net profit and find the most optimal way.
 Bank loan management systems – it is used to verify the credit of the loan applicant and
predict the likelihood of the loan being recovered.

Artificial intelligence techniques in business

Artificial intelligence systems mimic human expertise to identify patterns in large data sets.
Companies such as Amazon, Facebook, and Google, etc. use artificial intelligence techniques to
identify data that is most relevant to you.

Let’s use Facebook as an example, Facebook usually makes very accurate predictions of people
that you might know or went with to school. They use the data that you provide to them, the data
that your friends provide and based on this information make predictions of people that you
might know.

Amazon uses artificial intelligence techniques too to suggest products that you should buy also
based on what you are currently getting.

Google also uses artificial intelligence to give you the most relevant search results based on your
interactions with Google and your location.

These techniques have greatly contributed in making these companies very successful because
they are able to provide value to their customers.

Online Analytical Processing (OLAP)

Online analytical processing (OLAP) is used to query and analyze multi-dimensional data and
produce information that can be viewed in different ways using multiple dimensions.

Let’s say a company sells laptops, desktops, and Mobile device. They have four (4) branches A, B,
C and D. OLAP can be used to view the total sales of each product in all regions and compare the
actual sales with the projected sales.

Each piece of information such as product, number of sales, sales value represents a different
dimension

The main objective of OLAP systems is to provide answers to ad hoc queries within the shortest
possible time regardless of the size of the datasets being used.