Foundations of Information

Systems in Business
Contents
 Information Systems in Business

 Information Systems Vs Information Technology

 Components of Information System

 Artificial Intelligence and its Types

 Technologies in Business
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 Information Systems in
Business
The Data-Information-Knowledge-Wisdom (DIKW
) Pyramid in AI: A Guide for Investors

Example- you open a website of a store , top left corner 8 pm is written.

If I add – our shop is open upto 8 PM- this becomes a information
Now I open different websites of similar stores and try to find out what is their closing time, gathering
knowledge. Trend analysis- like does it change in different seasons?
Wisdom- application of knowledge to a desired outcome. Now a group of robber plans a robbery
between 8-8.30 pm as they have come to know that night duty guard comes at 9 PM.
A bridge that leads nowhere and over nothing
 Information System in Business
Information systems and technologies are vital components for successful
business and organizations

They are as integrated in our daily life as other disciplines like accounting,
Finance, operations etc.

Most of the business management institutes have a separate discipline as

Management Information systems
 Information System in Business
What is a System ?

A system is a set of interrelated components with clearly defined boundaries,

working together to achieve a common set of objectives.
 What is an Information System
What is an Information System ?

An information system (IS) can be an

organized combination of people,
hardware, software, communication
network, data resources that stores,
retrieve, transform and disseminates
information in an organization.
 What is an Information System
Information Systems existed even at the dawn of civilization.

Even today we make use of regular use of information system

that has nothing to do with a computer.

For example

Smoke signals for communication

Card catalogue in a library

 What is an Information System
People rely on modern information systems to communicate with one

another

1) with a variety of physical devices – hardware

2) with information processing instructions and procedures – software

3) with communication channels - network, and

4) with stored data – data sources

Information Systems vs Information Technology
 What is Information Technology ?
Information technology (IT) is the use of computers to create, process, store,
retrieve, and exchange all kinds of electronic data and information. IT is typically
used within the context of business operations as opposed to personal
or entertainment technologies.

In other words

Technology that enables Information Systems to perform more efficiently in a

more cost-effective manner is called Information Technology
 IS vs IT
In brief:

• Information systems and information technology are parts of a broader computer

science.

• Information systems focuses on the system making use of technology, whereas

information technology focuses on technology and how it can help in
disseminating information.

• However, Information technology and information systems are not necessarily two
fields of study, even though, there can be fields of studies on these terms.
Components of Information System
 Components of an Information
System
The major components of a Information System are:
 People – people who use the information system

 Data – the data that the information system records

 Business Process – procedures put in place on how to record, store and analyze data

 Hardware – these include servers, workstations, networking equipment, printers, etc.

 Software – these are programs used to handle the data. These include programs such as
spreadsheet programs, database software, etc.

 Network – These are communication channel for transmission of data

Components of an Information
System

So
le ftw
o p are
Pe

Business

ware
Process
Data

Hard
Network
 Dimensions of an Information
System
 A broader understanding of information
system involves an understanding of
management, organizational and
technological dimensions of the system.

 MIS deals with behavioral as well as

technical issues related to development,
use and impact of the information system
used by the managers and employees of the
organization
 Dimensions of an Information
System
Organizational Dimension
Key elements of an organization are its people, structure, business processes,
politics and culture.
 Senior management make long range strategic decisions about products and
services as well as ensure financial performance of the firm.
 Middle management, who are basically knowledge workers like scientists,
engineers or architects carries out the programs and plans of senior
management by designing products and services and create new knowledge for
the firm.
 Operational management is responsible for monitoring the daily activities.
 Dimensions of an Information
System
Management Dimension

 Management’s job is to make decisions, formulate action plans to solve

organization’s problems.
 A substantial part of management’s responsibility is creative work driven by new
knowledge and information.
 Information technology can play a powerful role in helping managers design and
deliver new products and services and redirecting and redesigning their
organization.
 Dimensions of an Information
System
Information Technology Dimension

This dimension of Information Systems is often called IS Infrastructure and consists of

 Computer Hardware
 Computer Software
 Data Management Technology
 Networking and Telecommunication Technology
 Technology Dimension of an Information System
Computer Hardware – Physical equipment used for input (a keyboard, mouse,
speaker, camera), Processing (CPU), Output activities (monitor, printer, plotter etc)
and storage devices (Hard disk drives, pen drives) and telecommunication devices
(Routers, Switches) etc.
Routers are communication devices used to connect two different
networks. A router sorts incoming data and distributes it to the correct
destination.

Switches contain many ports to connect different network segments.

When a network contains a large number of devices, switches are needed
to make sure the communications between devices do not slow down.
 Technology Dimension of an Information System
Computer Software – Consists of detailed and programmed instructions that control
and coordinate the computer hardware (System software) and enforce the
compliance to the business rules in every transaction in the organization (Application
Software).

System Software – designed as the software in such a

way so that it can control and work
with computer hardware
Application Software - Application Software is a type
of computer program that performs specific functions.
 Technology Dimension of an Information System
Data Management Technology – Consists of software governing the organization of
data on physical storage media.
There are four structural types of database management systems:

 Hierarchical databases.
 Network databases.
 Relational databases.
 Object-oriented databases
 Technology Dimension of an Information System
Network and Telecommunication Technology – A network links two or more
computers to share data and resources.
Internet – It is world’s largest and most widely used network. It is a global network of
networks that uses universal standards to connect millions of networks of different
countries around the world.
Intranet – Internal corporate network based on internet technology are called
Intranet.
Extranet – Private intranets extended to authorized users outside the organization
are called Extranets.
 Technology Dimension of an Information System
World wide web – It is a service provided by the internet that uses universally
accepted standards for storing, retrieving, formatting and displaying information is a
page format called web page containing text, graphics, animation, sound, video and
links to other webpages.
Firewall - A software program that prevents unauthorized access to
or from a private network. All traffic must pass through the firewall
and only authorized traffic must enter. It is a system located
between two networks where it implements an access control policy
between those networks.
Proxy Server - A server that acts as a gateway or intermediary
 Technology Dimension of an Information System
Proxy server has its own IP address. It separates the client system and web server
from the global network.
In other words, we can say that the proxy server allows us to access any websites
with a different IP address.
There are two main purposes of proxy server:
 To keep the system behind it anonymous.
 To speed up access to a resource through caching.
Technology Dimension of an Information System
 What are Business Processes ?
Business processes are the collection of activities required to produce a
product or service.

These activities are supported by flows of material, information and

knowledge among the participants of the business process.

To a larger extent the performance of a business firm depends on how well

its business processes are designed and coordinated.
 What are Business Processes
Functional Area Business Processes
Assembling the product
Manufacturing & Production
Checking quality
Producing Bill of Material
Identifying customers
Sales & Marketing
Making customers aware of the product
Selling the product
Planning Investment
Finance & Accounting
Capital Management
Payroll and Balance Sheet
Hiring employees
Human Resources
Evaluating employees' job performance
Enrolling employees on benefit plan
 Role of E-Business
Electronic Business (E-Business) is the administration of conducting any business
using internet, extranet, web and intranet. This would include buying and selling of
goods or services using commercial transactions conducted electronically along with
providing customer with the technical support with the help of the internet.

E-business is similar to E-commerce, but it is more than just a simple act of buying
and selling services or goods online.

In fact, it is the method of utilizing digital information and advanced communication

technologies to streamline different business processes – from the initial to
implementation phase.
 The fundamental role of IS in
Business
There are three vital roles of Information Systems in a Business application

1) Supporting the business processes and operations

2) Decision making by employees and managers

3) Supporting the strategies to gain competitive advantage

The fundamental role of IS in
Business

Support Strategies
for competitive
advantage

Support Business
Decision Making

Support Business
processes &
Operations
 The fundamental role of IS in
Business
Supporting the business processes in operations – Any business organization use

computerized system to record all customers purchase, billing, tracking inventory,

purchase of merchandise, paying their employees etc.

Supporting the Business Decision Making – Information system also helps store

managers and other business professional to make better decision after analysing

the data stored in the information system

 The fundamental role of IS in
Business
Supporting the Strategies to gain competitive advantage – Gaining

competitive advantage over the competitors require innovative application

of information available for the information system.

 Classification of Information
Systems
A business firm has systems to support different groups or levels of management. These
systems include
1) Transaction processing system and
2) Systems for Business Intelligence

Information
Systems

Transaction Processing Systems for Business

System (TPS) Intelligence (BI)

Management Decision Support Executive

Information Systems Systems Information Systems
 Transaction Processing Systems
Transaction Processing System
 Records and stores data related to all the elementary activities and transactions of an
organization.
 It provides detailed information about activities like sales order entry, hotel
reservations, payroll, employee record keeping and shipping.
 It answers the routine questions and track the flow of transactions through the
organization
 Managers need TPS to monitor the status of internal operations and the firms’
relation with the external environment
 TPS acts as a source of information for other BI systems
 Transaction Processing Systems
Transaction processing system is central to an organization and TPS failure can lead to an
organization’s demise.
 Systems for Business Intelligence
Business Intelligence systems that focus on delivering information to support management
decision making and addresses the decision-making needs for all level of managers

Management Information Systems

 MIS provides middle management with reports on organization’s current performance.
 This information is used to monitor and control the business and predict future
performance
 MIS takes data from the TPS, compresses, summarizes and presents it in the form of
reports.
 Management Information Systems
Example –

In a restaurant chain
TPS stores all transactions of the restaurant with
customers and suppliers

Whereas,

MIS might inform managers on their request the

total amount of Lettuce leaves being consumed in a
particular quarter or their quarterly trend.
 Management Information Systems
Example
Managers of an FMCG business
want to know the relative sales
volumes of two different brands
of a health drink.
 Decision Support Systems
Decision Support System
 Supports non-routine decision making
 Focuses on problems that are unique and rapidly changing
 In DSS the procedure for arriving at a solution may not be fully pre-
defined in advance.
 Although DSS uses internal information from TPS and MIS, they
often bring in information from external sources such as current
stock prices or product prices for competitors
 DSS is used by top management and business analysts
 Decision Support Systems
Example
What would be the impact
on production scheduling if
we were to double the
sales in the month of
December?
 Executive Support Systems
Executive Support System
 Addresses the decision-making needs of the senior management
who focuses on strategic issues and long-term trends both in the
firm and external environment.
 Addresses non-routine decisions requiring judgement, evaluation
and insight because there is no agreed on procedure to arrive at a
solution.
 Presents graph and data from many sources through an interface
that is easy for senior management to use .
 Executive Support Systems
Example
Based on the data from MIS and DSS on the performance of the company
and external data regarding the performance of competitors and market
demand as a whole the company may launch a new product and
discontinue with an existing product line or think for product diversification
and entering a new market.
 Executive Support Systems
 ESS is designed to incorporate external events like new tax laws or competitors.
 Summarizes information from MIS and DSS.
 It filters, compresses and tracks critical data which are of greatest importance to
senior management.
 ESS includes business intelligence analytics for analyzing trends. Forecasts, and
drilling down to data at a greater levels of details.
 The insight from ESS can be presented in the form of a Digital Dashboard which
displays on a single screen the graphs and charts of key performance indicators
for managing a company.
 Hierarchy of Information Systems
Top
ESS Management

n
& Executives
s tio

Gro
tem ma

ups
Sys for

Middle
DSS
f In

Se
Management

rved
so
d
Kin

Supervisors
MIS and Managers

TPS Workers &

Operators

Sales & Production Finance Accounting Human Resource

Functional Areas & Development
Marketing
Difference between Operational
Systems & IS
 Operational systems maintain records of daily business transactions.
 Online Transaction Processing (OLTP) is typically optimized for quick
inserts and updates, and lookups of single rows or a small collection of
rows.

 An Information system is an organized system that affects the interplay

between people, processes, and technology in an organization.
 Information systems are used all over the place. They are used by banks
to manage their investments, hospitals to better care for their patients.
Information systems are designed to improve the way people work.
Difference between Operational
Systems & IS
Operational Systems Informational Systems

Current Values are the Data Content Data is Archived, Derived, Summarized
Data structure is Optimized for Data structure is Optimized for complex
transactions queries.
Access frequency is High Access frequency is Medium to low

Data Access type is Read, Update, Delete Data access type is only Read

Usage is Predictable, Repetitive Usage is Ad hoc, Random, Heuristic

Response time is in Several seconds to
Response time is in Sub-seconds minutes
A large Number of users A relatively small number of users
Artificial Intelligence and Its types
 What is Artificial Intelligence ?
Artificial Intelligence = Intelligent Techniques
It is basically an attempt to build computer systems that think and act like humans.

Artificial Intelligence programs are like any other

computer programs that take data input from the
environment, process that data and produce
outputs.

However, they differ from traditional software

programs in the techniques and technologies they
use to input and process data.
 What is Artificial Intelligence ?

Artificial intelligence (AI) is the ability of a computer program or a

machine to think and learn. It is also a field of study which tries to
make computers "smart".

They work on their own without being encoded with

commands. John McCarthy, an American computer scientist and
cognitive scientist came up with the name "artificial intelligence" in John McCarthy

1955.
 Evolution of Artificial Intelligence
The major milestones in the development of Artificial Intelligence are

1950: British mathematician Alan Turing, famous for breaking the Nazi's

ENIGMA code during WWII, proposes to answer the question 'can machines

think?’
.
1956: John McCarthy coins the term 'artificial intelligence' at the first-ever AI

conference at Dartmouth College.

1967: Frank Rosenblatt builds the first computer based on a neural network.

1980s: Neural networks to train itself become widely used in AI

 Evolution of Artificial Intelligence
1997: IBM's Deep Blue beats then world chess champion Garry
Kasparov.

2011: IBM Watson beats champions Ken Jennings and Brad

Rutter at Jeopardy

2016: Google’s DeepMind's AlphaGo program, beats Lee Sodol,

the world champion Go player.
 Artificial Intelligence
AI systems today can perform many tasks that would be impossible for humans to
accomplish.

Major forces driving the rapid evolution of AI

Development of Big Data databases generated by Internet, e-Commerce, IOT and
Social Media
Drastic reduction in the cost of computer processing

Refinement of algorithm by AI engineers and University researchers

Many of the AI algorithms and statistics were developed decades earlier but could not be
implemented and refined on such a large scale as is currently possible.
 Major Types/Branches of AI
Expert Systems Represents the knowledge of an expert in a set of rules

Machine Learning Identifies patterns in very large database without explicit programming

Neural Networks & Deep Algorithms, loosely based on the functioning of human neurons, can categorize
Learning and classifies objects even without human training

Algorithms, loosely based on evolutionary natural selection, used to generate

Genetic Algorithms
solutions in optimization and search problems

Natural Language
Algorithms to make computers understand and analyze human natural language
Processing

Computer Vision Systems Systems to view and extract information from real world images

Use of machine that can substitute human movements along with information
Robotics
processing

Intelligent Agents Software that use built-in knowledge to perform specific task
 Expert System…How it works
An Expert System works through a
 User Interface – This is the system that allows a non-expert user to query (question)
the expert system, and to receive advice.
 Knowledge base – A set of rules modelled from human knowledge
 Inference Engine – Searched through the rules and fire those rules that are triggered
by facts the users gathers and enters.
 Expert System…. Example
MYCIN: It was based on backward chaining and could identify various bacteria that could
cause acute infections. It could also recommend drugs based on the patient's weight.

DENDRAL: Expert system used for chemical analysis to predict molecular structure

PXDES: An Example of Expert System used to predict the degree and type of lung cancer

CaDet: One of the best Expert System Example that can identify cancer at early stages
 Expert System…Example
Deep Blue
Capability of evaluating 200 million positions per second
The first computer to face a world chess champion in a formal match

It was a state-of-the-art expert system relying

upon rules and variables defined and fine-tuned
by chess masters and computer scientists
 Expert System…. Limitations
 Sometimes even the experts can’t explain how they make decisions.
 The knowledge base can become chaotic as the number of rules reach into
thousands
 In some fields, like that in medicines, rules get changed and need continuous update

Expert systems are not useful in dealing unstructured problems.

 Machine Learning
 Machine Learning (ML) is based on entirely different paradigm than Expert
systems.

 The main focus of ML algorithms is to find pattern from input data into known or
unknown outputs.

 There is no effort to write computer code for rules reflecting Expert’s knowledge

 It begins with finding a pattern or relationship by analyzing a very large data set
and making a statistical inference.
 Machine Learning
Two distinct cases of Machine Learning are

Supervised Learning –

The machine is “trained” by providing specific examples of desired input and output identified by
human in advance.

Unsupervised Learning –

The same procedure is followed but the humans do not feed the system with examples. Instead,
the system is asked to process the development database and report whatever patterns it finds
 Machine Learning
Examples of Machine Learning are

Netflix - Recommendation Engines works on video

similarity algorithm

PayPal – Uses algorithm that works on patterns of

fraud

Spam email – Identification and directing spam

email to junk folder
 Machine Learning
Limitations of Machine Learning are

 Machine learning is applicable today in a very limited number of situations where

very large data set and powerful computing facility are available.

 The most desired outcomes are already defined by humans

 Neural Networks
In Human brain a neural network is composed of
interconnected units called neurons. Each neuron can take
data from or send information to other neurons.

Artificial neurons are not biological physical entities but are

software programs and mathematical models that perform the
input and output functions of neurons.

Artificial neural networks are pattern detection programs.

 Neural Networks … How it works
 Neural networks learn pattern from large quantities of data and find pathways
through the network of thousands of neurons.

 There may be millions of pathways through the data.

 An algorithm (the learning rule) identifies the successful paths and strengthens the
connection of neurons of these pathways.

 This process is repeated thousands or millions of time until only the most successful
pathway are identified.

 Algorithms systematically alters the strength of the interconnections of neurons to

produce the desired output.
 Neural Networks … How it works
 Neural networks uses rules it learns
Data
from data to construct a hidden Input Hidden Output
 Age Layer Layer Layer
layer of logic.  Income Results
 The hidden layer then processes the  Purchase
History Valid
input classifying them based on the  Frequency purchase
experience of the model of
purchase Fraudulent
 In this model the neural network  Average purchase
has been trained to distinguish
purchase
size
between valid and fraudulent credit
card purchase.
 Neural Networks … Examples
 In Medical Science –

• Screening patients for coronary artery disease

• Diagnosing Epilepsy and Alzheimer

• Recognition of pathology images

 In Business

• Performance of Equities

• Fraudulent Transaction
 Deep Learning
Deep learning neural networks are more complex with many layers of transformation of the
input data to produce a target output.

Deep learning neural networks are exclusively used for pattern detection on unlabeled data
where the system is not told what to look for specifically but simply asked to discover a
patterns in the data. The system is expected to be self taught.

Deep learning networks consists of many layers of neural network working in a hierarchical
fashion to detect patterns
 Deep Learning…Example
In deep learning, a Convolutional Neural Network (CNN, or ConvNet) is a class
of artificial neural network, most commonly applied to analyze visual imagery.

CNN has multiple layers. It processes data that has a grid-like arrangement then
extracts important features.

For example, in a face recognition CNN each layer will have multiple levels where each
level can identify a lower-level feature of a photo like circles or lines etc.
Deep Learning…Example
Face recognition using CNN

CNN Architecture
 Deep Learning…Limitations
In deep learning, it requires very large data set to identify patterns

Sometimes even researchers cannot explain the action of deep learning output of
machine

Recommendations coming out from deep learned machines may not be ethical or
legal.

This is best used in low level decision makings, aiding but not substituting for
managers.
 Genetic Algorithm
Genetic algorithm are another form of machine learning useful for finding the optimal
solution for a specific problem by examining a very large number of alternative solutions
for that problem

It is based on ideas inspired by evolutionary biology such as inheritance, mutation,

selection and crossover (recombination)

As solutions alter and combine, the worst ones are discarded, and the better ones survive
to go on to produce even better solutions
 Genetic Algorithm
 In the example each string corresponds to one of the variables in the problem.
 After the initial population is evaluated for fitness, the algorithm produces the next
generation of strings, consisting of strings that survived the fitness test plus offspring
strings produced from matching pairs of strings and test their fitness.
 The process continues until a solution is reached.
 Natural Language Processing
Natural Language Processing (NLP) makes it possible for a computer to understand and
analyze natural language that human beings instinctively use.
NLP algorithm are typically based on machine learning including deep learning which can
learn how to identify the speaker’s intent from many examples

Example
IBM Watson Content Analytics Software improved contact center agents’ interaction
with customers.
After converting the customer’s speech to textual data, NLP applied the algorithm based
on machine learning analysis of past interactions with thousands of customers.
 Computer Vision Systems
Computer Vision Systems deals with how computers can emulate the human visual
system to view and extract information from real world images.
Such systems incorporate image processing, pattern recognition and image
understanding

Examples
Computer Vision Systems are used in autonomous vehicles such as drones and self
driving cars, military applications.
 Robotics
Robotics deals with the design, construction and operation and use of movable

machines that can substitute for humans along with computer systems for their control,

sensory feedback and information processing

Robots are programmed to perform a specific series of actions automatically

Examples

 Bomb detection and deactivation

 Military operations (drones)

 Medical procedures (surgical robots)

 Automobile assembly lines employ robots to do heavy lifting, welding, painting etc.
 Intelligent Agents
Intelligent agents are software programs that work in the background without direct
human intervention to carry out specific tasks for an individual user, business process or
software applications
It uses a built-in or learned knowledge base to accomplish tasks or make decisions on
the user’s behalf such as deleting junk emails, scheduling appointments etc.
 Intelligent Agents…Examples
Shopping bots help customers find products they want and assist them in comparing
prices and other features.

Siri, a virtual assistant application by Apple’s iPhone and iPad. Siri uses Natural Language
Processing to answer questions, make recommendations and perform actions.

Chatbots (chatterbots) are software agents designed to simulate a conversation with

one or more human users via textual or auditory methods.
Types on AI

Type 2 – Based on Capability

Type 2 – Based on Capability

Artificial Narrow Intelligence Artificial General Intelligence Artificial Super Intelligence

(ANI) (AGI) (ASI)
 Types on AI - Based on the Capability
[Link] narrow Intelligence -
Also known as Weak AI, ANI is
the stage of Artificial Intelligence
involving machines that can
perform only a narrowly defined
set of specific tasks.
Example – Alexa, Face
Recognition in iPhone, Autopilot
at Tesla
 Types on AI - Based on the Capability

2. Artificial General Intelligence - Also known as Strong AI, AGI is the stage in the
evolution of Artificial Intelligence wherein machines will possess the ability to think
and make decisions just like us humans.
According to Stephen Hawking, English Theoretical Physicist
Strong AI would take off on its own, and re-design itself at an ever increasing
rate. Humans who are limited by slow biological evolution, couldn’t compete, and
would be superseded.
 Types on AI - Based on the Capability

3. Artificial Super Intelligence - Artificial Super Intelligence is the stage of Artificial

Intelligence when the capability of computers will surpass human beings. ASI is
currently a hypothetical situation as depicted in movies and science fiction books,
where machines have taken over the world.
 Types on AI – Based on Functionality
Reactive Machine AI

This type of AI includes machines that operate solely based on the present data, taking

into account only the current situation. Reactive AI machines cannot form inferences

from the data to evaluate their future actions. Example - Famous IBM Chess program

that beat the world champion, Garry Kasparov.

 Types on AI
Limited Memory AI

It can make informed and improved decisions by studying the past data from its

memory. It has a short-lived memory that can be used to store past experiences

and hence evaluate future actions. For example, self-driving cars use sensors to

identify civilians crossing the road, steep roads, traffic signals and so on to make

better driving decisions.

 Types on AI
Theory Of Mind AI

It is a more advanced type of AI. This kind of machines is speculated to play a major
role in psychology putting more focus on emotional intelligence so that human
beliefs and thoughts can be better comprehended. It has not yet been fully
developed but rigorous research is happening in this area. Example – Lie Detector
 Types on AI
Self-Aware AI

Let’s just pray that we don’t reach the state of AI, where machines have their own
consciousness and become self-aware. This type of AI is a little far fetched given the present
circumstances. However, in the future, achieving a stage of superintelligence might be
possible.