Chapter 1: Fundamentals of Information Systems

Introduction

Enterprises are in constant interaction with many factors both inside and outside the enterprise in order to follow the right strategies, and to carry out their activities effectively. It is also necessary for businesses to monitor economic, legal and political conditions in all kind of activities, and follow technological developments. Information systems provide support for the activities of fitting information for the purposes, and transmitting it to the concerned people and units when it is needed.

The Fundamental Concepts of Information Systems

System is a collection of conceptual or physical components that are brought together to reach one or more specific purpose or conclusion.

There is an integrity and order in each formation that is thought to be a system. There are components forming the whole, and interactions connecting the components within each system. These components are not brought together incidentally, but composed in order to achieve a specific purpose.

The boundary of system must firstly be set to be able to determine the system. Everything stays out of the system constitutes the environment of system . The system boundary is a field separating the system from its environment. Another concept related with the system is system interface . It is defined as the area separating the boundaries of two systems.

The system which has not any interaction with its environment or other systems in the environment is termed as closed system . Nevertheless, system that is related, interacted and communicated with its environment or other systems in the environment is described as open system . Almost all the systems have the features of open system.

Inflows to the open system from environment or elements exported during interaction with environment are named input . In contrast, outflows from open system to the environment or imported elements are termed output . The sequence of activities required to transform the input to output is called process .

Open systems receive inputs from its environment, perform activities on the input to transform it to output, and then transmit the output to the environment.

Control and feedback are two important functions performed on open systems. Control function involves monitoring and evaluating feedback to determine whether a system is moving toward the achievement of its goal. The results obtained with control function are transmitted to system as input once again with a function named feedback.

Information system is a system that accepts data as input, produces meaningful information as output by processing the data and stores the data and information to be accessed again when it is necessary.

Hardware resources, software resources, data resources, network resources and people resources are the fundamental components of the information system.

Information systems are open systems in which the input is data and the output is information. The whole set of necessary operations to transform data into information is the process of information system.

Data are raw, unprocessed, uninterpretable objective facts or impressions obtained as a result of observations or experiments. They could be quantitative or qualitative values represented with various letters, numbers or other symbols and signs. Data are unstructured records of activities carried out in accordance with institutional objectives.

Information is a form of data that is organized to be meaningful. Data turn to information when they are associated multi-dimensionally with one another. Unlike the data, information is meaningful by itself.

Knowledge is the meaningful and value adding form of data and information which are transformed as a result of some processes and adjustments to be effective in decision making.

Wisdom deals with individual’s values, intuitions, understanding, interpretations and judgments. Because it is not impersonal and generalizable, it is non-algorithmic and non-programmable.

Data processing is the transformation process of data to information as a result of some specific operations on raw data. Accordingly, data is the input and information is the output of data processing.

Information processing is transforming the processed data (information) to a form (knowledge) providing support to decision making by being passed through specific operations.

Classification of Information Systems

Information systems may be classified from different aspects. One way to classify them is to separate into two main groups as support of business operations (operations support systems) and support of managerial decision making (management support systems).

Operations Support Systems

The role of operations support systems of businesses record operations occurred within the business, control industrial processes, support the communication and collaboration of businesses and update institutional databases efficiently.

Transaction processing system , which is one of the important examples of operations support systems, records and processes data generated as a result of operations in business (orders, sales, payrolls, purchases, inventory operations etc.), updates the databases related with business processes and produces documentations related with business. They record and store any kind of data regarding all operations performed to carry out daily activities in businesses.

In transaction processing systems, information operations are processed in two ways which are real-time processing and batch processing.

Process control systems are used to provide support in managing physical processes and inappropriate decision making. Mentioned decisions here may be obtained through computers after specific parameters are identified.

Enterprise collaboration systems enable individuals to communicate with each other by using different information technologies in such situations where individuals need to work together interactively. These systems sometimes involve some applications named office automation systems which provide automation to make routine office works faster with minimum cost and labor force by using information technologies.

Management Support Systems

Information system applications are termed as management support systems when they are concentrated to produce the information that support managerial decisions.

Management information systems provide correct information in timely manner that make decision making process easier by cleaning, organizing and integrating data collected from different resources and presenting it to managers as a summarized information.

There are three types of reports that are produced by management information systems:

• Periodic reports
• Reports based on special request
• Exceptional reports

Periodic reports are regularly produced on a daily, weekly, monthly or annual basis according to the previous plan. Reports based on special request generated on a specific request. The request is transmitted to system via an inquiry, so the required information may be obtained in the form of a report. Exceptional reports are automatically produced in extraordinary situations or generated to attract the notice of management.

Decision support systems help decision makers in the positions of manager for their decision making process as similar to management information systems. They are often required for complexed decisions that require the full synthesis of complex factors and used by decision makers from tactical and strategic levels. Decision support system is more flexible than management information system and supports decision makers for different situations.

There are two types of decision support systems which are model driven and data driven decision support systems. Model driven decision support system uses large and complex analytical models to make “What …… If ” and other types of analysis. Data driven decision support system analyzes, queries and reports large databases in enterprises. Data-mining applications are evaluated within this context.

A decision support system has five fundamental components:

• Data management subsystem
• Model management subsystem
• Dialog management subsystem
• Knowledge (know-how) management subsystem
• Decision maker

Executive information system s are the information systems that provide support to decision processes of executive or top level decision makers from strategic management level. These systems provide outputs such as comprehensible graphics, summarized statistics, tables etc.

Specialized processing systems are classified under both management support systems and operation support systems. Expert systems, knowledge management systems, functional information systems and strategical information systems are categorized under specialized processing systems

Decision Making and Information Relationship in Business

Decision is the definite judgment given by thinking about a job or a problem. Decision making, on the other side, involves all phases to be followed in order to reach this judgment. Accordingly, decision-making is the process of selecting the different course of actions that can be applied in existing conditions and selecting the most appropriate option among them.

The decision-making process consists of the following steps:

• Defining the decision problem
• Determining goals and objectives
• Setting solution options
• Evaluating the alternatives
• Determining the most feasible solution

Information is required in all of steps specified above. The biggest trouble in decision problem is that decision is future oriented and the future is uncertain. The uncertainty is originated from environmental factors. Here, decision makers try to eliminate or at least minimize this uncertainty with the correct information they will acquire; thus, they make accurate decisions.

Nevertheless, unorganized and complex mass of information will not have any benefit to the managers. The excess of information is a problem for making right decisions as much as the lack of information.

Features of Useful Information

Valuable and useful features of information can be handled in three dimensions: Time, content and form. Time dimension analyzes obtained data from the aspect of timeliness, actuality, frequency and time period. Content dimension is the evaluation of the obtained information from the points of accuracy, relevance, completeness, compendiousness, scope and performance. Form dimension is the approach to information from openness, detail, order, presentation and environment (communication tool) aspects.

Levels of Management in Business

While lower level managers, who are responsible from running the daily operations in business, require information for daily and routine decisions about execution; medium and top level managers require it for long-term decisions, strategies and policy making.

Strategic management is generally composed of the board of directors, executive board and senior managers. Decisions made in strategic management level are longterm future oriented with high certainty.

Tactical management consists of medium level managers. Decisions in tactical management level are those in which strategic decisions are elaborated and uncertainty is relatively reduced. These decisions are made to ensure that resources are acquired and used effectively and efficiently in order to fulfill the decisions made at strategic level.

Operational management consists the lower level managers who are responsible of the execution of daily routines and business processes. Decisions in this level are elaborated and transformed into short term plans.

Types of Decisions Based on Their Structures

Decisions are classified according to their structures as structured, semi-structured and unstructured.

In structured decision, problems are defined precisely. Structured decisions are routine and frequently repeated decisions and decision maker does not have subjective flexibility. The decision to be made is predetermined by current policies and procedures in a particular situation. For this reason, the decision may be made automatically by computer program.

Semi-structured decisions are partially defined, determined and partially based on intuition. In this decision structures, some of the process steps to be fulfilled in order to achieve the objectives can be predetermined.

Unstructured decisions are not predefined, firstly encountered. In the decision process, there is not any predetermined procedures or rules that the decision maker will follow to make the right decision. In other words, there is not a certain way to know the correct answer and there might be more than one correct answer in unstructured decisions. None of the criteria or rule guarantees a good solution.

Information Flow and Knowledge Management in Business

In business, it is important that how knowledge is reflected, used, and applied to business processes rather than having the knowledge in hand. At this point, individual knowledge is transformed into enterprise knowledge or vice versa. In addition, information flow is actualized within enterprise. Data and information that employees acquired are integrated with their past knowledge and experiences and through this transformation individual knowledge is comprised. In this sense, individual knowledge belongs to particular individuals and they are human-specific. Enterprise knowledge belongs to the business; on the other hand, it is the knowledge that has its own business-specific attribute.

In order to provide systematic flow of information within the enterprise, business must determine resources of knowledge, their accessibility and usefulness, where they are, how they can be found and what the content of knowledge is.

Knowledge management can be defined as the all activities aimed at generating, acquiring, improving, using, storing, sharing the knowledge of business and transmitting them to employees, and business processes in order to create added value in business. Knowledge management provides systematic definition of current knowledge and knowledge resources, links them one another, transmits knowledge to the right person at the right time and supports information flow in business. Steps in this process are listed below:

• Determination and definition of knowledge sources
• Acquisition of knowledge
• Storage of knowledge
• Spread of knowledge
• Use and application of knowledge
• Evaluation and measurement of knowledge

Business Information Systems

Business information system generates information enabling the business to use its resources in the best possible way, and communicate them to the people and units whenever they are needed.

Information systems designed separately according to business functions are not independent of each other, but they are in relationship and interaction with each other as a whole in order to produce and share the information that business needs.

Business information systems are comprised of marketing information systems, production information systems, human resources information systems and accounting/finance information systems.

Marketing information systems are oriented for gathering, processing, storing, researching, analyzing and evaluating information that will help an enterprise to make marketing decisions, and ensuring the flow of information within the enterprise. Marketing information systems also undertake functions such as interactive marketing, sales force automation, customer relationship management, market research and predictions and advertising campaigns.

Production information systems are responsible for producing information that covers all processes related to planning, control of products, services in production process and communicating them to the necessary persons and units. These systems provide information support to managers and employees for the business processes of supplying of raw materials, production planning, providing material flow, developing new product and performing quality control.

Human resources information systems enable business to carry out activities of obtaining, storing, analyzing, updating, and distributing of information about employees, and transforming them into such a form that will help businesses in making strategic and managerial decisions. Fundamental objective of these information systems is providing full and accurate information in timely manner for human resources decision makers in business.

Accounting/Finance information systems obtains and stores necessary data and information for finance and accounting functions, performs required processes and analyzes them, then transmits the handled results to the concerned persons and units.