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

Everything stays out of the system constitutes the environment of system.

The system which has not got 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.

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 control function then makes the necessary adjustments to a system’s input and processing components to ensure that it produces proper output. The results obtained with control function are transmitted to system as input once again with a function named feedback.

A system is composed of multiple components. On the other hand, if each of the constituent components of a system can be distinguished from other components, which are meaningful in themselves, then the constituent component should also be considered as a subsystem.

The business is defined as economic units producing products or services by bringing together the production factors in a planned and compatible manner within specific objectives.

We can consider each business departments are a subsystem of business system, and each subsystem has its own components oriented to fulfill its function. Besides, businesses transform the inputs like raw materials, supplies, energy etc. to outputs as beneficial products and services in order to have profit and to serve the society in general. While supplying the specific inputs and providing products and services, enterprises exist in an environment that they must interact with. After the definitions and explanations given above, it is now possible to see that businesses are open systems which have input, process and output operations.

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.

Data are raw, unprocessed, uninterpretable objective facts or impressions obtained as a result of observations or experiments. Data are unstructured records of activities carried out in accordance with institutional objectives. Data are not able to help the decision makers about what to do and how to do unless they are associated with other data. In other words, they are meaningless by themselves. 

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. Therefore, it becomes the necessary resource to produce value adding information. Unlike the data, information is meaningful by itself. Along with this, it has a meaning only for the related person or unit. It gives an aspect to the related person to interpret the events and objects. Information which has far richer content than data is a written, verbal or visual message. Information aims to have some influence over the judgement and to change the perception of relevant person who receives the message on a related subject.

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. Most of the messages and news received from the inside and the environment of business are information. Information is used for interpretation, production of knowledge and decision making.

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. Knowledge is acquired as a result of combining thoughts, experiments, foresights and intuitions with purposeful information and evaluating them.

The concept of knowledge may be evaluated in two categories as know-how and knowledge of state. Know-how is the opinion on a subject, situation or concept and the knowledge of the rules about the working ways of systems. Know-how is the knowledge which is effective for all similar organizations, it could be transferred by generalization; and therefore, may be acquired through
education and experience.

Knowledge of situation is, on the other hand, the processed data which defines the attributions of any subject, object or concept. Knowledge as a subject of the information systems is a type of knowledge of situation. These types of knowledge provide the possibility to know the situation of system through the values of variables that defines the situation.

Wisdom is more difficult to define, but it refers to the ability to learn from experience and adapt to changing conditions. Data, information and knowledge are impersonal concepts unlike wisdom. 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. From this, we can infer that this is the fundamental characteristic which differs human being from computer.

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. Activities performed in data processing may be listed as in the following:

• Record
• Verify
• Classify
• Sort or adjust
• Mathematical or logical calculation
• Summarize
• Reproduce
• Store
• Access
• Transfer

Information processing is transforming the processed data (information) to a form (knowledge) providing support to decision making by being passed through specific operations. Accordingly, information is the input and knowledge is the output of information processing. It should be noted that information obtained at the end of information processing session might be a data item for another person or unit and this data item must be processed in a data processing to support a different decision.

Employees called as information workers should be separated as data workers and information workers. Office workers like secretary, clerk or bookkeeper are in the position of data workers who are obliged to record and transact all kind of activities within the business.

The workers who are responsible from design of products or services and transforming the information into knowledge such as engineer, architect, scientist etc. are in the position of information workers.

Business processes are the series of activities which are supposed to be performed for the completion of a specific job in the business and have logical relationship between one another. The series of activities performed during the period from receipt of order to delivery of product to customer in a manufacture company is an example of business process. Each step of this process which are receiving order, producing, delivery and making collection are sub-business processes.

Transaction processing system is the fundamental generator of information needed for both other information systems and business processes. Features of transaction processing systems are listed in the following:

• They record and store operations and recall them when they are needed.
• They are originated from classical files.
• They produce periodic outputs, generally.
• They produce information for operational level management primarily.
• They are interested in daily operations. The processes involved are related to repeated operations with high volume and load.
• They have limited flexibility for special information requests apart from generally produced information

In transaction processing systems, information operations are processed in two ways:

1. Real-time processing: When operations to be recorded occurred, they are entered into system and recorded instantly. Databases are also immediately updated. Current inquires may be done in such processing.  
2. Batch processing: In this kind of processing system, operations are batched in specific periods (daily, weekly, monthly) and then processed. Since the database cannot be updated at any time in the batch processing method, accurate information might not be obtained in a certain query.

Operations support systems also make routine decisions that control operational processes. 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 that enable individuals to communicate with each other by using different information technologies in such situations where individuals need to work together interactively

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

Transaction processing systems record substantial amount of data. However, these records, as earlier mentioned, may be used to answer instant inquiries and to determine a specific situation. Managers need more to make decisions. The only existence of transaction processing systems will not go beyond being an unorganized mass of information from the aspect of decision-making. At this point, management information systems step into it.

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.

Features of management information systems are as follows:

• They are not interested in daily operations.
• Even though they provide easy and timely access to all managers from operational, tactical and strategic level, they especially serve to managers from tactical level.
• Generally, they produce reports oriented to support structural decisions.
• They are partially flexible and may be adapted to changes in the information requirements of the business.
• They use the data produced by transaction processing systems.
• Because they may benefit the data from multiple transaction processing systems, they use integrated database and support the variety of functional fields.

Outputs of management information system are the reports with different features. Types of these reports produced by management information systems and attributed as summarized information presented to managers are listed below:

1. Periodic reports: These reports are regularly produced on a daily, weekly, monthly or annual basis according to the previous plan. Managers do their jobs easier thanks to periodic reports.
2. Reports based on special request: These reports are 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.
3. Exceptional reports: 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 do. In addition, they are used in situations when management information systems are inadequate to make decisions. When non-routine and complexed factors are effective and decision problems that require knowledge analysis and interpretation are concerned, these systems provide supports for determination and evaluation of alternatives, and creation of decision options by understanding the data related with the decision to make.

There are two types of decision support systems:

1. Model driven decision support system uses large and complex analytical models to make “What …… If ” and other types of analysis. The analysis capabilities of these systems depend on their combination with a good user interface that will facilitate the use of the model.
2. 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 listed below:

• Data management subsystem is the component performing all kind of activities aimed to obtain, store and organize all required data for decision maker to make a specific decision.
• Model management subsystem is decision support system component performing activities of management and use of financial, statistical, mathematical or other analytical models in order to solve decision problems.
• Dialog management subsystem (User interface) is the component that provides communication between user and decision support system.
• Knowledge (know-how) management subsystem involves the paths, approaches and analysis to follow, and includes the information that when and in which situations problem solving algorithms should be used when decision maker is confronted with a problem.
• Decision maker may either directly use and manage decision support systems or can receive help from some of the leading experts.

Executive information systems are the information systems that provide support to decision processes of executive or top-level decision makers from strategic management level.

Features of executive information system are listed below:

• It is graphical
• It has easy-to-use interfaces
• It provides perspective to managers with its broad but summarized information presentation
• It integrates multiple internal and external data resources

Specialized Processing Systems mentioned systems may support any of business processes or management applications. For example, expert systems provide expert suggestions for managerial decision processes such as credit portfolio management or business processes such as equipment selection. Knowledge management systems support employees and managers for determination of product, organization of business processes and spreading of information related with business processes. Information systems focused on managerial applications or business processes supporting fundamental business functions such as marketing, production, accounting/finance or human resources are termed as functional information systems (Functional information systems are examined in the following chapters). Lastly, strategical information systems apply information technologies to business products, services, and processes to help for gaining competitive advantage on its competitors.

The decision-making process consists of the following steps:

1. Defining the decision problem
2. Determining goals and objectives
3. Setting solution options
4. Evaluating the alternatives
5. Determining the most feasible solution

Valuable and useful features of information can be handled in three dimensions. These dimensions are time, content and form:

• Time dimension: Analyzes obtained data from the aspect of timeliness, actuality, frequency and time period. Information must be obtained in time.
• Content dimension: It is the evaluation of the obtained information from the points of accuracy, relevance, completeness, compendiousness, scope and performance. Obtained information must be error-free.
• Form dimension: It is the approach to information from openness, detail, order, presentation and environment (communication tool) aspects.

Decision-making in business is the job of managers mainly. 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: It is the management level generally composed of the board of directors, executive board and senior managers. Decisions made in strategic management level are long-term future oriented.

Tactical Management: It is the level of management consisting of medium level managers such as division managers, group or team leaders in group and team works. Decisions in tactical management level are those in which strategic decisions are elaborated and uncertainty is relatively reduced.

Operational Management: This level of management consists the lower level managers who are responsible of the execution of daily routines and business processes. In order to carry out the tactical level decisions, it involves the effective and efficient executions of required tasks. In this sense, these are decisions in which medium level tactical decisions are elaborated and transformed into short term plans.

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

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. In addition, it is necessary to establish a structure that provides the transmission of knowledge to the persons and units within the business who are in need.

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.

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

Knowledge is examined under two subtitles according to its source:

1. Outsourced knowledge covers wider area than internal sourced knowledge. All kinds of knowledge centers outside business, various databases, web pages, independent researchers, consultancy services, training programs, congress, conferences and meetings are main external sources of knowledge.
2. Internal sourced knowledge is acquired from inside the business and they are mostly used for supervision of internal functions of business. Internal sourced knowledge can be separated into two sections. First is business employees, and the second is sources consist of documents and various publications used and produced as a result of business activities and legal obligations.

Knowledge is classified as tacit knowledge and explicit knowledge based on the attribute:

1. Tacit knowledge is the settled knowledge in individuals’ minds and perceptions. This knowledge is interiorized and settled into people’s memories through experience and business applications. Also, it consists of intuitions, emotions, abilities, values and beliefs.
2. Explicit knowledge is the knowledge may be expressed with words, numbers, scientific formulations, various visual-audial tools or some other ways. This kind of knowledge takes part in books, documents, reports and notes or it is created in service-training of business.

There are different approaches that businesses may use for the purpose of acquiring knowledge, and producing new ones. These approaches can be separated into two categories as internal knowledge acquisition and external knowledge acquisition.

In internal knowledge acquisition, new knowledge can be produced by transforming explicit and tacit knowledge into each other. This knowledge production can be actualized in four ways:

1. Transformation from tacit knowledge to tacit knowledge: It is the process of one’s sharing his/her knowledge with others. This process takes place in such a way that the accumulation of knowledge acquired over years is shared with other individuals, while the other individuals observe, imitate, and apply this knowledge to themselves. The knowledge acquired in this way is added to the individual’s own tacit knowledge and therefore, tacit knowledge is transformed into a new form of tacit knowledge. This process is called socialization. Master-apprentice relationship is an example for such knowledge transfer or production.
2. Transformation from explicit knowledge to explicit knowledge: Reformation of existing information in business through classifications, aggregations, additions or reductions may result in generation of new knowledge. Accordingly, transformation from explicit knowledge to explicit knowledge is the process in which the new knowledge is combined with explicit knowledge that is different but can only be coherent when they are related with one another. Transformation of collected information into reports is an example of such knowledge transformation. Such transformation process can be termed as combination.
3. Transformation from tacit knowledge to explicit knowledge: It is the process of transforming tacit knowledge into explicit knowledge with the help of words, numbers, visual or audial tools, and sharing with other persons and units. Putting a supervisor’s observations about the factory into report form or documenting the application steps about standard activity processes are examples of transforming tacit knowledge into explicit knowledge. This process is called externalization. Because the acquired knowledge is brought in business, it will not cause any problem when an employee, who has the tacit knowledge, quits the job.
4. Transformation from explicit knowledge to tacit knowledge: It is the process of knowledge generation in the form of having experience by using explicit sources of knowledge. This is learned by practicing. It is enhancing practitioner’s tacit knowledge by increasing his/her ability or experience through assimilation of explicit knowledge or adding new ones. This process is defined as internalization. Business employees transform explicit knowledge into tacit knowledge when they apply updated data and information along with rules, and when they use them in business processes.

Spread of knowledge, in other words, distribution of knowledge within the business is sharing knowledge acquired from internal and external sources in business, and providing the flow of information.

Implementation stage of knowledge includes the utilization of acquired, stored and distributed knowledge by applying it to marketing, production, new product development, management etc. activities.

Marketing function of business interests with product pricing, advertising, sales of current products in current markets, developing new markets and new products to attract current and potential customers. 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.

Production information system is interested in the activities of production resource planning, executing production, and monitoring and controlling production processes. In production resource planning, there are production estimation, production programming, material requirement planning, capacity planning, production cost control and quality control activities. The activities of production execution are, on the other hand, workplace planning, workplace control, machinery control and process 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.

Human resources information systems mainly support the people concerned about personnel selection and recruitment, employment, job descriptions and assignments, performance appraisal, determination of wages and other payments, and training programs.

Accounting/Finance information system 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.

Finance function is interested in finding monetary funds and effective use of them. It is also interested in supervision and management of resources. Accounting function, on the other hand, is interested in recording and analysis of financial movements about business assets and funds (equity and liabilities), and production of financial reports. Financial reports inform people and units from both inside and outside of business about financial situation of enterprise.