CBMS4303

Management Information System

Copyright © Open University Malaysia (OUM)

 CBMS4303
MANAGEMENT
INFORMATION
SYSTEM
Maryati Mohd Yusoff
Mohd Zakree Ahmad
Hafiz Mohd Sarim
Norhayati Mohd Ali
Salina Ismail
Muhammad Shakirin Shaari
Mohamed Ali Saip
Nassiriah Shaari
Nurhizam Safie Mohd Satar
Rames Mariapan

Copyright © Open University Malaysia (OUM)

Project Directors: Prof Dr Widad Othman
Prof Dr Siti Aishah Hashim Ali
Open University Malaysia

Module Writers: Maryati Mohd Yusoff

Mohd Zakree Ahmad
Hafiz Mohd Sarim
Norhayati Mohd Ali
Universiti Kebangsaan Malaysia
Salina Ismail
Muhammad Shakirin Shaari
Mohamed Ali Saip
Nassiriah Shaari
Universiti Utara Malaysia
Nurhizam Safie Mohd Satar
Rames Mariapan
Open University Malaysia

Moderator: Assoc Prof Hassan Selamat

Universiti Putra Malaysia

Enhancer: Nur Zalina Mohd Zain

Developed by: Centre for Instructional Design and Technology

Open University Malaysia

First Edition, August 2011

Second Edition, December 2011
Third Edition, December 2013 (rs)
Fourth Edition, December 2019 (MREP)

Copyright © Open University Malaysia (OUM), December 2019, CBMS4303

All rights reserved. No part of this work may be reproduced in any form or by any means without the
written permission of the President, Open University Malaysia (OUM).

Copyright © Open University Malaysia (OUM)

Table of Contents
Course Guide xi–xvi

Topic 1 Information Systems 1

1.1 Information System (IS) in Brief 2
1.1.1 Data, Information and Knowledge 3
1.1.2 Information Technology (IT) 6
1.1.3 Information System (IS) 9
1.2 Information Management 12
1.3 Information System (IS) User 16
1.3.1 Levels of Management 17
1.3.2 Functions of Managers 21
1.3.3 Roles of Manager 22
1.3.4 Managerial Skills and Competencies 22
1.3.5 ManagerÊs Knowledge 24
1.4 Types of Information Systems 25
1.5 Information System (IS) Department 27
1.5.1 Information Expert 28
1.6 Changes and Impact on Management Information 29
System (MIS)
Summary 32
Key Terms 33
References 33

Topic 2 Analysing System 34

2.1 Managing System 35
2.1.1 What is a System? 35
2.1.2 What are System Elements? 35
2.1.3 Open-loop and Closed-loop Systems 37
2.1.4 Open and Closed Systems 37
2.1.5 Subsystem 38
2.1.6 Super System 39
2.1.7 Physical System and Conceptual System 39
2.1.8 The Importance of System View 40
2.2 Model 40
2.2.1 Types of Models 41
2.3 General Model System 43
2.3.1 Physical System 43
2.3.2 Conceptual System 45

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2.3.3 Environment 49
2.3.4 Problem-solving 50
2.4 System Approach 55
2.5 Preparation Phase 56
2.6 Definition Phase 57
2.7 Solution Phase 60
Summary 62
Key Terms 63

Topic 3 Information Technology (IT) Support and Strategy in 64

the Organisation
3.1 Capital Structure of a Company 65
3.2 Evolution of Information Technology (IT) Infrastructure 67
3.2.1 Enterprise Applications 68
3.3 Understanding Organisational Structure 69
3.3.1 Types of Organisational Structure 70
3.4 Implementation of Information Technology (IT) in 74
Organisational Structure
3.5 Information Technology (IT) Management 74
3.5.1 Goals of IT Management 75
3.5.2 Managing IT Organisations 76
3.5.3 Functions of an IT Organisation 76
3.5.4 Forms of IT Organisation Implementation 77
3.6 Usage of Information Technology (IT) in Organisational 78
Strategies
3.6.1 Strategic Management 79
3.6.2 Strategy at the Business Level and the Value Chain 79
Model
3.6.3 Use of Technology in the Value Chain 80
3.6.4 Information System (IS) Products and Services 81
3.6.5 Supply Chain Management and Effective Customer 82
Relationship Management System
3.6.6 Industrial Level Strategy and Information System 84
(IS): Competitive Forces and Network Economy
3.6.7 Information Partnership 84
3.6.8 Internet Usage in Business 86
Summary 88
Key Terms 89
Reference 89

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 TABLE OF CONTENTS  v

Topic 4 Information Systems Integration in the Organisation 90

4.1 Redesigning the Organisation with Information Systems 91
4.1.1 Information Systems and Organisational Planning 91
4.1.2 Standardisation in Planning 95
4.2 Organisational Change 96
4.2.1 Organisational Change Due to IS 96
4.3 Information System (IS) Support in the Organisation 98
4.3.1 IS Support for Various Levels of Management in 98
the Organisation
4.4 Management Information System (MIS) 100
4.4.1 Input and Output MIS 101
4.4.2 Characteristics of MIS 102
4.5 Transaction Processing System (TPS) 102
4.5.1 TPS Objectives 103
4.5.2 TPS Methods or Processes 103
4.5.3 TPS Activities 105
4.5.4 Traditional TPS Applications 107
Summary 110
Key Terms 111
References 111

Topic 5 Decision Support System (DSS) 112

5.1 Decision-making 113
5.1.1 Types of Decisions 113
5.1.2 Decision-making Phases 116
5.1.3 Information Technology (IT) Support in 117
Decision-making
5.2 Decision Support System (DSS) 117
5.2.1 Definition of DSS 118
5.2.2 DSS Objective 120
5.2.3 DSS Characteristics 122
5.2.4 Analytical Modelling for DSS 123
5.2.5 Types of DSS 124
5.2.6 DSS Model 126
5.3 Group Decision Support System (GDSS) 127
5.3.1 GDSS Environment 128
5.3.2 Group Software 130
Summary 132
Key Terms 134
References 134

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Topic 6 Executive Information System (EIS) 135

6.1 The Roles and Characteristics of an Executive 136
6.1.1 Fayol Management Function 137
6.1.2 Mintzberg Management Roles 137
6.1.3 Networking and Kotter Agenda 139
6.1.4 How an Executive Thinks 140
6.2 Executive Information Needs 141
6.2.1 Mintzberg Research 141
6.2.2 Jones and McLeod Research 142
6.3 Executive Information System (EIS) 144
6.3.1 Definition 144
6.3.2 EIS Model 145
6.3.3 EIS Input and Output 146
6.3.4 Characteristics of the EIS 147
6.3.5 EIS Capabilities 147
Summary 148
Key Terms 148
References 149

Topic 7 Expert System (ES) 150

7.1 What is an expert system (ES)? 151
7.1.1 Why is an ES Needed? 152
7.1.2 Application of ES 153
7.2 Knowledge and Expertise 155
7.3 Expert System (ES) Architecture 157
7.3.1 Knowledge Acquisition 158
7.3.2 Knowledge Base 158
7.3.3 Inference Engine 160
7.3.4 Explanation Facility 161
7.3.5 The User Interface 162
7.3.6 Working Memory 163
7.4 The Expert System (ES) Characteristics 163
7.5 Expert System (ES) Development 167
7.5.1 The Software and Tools in ES Development 168
7.5.2 Modelling an ES Development 169
7.6 The Advantages and Disadvantages of an Expert 170
System (ES)
7.6.1 Advantages of the ES 170
7.6.2 Disadvantages of the ES 171
Summary 173
Key Terms 174
References 174

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Topic 8 Functional Information Systems 175

8.1 Functional Information Systems in Brief 176
8.2 Marketing Information System 177
8.2.1 Marketing Principles 179
8.2.2 Marketing Information System Model 180
8.3 Manufacturing Information System 181
8.3.1 Material Requirement Planning (MRP) 182
8.3.2 Just-in-Time System (JIT) 185
8.4 Human Resource Management System 186
8.4.1 Human ResourcesÊ Main Management Activity 186
8.4.2 Human Resource Information System Model 187
8.4.3 Human Resource Research Subsystem 189
8.4.4 Human Resource Intelligence Subsystem 190
8.4.5 Workforce Planning Subsystem 191
8.4.6 Workforce Recruitment Subsystem 191
8.4.7 Workforce Management Subsystem 191
8.4.8 Compensation Subsystem 192
8.4.9 Benefit Subsystem 192
8.4.10 Environment Report Subsystem 192
Summary 193
Key Terms 194
Reference 194

Topic 9 Security and Social Issues Related to Information System (IS) 195
9.1 The Importance of Security 196
9.1.1 Objectives of System Safety Management 197
9.2 Security and the Internet 197
9.2.1 Security and E-commerce 199
9.3 System Security Threats 201
9.3.1 Viruses, Spyware and Adware 202
9.3.2 Insider Abuse of Internet Access 203
9.3.3 Laptop or Mobile Theft 204
9.3.4 Denial of Service (DoS) 204
9.3.5 Unauthorised Access to Information 205
9.3.6 Abuse of Wireless Networks 205
9.3.7 System Penetration 205
9.3.8 Telecom Fraud 207
9.3.9 Theft of Proprietary Information 207
9.3.10 Financial Fraud 208
9.3.11 Misuse of Public Web Applications 208
9.3.12 Website Defacement 209
9.3.13 Sabotage 209

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9.4 Social Issues in Information Technology (IT) Usage 210

9.4.1 Threat to Jobs 210
9.4.2 Human Relations 210
9.4.3 Health Issues 211
9.4.4 Threats to Personal Rights (Privacy) 211
9.5 Ethical Issues 212
9.5.1 Ethical Issues in IT 212
9.5.2 Basic Framework of IT Ethics 212
Summary 213
Key Terms 214

Topic 10 Development and Quality Issues Related to Information 215

System (IS)
10.1 Information Systems Development 216
10.1.1 Investigation 217
10.1.2 Analysis 217
10.1.3 Design 218
10.1.4 Programming 218
10.1.5 Testing 219
10.1.6 Implementation 220
10.1.7 Maintenance 220
10.2 Concept of Quality in Information Systems 221
10.2.1 Capability Maturity Model (CMM) 221
10.2.2 The Five Levels in the CMM Model 222
10.3 Reasons for Success or Failure of Information Systems 223
10.3.1 Reasons for Success and Failure 223
10.3.2 Development Process – What Can Possibly 226
Go Wrong?
10.3.3 Problematic Areas in Information Systems 228
10.3.4 Evaluating System Success 229
10.4 Managing the Implementation of Information Systems 231
10.4.1 Controlling the Risk Factors 231
10.4.2 Strategies for Overcoming the Mistakes in the
Development Process 232
Summary 233
Key Terms 234

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Copyright © Open University Malaysia (OUM)
Copyright © Open University Malaysia (OUM)
 COURSE GUIDE  xi

COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through the
course material. It also suggests the amount of time you are likely to spend in order
to complete the course successfully. Please keep on referring to the Course Guide
as you go through the course material as it will help you to clarify important study
components or points that you might miss or overlook.

INTRODUCTION
CBMS4303 Management Information System is one of the courses offered at Open
University Malaysia. This course is worth 3 credit hours and should be covered
over 8 to 14 weeks.

COURSE AUDIENCE
This course is offered to all learners taking the Bachelor of Information
Technology, Bachelor of Business and selected Science and Technology
programmes. The course provides learners with a firm foundation in analysing a
wide range of management information systems. This course guides learners
systematically in acquiring the analytical and design skills required in grasping
fundamental concepts of management information systems.

As an open and distance learner, you should be able to learn independently and
optimise the learning modes and environment available to you. Before you begin
this course, please ensure that you have the right course materials and understand
the course requirements as well as how the course is conducted.

STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours can be
accumulated.

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xii  COURSE GUIDE

Table 1: Estimation of Time Accumulation of Study Hours

Study
Study Activities
Hours

Briefly go through the course content and participate in initial

3
discussions

Study the module 60

Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), test(s) and examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120

COURSE LEARNING OUTCOMES

By the end of this course, you should be able to:
1. Explain the types and roles of management information systems;
2. Evaluate information technology tools and systems to solve business
processes in an organisation; and
3. Apply the knowledge and skills learned to facilitate the acquisition,
development, deployment and management of information systems.

COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented
below:

Topic 1 gives an overview of management information systems and computer-

based information systems. It begins with an explanation of the importance of
information management to an organisation in a globally-challenging scenario. It
then elaborates on the types of users, types of systems, differences between data
and information, types of management levels and types of management
information systems.

Topic 2 introduces types of models and system elements, such as the system
standard. Generally, the system standard is the performance level achieved by the
system output. Managers will ensure the system standard is fulfilled by comparing

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 COURSE GUIDE  xiii

the output system and the system standard. You will also be introduced to two
management strategies known as management through exception and critical
success factors (CSF). The system approach will also be introduced at the end of
the topic.

Topic 3 discusses the relationship between business and information technology

(IT), and how IT can contribute to business competitiveness. This topic also
discusses information technology management, which comprises the components
and functions of the computer as well as input and output devices. In addition, the
topic introduces strategic management, the Porter value chain model, supply
chain management, industrial level strategies and information systems which
cover competitive and network economies.

Topic 4 introduces information systems planning and the effects of information

systems on the organisational structure. This topic also discusses information
systems support for various levels of management and how management
information system (MIS) and transaction processing system (TPS) support the
management of the organisations.

Topic 5 introduces you to the decision support system (DSS). In this topic, we will
discuss the decision-making process and how DSS helps managers make effective
decisions. You will recognise DSS as a system that provides communication
facilities which include information in helping consumers solve problems. You
will also learn the format or structured information that results from DSS such as
special reports and periodic report formats.

Topic 6 introduces you to the executive information system (EIS). EIS is a system
that provides the updated information, history and perhaps some anticipation
about the status and environment of the company in supporting the administrative
tasks and decision-making process of executives. You will learn how an EIS helps
managers in their daily work and the decision-making process.

Topic 7 addresses one of the branches of artificial intelligence (AI) called the expert
system (ES). The ES is also known as the knowledge-based system. An ES can be
used to solve many problems that occur in an organisation such as complex
decision-making. The ES comprises many types of expert systems based on rules,
frames or bases on fuzzy sets. In this topic, you will be exposed to the most
popular ES which is based on rules.

Topic 8 examines various types of functional information systems such as

marketing information system, manufacturing information system and human
resource information system.

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Topic 9 introduces computer system security, which plays a critical role in

business, government and daily life. In particular, it discusses the issues of system
security, which is to ensure the positive effects in the use of IT as well as suitable
security controls to avoid exposure to security threats. The topic will also look into
the social as well as ethical issues involved in information systems.

Topic 10 describes the phases involved in information system (IS) development. It

also explains the standard related to quality of software development. It also
discusses the factors which can cause failure of the system in achieving
organisational objectives.

TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:

Learning Outcomes: This section refers to what you should achieve after you have
completely covered a topic. As you go through each topic, you should frequently
refer to these learning outcomes. By doing this, you can continuously gauge your
understanding of the topic.

Self-Check: This component of the module is inserted at strategic locations

throughout the module. It may be inserted after one sub-section or a few sub-
sections. It usually comes in the form of a question. When you come across this
component, try to reflect on what you have already learnt thus far. By attempting
to answer the question, you should be able to gauge how well you have
understood the sub-section(s). Most of the time, the answers to the questions can
be found directly from the module itself.

Activity: Like Self-Check, the Activity component is also placed at various

locations or junctures throughout the module. This component may require you
to solve questions, explore short case studies, or conduct an observation or
research. It may even require you to evaluate a given scenario. When you come
across an Activity, you should try to reflect on what you have gathered from the
module and apply it to real situations. You should, at the same time, engage
yourself in higher order thinking where you might be required to analyse,
synthesise and evaluate instead of only having to recall and define.

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 COURSE GUIDE  xv

Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should be
able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.

Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.

References: The References section is where a list of relevant and useful textbooks,
journals, articles, electronic contents or sources can be found. The list can appear
in a few locations such as in the Course Guide (at the References section), at the
end of every topic or at the back of the module. You are encouraged to read or
refer to the suggested sources to obtain the additional information needed and to
enhance your overall understanding of the course.

PRIOR KNOWLEDGE
No prior knowledge is needed for this course.

ASSESSMENT METHOD
Please refer to myINSPIRE.

REFERENCES
Boddy, D., Boonstra, A., & Kennedy, G. (2005). Managing information systems: An
organisational perspective (2nd ed.). Harlow, England: Pearson.

Isenberg, D. J. (1984). How senior managers think. Harvard Business Review, 62,
80−90.

Kotter, J. (1982). What effective general managers really do. Harvard Business
Review, 60(2), 157−169.

Laudon, K. C., & Laudon, J. P. (2013). Management information systems:

Managing the digital firm (13th ed.). Upper Saddle River, NJ: Pearson.

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xvi  COURSE GUIDE

Laudon, K., & Laudon, J. (2015). Management information systems: Managing the
digital firm (14th ed.). Upper Saddle River, NJ: Pearson.

Laudon, K. C., & Laudon, J. P. (2018). Management information systems:

Managing the digital firm (15th ed.). Upper Saddle River, NJ: Pearson.

McLeod, R. (1998). Management information systems. Upper Saddle River, NJ:

Prentice-Hall.

McLeod, R. (2006). Management information systems (7th ed.). Upper Saddle

River, NJ: Prentice-Hall.

McLeod, R., & Schell, G. (2007). Management information systems (10th ed.).
Upper Saddle River, NJ: Prentice-Hall.

Rainer, R. K., Prince, B., & Watson, H. J. (2015). Management information systems
(3rd ed.). Hoboken, N.J: Wiley.

Turban, E., Sharda, R., & Delen, D. (2010). Decision support systems and business
intelligence systems (9th ed.). Upper Saddle River, NJ: Prentice-Hall.

TAN SRI DR ABDULLAH SANUSI (TSDAS)

DIGITAL LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible through
the OUM portal, provides access to more than 30 online databases comprising
e-journals, e-theses, e-books and more. Examples of databases available are
EBSCOhost, ProQuest, SpringerLink, Books247, InfoSci Books, Emerald
Management Plus and Ebrary Electronic Books. As an OUM learner, you are
encouraged to make full use of the resources available through this library.

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Topic  Information
Systems
1
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define information technology (IT) and information system (IS);
2. Explain the significance of information management;
3. Identify the three types of management levels and their respective
functions;
4. Differentiate between the six types of information systems; and
5. Describe the role of the IS department.

 INTRODUCTION
Before we start, let us look at the following scenario:

Imagine that you are working as a finance clerk in Company A. Company A is

an organisation that owns 30 shops in Malaysia. These shops sell various types
of sports equipment to customers. Each month, the manager of each shop keys
in the monthly sales figures in a Microsoft Excel sheet and submits the files to
you. You have to collect all 30 Excel files and consolidate the total monthly sales
in all 30 shops. If a manager from one of the shops calls you and states that there
is a mistake in the Excel file, you need to return the original file to the manager,
wait for the correct sales figures and then re-process the Excel file. Imagine how
tedious and tiring it will be if you have to do this manually each month, which
means 12 times for 12 months in a year.

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2  TOPIC 1 INFORMATION SYSTEMS

Can you think of a way to make your work easier? How can you compile all the
information provided by these shops? This is where IS comes into the picture.
Since you have all the information you need (such as sales figures in an Excel
sheet), all you need is a system to process these information instead of you
processing it manually. This system is what we call information system (IS).

Organisations have many resources that must be smartly managed. Information is

one of the resources which play a vital role in ensuring that organisations remain
competent despite environmental changes and technological advancement.
Obviously, computers can assist managers by providing information within a
short period.

Information generated by computers is used by both managers and non-managers

– individuals who are in the organisational environment. Managers are positioned
at all management levels and organisational units. They play a crucial role and
execute the tasks with effective communication and problem-solving skills.
Therefore, in order to reap the benefits of technological advancement, managers
must know how to use computers and information effectively.

In this topic, we will discuss the differences between data and information and
knowledge, and the meaning of information technology (IT) and IS. This topic will
also elaborate on the importance of information management, the types of users
and their respective management and the emerging trends in IS. Let us get started!

1.1 INFORMATION SYSTEM (IS) IN BRIEF

In this information age, organisations (such as Company A mentioned earlier) and
businesses are using information to gain a competitive advantage. IT and IS are
revolutionising the operation of organisations, industries and markets. As such,
let us now look at the definitions of IT and IS.

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 TOPIC 1 INFORMATION SYSTEMS  3

1.1.1 Data, Information and Knowledge

Before we look at the definition of IT, we need to clarify the terms „data‰,
„information‰ and „knowledge‰.

Data and information are used together in any field. However, both have different
meanings.

Data is the basic fact or raw fact which consists of texts, diagrams, graphics,
images, and audio and video clips which are meaningless.

One example of data is the studentsÊ list which consists of name, matrix number,
gender, course and address. Can you name a few examples of data?

How about information? Let us look at the following definition.

Information is an organised and meaningful interpretation which is useful

about the data.

In other words, information is simply the data which has been processed in order
to be meaningful to the users. „Process‰ here means the operation to change the
type and content of the data. Data in the studentsÊ list can be processed to be
generated as a report or graph that shows the percentage of female students as
compared to male students who are registered in the university; or the percentage
of students according to the courses offered by the university.

Other data processing operations are arithmetic operations, data summary, time
scheduling and so on. The information processor can be the computer components,
non-computer components or a combination of both, which can convert data into
information.

Nevertheless, the definitions of data and information are different according to the
user who wants to use them. Data can be seen as information and vice versa
according to different individual opinions. For instance, a telephone bill is a group
of data that is meaningless to the president of a telecommunications company, yet
useful to the customers who want to pay the telephone bill.

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4  TOPIC 1 INFORMATION SYSTEMS

Now that you are clear about data and information, let us shift our discussion to
knowledge. What is knowledge?

Knowledge consists of information that has been arranged and processed to

convey understanding, experience as well as expertise which is to be used in
solving current business problems.

According to Boisot (as cited by Boddy, Boonstra & Kennedy, 2005), knowledge
builds on information that is extracted from data. Knowledge is derived from
information in the same way information is derived from data; it is a personÊs
range of information. Knowledge embodies prior understanding, experience and
learning, whereby it is validated or amended as people receive information. With
knowledge, a person would be able to identify significant patterns or trends and
get a different understanding of the information.

Let us look at Figure 1.1, which shows the relationship between data, information
and knowledge.

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 TOPIC 1 INFORMATION SYSTEMS  5

Figure 1.1: The relationship between data, information and knowledge

SELF-CHECK 1.1

1. In your own words, define data, information and knowledge.

2. Explain the relationship between data, information and knowledge
based on Figure 1.1.

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6  TOPIC 1 INFORMATION SYSTEMS

1.1.2 Information Technology (IT)

Now that we have learnt about data, information and knowledge, how should we
define IT? Generally, IT is a technology that contains three components, as shown
in Figure 1.2.

Figure 1.2: Components of IT

In a nutshell, IT can be described as a concept of using a computing platform that

includes hardware, software and telecommunications to transmit information or
facilitate information communications.

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 TOPIC 1 INFORMATION SYSTEMS  7

Based on Laudon and Laudon (2018), Table 1.1 provides a general understanding
of IT.

Table 1.1: Components of IT

Component Sub-Component Description

Computing Computer  Computer hardware is the physical

platform hardware equipment used for input, processing and
output activities.
 It includes computers of various sizes and
shapes (including mobile handheld
devices); various input, output and
storage devices; and telecommunications
devices that link computers together.

Computer software  Computer software consists of the

detailed, pre-programmed instructions
that control and coordinate the computer
hardware components in an IS.
 Example of computer software is the
kernel operating system. It provides a
platform to run application software.

Application  Application software is specific purpose

software software which is used by users for
performing specific tasks.
 This includes productivity software,
collaboration tools, IS software and
executive support system software.

Data management  Data management technology consists of

technology the software governing the organisation of
data on physical storage media.

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8  TOPIC 1 INFORMATION SYSTEMS

Networking and Network  A network links two or more computers

telecommunications to share data or resources, such as a
Networking and printer.
telecommunications
technology, consisting of Internet  The Internet is a global „network of
both physical devices and networks‰ that uses universal standards
software, links the various to connect millions of different networks
pieces of hardware and with nearly 2.3 billion users in over
transfers data from one 230 countries around the world.
physical location to  The Internet has created a new
another. Computers and „universal‰ technology platform on
communications equipment which to build new products, services,
can be connected in strategies and business models.
networks for sharing voice,
data, images, sound and Intranets  The same technology platform as
video. Internet has internal uses, providing the
connectivity to link different systems
and networks within the firm.
 Internal corporate networks based on the
Internet technology are called intranets.

Extranets  Private intranets extended to authorised

users outside the organisation are called
extranets, and firms use such networks
to coordinate their activities with other
firms for making purchases,
collaborating on design and other inter-
organisational work.
 For most business firms today, using the
Internet technology is both a business
necessity and a competitive advantage.

World  The World Wide Web is a service

Wide Web provided by the Internet that uses
universally-accepted standards for
storing, retrieving, formatting and
displaying information in a page format
on the Internet.

Knowledge Activities and experience of the people within the

organisation in using the IS including its standards
procedures or processes.

Source: Laudon & Laudon (2018)

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 TOPIC 1 INFORMATION SYSTEMS  9

A combination of the three components creates opportunities for people and

organisations to become more productive, effective and generally successful
without being separated. Computing platform and telecommunications are
useless without the knowledge of how to use them. Knowing when to use any
computing platforms is as important as knowing how to use them. Besides the
ability to use computers for communication, connecting people through IT is also
important.

IT is a broad-based technology needed to support information systems. IT

supports activities involving the creation, storage, manipulation and
communication of information, together with their related methods, management
and applications. IT consists of all the hardware and software that an organisation
needs to use in order to achieve its business objectives.

1.1.3 Information System (IS)

Thus, we have been exposed to the concept of IT. Let us now look at the meaning
of system and IS, respectively. What is a system?

A system is simply a group of activities and elements which have been

arranged to achieve a certain objective.

We have seen the meaning of system. What about IS? Well, here is the meaning
of IS:

An information system (IS) is a combination of hardware, software and

telecommunication system to collect, process, store and distribute
information, which can support business operations to increase productivity
and help managers make decisions.

Besides that, IS may also support managers and staff to analyse problems, visualise
complex subjects, and invent new products and services.

Generally, the functions of an IS are to:

(a) Provide information required for decision making purposes.
(b) Coordinate and control the organisation based on their respective business
process and standard procedure.

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(c) Analyse problems that arise due to internal or external factors based on
current and historical data information.
(d) Visualise, conceptualise and simulate any complex scenario that may directly
affect the organisation.

An IS contains five main components, as shown in Figure 1.3.

Figure 1.3: Components of an IS

In this modern age, the success of a business depends on the IS. Many
organisations today use information systems to offer services with greater
satisfaction to customers, to access a wider range of information, to handle
business changes at a greater speed and to increase the productivity of workers.
Based on a number of research, an effective IS should be able to exceed customer
expectations and fulfil business needs.

Therefore, we can conclude that IS is a crucial part of a business organisation. Now,

let us shift our attention to the activities that take place in the IS. As discussed
earlier, IS is a combination of software, hardware and telecommunications system.
Have you wondered how they are interconnected? Look at Figure 1.4, which
illustrates the main activities that take place in an IS. Can you name the three main
activities?
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 TOPIC 1 INFORMATION SYSTEMS  11

Figure 1.4: Activities in an IS

The three main activities in an IS are:

(a) Input
(i) Input gathers or captures raw and unprocessed data from within the
organisation internally or from its external sources.
(ii) External sources include customers, suppliers, competitors,
government agencies and shareholders.
(iii) Technology devices used are computers, mobile phone, tablets,
scanning devices and many more. These devices will have access to the
IS application via various network mediums or the Internet.

(b) Processing
(i) Processing converts raw data input into meaningful information.
(ii) The conversion process includes classification, arrangement,
manipulation and calculation.
(iii) Processing will take place in the IS applications, database application
and storage systems. Normally, this will take place in the designated
servers in the organisations data centre.

(c) Output
(i) Output transfers the processed information to the organisationÊs
managers and staff who will use it or to the functions for which it is used.
(ii) Output also provides feedback, which is returned to the organisation in
terms of complaints that should be rectified immediately via corrective
measures or suggestions of improvement that can be used to advance
the system and the business process of the organisation in total.

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However, you must remember that an IS does not only contain data and
information. There are also other elements inside the system, which are related
and in support of one another. The presence of these related elements makes
information more useful whereby it can be made available, processed, distributed,
manipulated, saved and so on. This combination gives rise to a system, which is
orderly and thus called an „information system‰.

A management information system (MIS) is the earliest form of IS that has long
been developed in business organisations with the aim of supplying information
to assist managers in carrying out various daily activities. It was set up to ensure
that the process of planning, controlling and monitoring can be implemented more
efficiently and effectively. A MIS usually includes information processing
capabilities that include collecting, processing, storing and disseminating data in
the form of information through analytical processing and conveying information
to whoever needs it whether externally or within the organisation.

ACTIVITY 1.1
Search the Internet in order to find out how a MIS is related to an
organisationÊs business. You may use the keywords such as „MIS‰ AND
„business‰ or „information system‰ AND „business operations‰.
Discuss your findings with your coursemates in the myINSPIRE forum.

SELF-CHECK 1.2

1. Give the definition of IS.

2. What are the components of an IS?
3. How does an IS help businesses? Give two examples.

1.2 INFORMATION MANAGEMENT

Managers must organise a number of resources such as personnel, material,
machines (including facilities and energy), money and information (including
data), so that they can be implemented efficiently. An organisationÊs resources can
be divided into two categories, namely, physical and conceptual. The resources

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mentioned earlier are physical resources, except information, which is a

conceptual resource. Both categories of resources are equally important to the
organisation. Conceptual resources are used to manage physical resources.

Resources are owned and prepared, so they can be used when needed. Normally,
the preparation processes involve the transformation of raw materials into usable
materials, for example, assembling a computer and training the workers. After this
process, managers will try to optimise the usage of the resources. They can reduce
the rest time of the resources to a minimum level as well as ensure the resources
are utilised at the most efficient level. Subsequently, the managers will change the
resources at a suitable time before they become obsolete or inefficient.

The concept of information management is similar to managing physical

resources. However, you must know that the contexts are different. How? Well,
managers will ensure that the data required can be obtained and processed into
usable information. They need to verify that the information reaches the right
person, in the right form and on the right time so that the information can be
applied effectively. Then, the unused information will be deleted and replaced
with the updated and accurate information. With this explanation, do you think
you can define what information management is? The following is how we can
generally define information management:

Information management is a group of activities which involves the process of

obtaining information, used effectively and deleted at an appropriate time.

The next question we should be asking is why do we need IS in the organisation?

Why do organisations need to invest in IS? Generally, organisations and their
employees rely on information to conduct business as well as achieve their
strategic business objectives. Based on Laudon and Laudon (2018), there is a
growing interdependence between an organisationÊs ability to use IT and its ability
to implement corporate strategies and achieving corporate goals. Changes in
strategy, rules and business processes increasingly require changes in hardware,
software, databases and telecommunications.

Thus, managers must give priority to information systems due to several factors
as shown in the following Figure 1.5.

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Figure 1.5: Factors on why managers need to give priority to IS

These factors are further elaborated as follows:

(a) Emergence of the Global Economy

The economic growth in developed countries such as the United States,
Europe and Asia is mainly due to imports and exports. Today, the ability to
run a business globally will determine the success and the future of the
organisation. Globalisation in the world industrial economy has opened up
new opportunities to businesses and has increased the importance of
information to the organisation.

(b) Transformation of Industrial Economies

The main industrial giants such as the United States, Germany and Japan are
undergoing transition from an industrial-based economy to a service-based
economy, which is mainly based on knowledge and information. This is
because knowledge and information play a key role in gaining profits in the
new economic era. Meanwhile, the manufacturing economy is shifting to
developing countries.

The number of workers in the service sectors such as sales, education, health,
banking and legal firms is higher than that in the agricultural and
manufacturing sectors. These workers provide services that involve the
application of technology and information systems to create and spread
information and knowledge. Information-based services such as Web portals
(Yahoo, Google), databases (IEEE, Lexis) and e-commerce (Amazon.com) are
growing rapidly and these firms have millions of workers.

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The use of knowledge in producing traditional products is also increasing.

The manufacturing industry is utilising IT to enhance productivity. For
example, the automobile industry uses graphic design, while manufacturing
plants use robots and virtual reality.

(c) The Emergence of Digital Firms

A digital firm is one in which nearly all of the organisationÊs significant
business relationships with customers, suppliers and employees are digitally
enabled and mediated. The core business processes are accomplished
through digital networks spanning the entire organisation or linking
multiple organisations (Laudon & Laudon, 2018).

Digital firms have more flexibility when dealing with any economic changes
due to its faster responses towards the environment. With this ability, digital
firms are able to operate globally and continuously in a 24/7 mode.
Employees in a digital firm can be based anywhere globally to support the
business objectives.

(d) Improvement on Operation Efficiency and Decision-making

A good management will always find ways to improve the operational
process in the organisation. Managers will need to rely on IS and IT to
increase business operations, productivity and efficiency, as well as making
decisions. This is especially so when dealing with any environmental and
economic changes.

For example, a finance department received almost 20 to 40 supplier invoices

daily that need to be processed within 14 days upon receipt. Traditionally,
this would be impossible due to the several standard procedures and
workflows that need to be followed manually. By implementing a financial
information system (FIS), once the invoices are received, it will be captured
by the system and will trigger the next process electronically. Hence, the
approval process will be handled automatically within a short time.

(e) Increasing Demand for New Products and Services

TodayÊs business is totally different than those from many years ago.
Customers are more demanding when it comes to meeting their needs and
satisfactions of products and services. Therefore, organisations must be ready
to create new products or services. By doing so, they also need to create a new
business model that is relevant in the market.

Managers will need to use IS and IT as tools to create new products or services.
With the information gathered from customer feedback, it will be easier to
provide a product that will satisfy the customers. One of the most popular

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trend nowadays is creating mobile applications to sell products or services.

Which one do you prefer, purchasing items from your mobile phone or
driving to the store?

SELF-CHECK 1.3

Explain how is information management important in a personÊs daily

life.

1.3 INFORMATION SYSTEM (IS) USER

In your opinion, who is the user of an IS? When you update your profile during
online banking, does that make you an IS user? Let us look at the definition.

An information system (IS) user is any individual who uses the IS for a
specific purpose, such as to access information, update data, process
information, conduct transactions and generate a report.

Users come from many categories and designations. They can either be from inside
or outside the organisation. When the IS was first introduced, the users were mainly
clerks in account departments whereby a computer was used only for accounting
applications such as payroll, inventory and billing. Information generated by the
accounting applications was then used by the organisationÊs manager.

The evolution of computer systems from the accounting information system (AIS)
to the MIS has changed the perspective of using information, from only recording
the organisationÊs transaction to assisting managers in solving organisational
problems. The MIS is able to support the information requirement of the
management.

Nevertheless, the application of information in MIS is not limited to managers

only. MIS information can be applied by other users as well including non-
managerial workers who have access to company reports, customers who receive
monthly statements, stockholders who receive dividend cheques and government
departments which receive taxation reports. In general, the IS users comprise
managers, non-managers, individuals and organisations in the information
environment.

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SELF-CHECK 1.4

Define IS users. Give two examples of IS users.

1.3.1 Levels of Management

As discussed earlier, there are many levels of users of IS. It is not only limited to
the managers. However, managers use IS extensively in order to make business
decisions. That too depends on which level they are positioned in the organisation.
Managers are placed at every level of management and in all units or departments
in an organisation. Now, we will discuss the management levels and the roles of
the managers in each level.

(a) Levels of Management

In general, every organisation has three levels of management as follows:
(i) Top Level Management
Also known as strategic management. Top-level managers or top
managers are also called senior management or executives.
(ii) Middle Level Management
Also known as control or tactical management.
(iii) Bottom Level Management
Also known as operational management.

Each level of management runs different management tasks in terms of scope

and responsibilities. Table 1.2 shows an example of the job scopes for every
level of management and the individuals responsible in executing the tasks.

Table 1.2: Example of Job Scope for Various Management Levels of an Organisation

Management Level Managers Scope and Responsibility Designation

Top Responsible for making Chief executive officer

organisation-wide decisions and (CEO), chief financial
establishing the plans and goals that officer (CFO), president,
affect the entire organisation. The vice president
plan involves the business model
(products and services) and financial
performance.

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Middle Responsible for carrying out the Branch manager,

goals set by top management .They director, division leader
must prepare mid-term plans
(one month to one year) to achieve
these goals.

Bottom To ensure the planning done by top Head of department,

and middle management levels are supervisor, coordinator,
implemented. project leader

Managers prepare the planning by using several types of plans according to

management stages, namely:

(i) Strategic Planning (Top Level Management)

Strategic planning is a long-term plan which defines the overall mission
and objectives of the organisation. Strategic planning ensures that the
long-term objectives are met by analysing the strengths and
weaknesses of the organisation, forecasting future trends and
predicting new products or service development. Strategic planning
focuses on the issues which will impact the expansion and the position
of the organisation in the future. Top managers focus on the overall
activities of the business and use the IS to identify the direction the
organisation is taking.

Managers at the top level are also known as executives. The executives
are the president and vice president, who establish the executive
committee which solves the organisationÊs issues.

(ii) Tactical Plan (Middle Level Management)

Tactical planning is short-term planning, normally from one month to
one year. This is an action framework based on the strategic planning.
The middle manager will delegate power and responsibility to the
bottom level manager and give instructions, resources and feedback on
the work. Although the tasks are delegated, the middle manager will
definitely be involved in monitoring, controlling, decision-making and
administrative activities.

(iii) Daily Plan (Bottom Level Management)

Daily planning is executed by the lower level manager who leads the
operation staff. They will coordinate the operational tasks, solve
problems and guarantee the availability of important resources.

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Every level of the management requires different types of information

systems which are based on their respective information needs. Every
level of management has different resources and information
providers, supported by the IS.

Figure 1.6 shows that environmental or external resources information

is used more by top management rather than lower level management.
Meanwhile, the lower level managers prefer to obtain internal
information. This indicates that the top level manager prefers general
information compared to the lower level manager who prefers more
detailed information.

Figure 1.6: Influence of management levels on information source and display

Source: McLeod (2006)

(b) Functional Management

Managers also reside in a department in the organisation, which is known as
unit or functional area. In other words, every department in an organisation
is managed by managers at the three levels of management.

Figure 1.7 shows the position of managers in the various levels of

management and departments in the organisation. An organisation has
different combinations of departments but in general, the departments

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20  TOPIC 1 INFORMATION SYSTEMS

include finance and accounting; sales and marketing; manufacturing and

production; human resource and information service (also known as IS, MIS
and IT).

Figure 1.7: The managerÊs position in the management level

SELF-CHECK 1.5
1. In your opinion, is there any management environment whereby
the manager needs to do all three types of planning?
2. Look at Figure 1.7 again. Briefly explain what you understand by
the needs of information in every level of management in
decision-making?

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1.3.2 Functions of Managers

As we have discussed, managers have similar functions and roles, although they
are positioned at different levels of management and departments. Let us now
discuss this further to learn more about the functions of managers.

In 1914, Henri Fayol, a French theoretical management expert identified five main
functions of a manager:
(a) Planning;
(b) Organising;
(c) Staffing;
(d) Directing; and
(e) Controlling the resources effectively.

Every manager at each level of management and department implements these

functions with a different focus, depending on the level of management.

Look at Figure 1.8, which shows the influence of the respective level of
management towards the focus on implementing management functions;
management functions can provide guidance in developing an IS.

Figure 1.8: The influence of the management levels towards the focus on implementing
management functions

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1.3.3 Roles of Manager

In general, management means the use of resources to achieve goals effectively
and efficiently. In an organisation, managerial roles are normally performed by
managers. What do you think is the role of the manager? Managerial roles can be
divided into three main categories (refer to Figure 1.9).

Figure 1.9: Roles of a manager

1.3.4 Managerial Skills and Competencies

Managers must possess many skills in order to effectively solve their tasks and
these include interpersonal (human) and technical skills. These skills are important
because they are used in their daily routine jobs. Let us look closely at these basic
skills.

(a) Conceptual Skills

Conceptual skill refers to the ability of a manager to view the organisation as
a whole, to recognise the interactions among various subunits and to
visualise how the organisation fits into its larger environment. The need for
conceptual skills becomes increasingly crucial when managers progress
higher in the management hierarchy. This skills are useful in any problem
solving task by looking into the overall aspect of situations that can affect the
organisation.

(b) Human (Interpersonal) Skills

Interpersonal or human skill is the ability to get along with others while
getting the job done. Interpersonal skills range from communication and
listening skills to the attitude and the mannerism of the individual.
Interpersonal skills are critical, regardless of the levels of management.
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However, a lower-level manager will be more preoccupied with solving

technical problems with his subordinates; while a manager at the middle or
top level will be more preoccupied with dealing directly with others.

(c) Technical Skills

Technical skill is the ability to apply procedures, techniques and specialised
knowledge to relevant tasks. For example, the manager of data analysts
needs to understand not only how to analyse data but how to store it, code it
as well as retrieve it because data analysts are engaged in all of these tasks.
Technical skills tend to be more important for lower-level managers. This is
because lower-level managers usually manage employees who use tools and
techniques to produce the organisationÊs products and services.

Now that we already know the skills and competencies required by managers how
does it fit in the different levels of management? Figure 1.10 below will show the
different levels of skills or competencies important in each management level.

Figure 1.10: Important skills required by managers from different levels of management

ACTIVITY 1.2

1. Do you know why managers need management skills?

2. In your opinion, what should a manager do if a problem cannot be
solved?

Discuss your answers with your coursemates in the myINSPIRE forum.

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1.3.5 Manager’s Knowledge

Besides the basic skills discussed earlier, managers need to be both information
and computer literate, which are important skills when utilising computers.

(a) Computer Literacy

What does computer literacy mean?

Computer literacy refers to the basic knowledge that must be possessed

by computer users so that they can operate the computer efficiently.

The basic knowledge is the brief understanding of computer technology such

as the functions of a mouse, monitor and CPU, knowing the advantages and
disadvantages of computers and the ability to use a computer (not
necessarily being able to write computer programs). On top of that, the users
should also be up-to-date with the latest technology.

(b) Information Literacy

Apart from computer literacy, managers need to possess information
literacy.

Information literacy refers to the understanding of the use of

information at every level of the problem-solving process, and knowing
how to search for information resources and how this information can
be shared for mutual benefit.

Computer and information literacy do not depend on each other, even though they
are related and complement each other. Some managers are information literate
but lack computer literacy. However, it would be ideal if managers acquire both
skills.

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1.4 TYPES OF INFORMATION SYSTEMS

Information systems are developed based on the functional activities at the
organisational functional level.

Examples of information systems are the accounting information system (AIS),

transaction processing system (TPS), MIS, office automation system (OAS),
decision support system (DSS), executive information system (EIS) and expert
system (ES). Table 1.3 shows the features of the mentioned information systems.

Table 1.3: Six Types of Information Systems

System
Description Input Processing Output Users
Type
TPS/ Computerised Transaction; Picking; listing; Detail Operation
AIS system which events merging; report; list; staff;
executes and updating summary supervisor
records the
routines or daily
transactions of the
organisation.
MIS Provides Summary Routine report; Simple Middle
management data simple model; report manager
information in the transaction; low level
supporting, high volume analysis
planning, data; simple
controlling and report
decision-making
functions by
generating special
and periodic
reports.
OAS Computer system Document; Document Document; Clerical staff
such as word schedule management; schedule
processing, schedule; mail
electronic mail communication
system and
scheduling
system that is
designed to
increase the
productivity of
staff.

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DSS IS which assists Low volume Interactive; Special Professional;

managers to solve data or very simulation, report; manager
problems and big database analysis result
make decisions on that is analysis;
very specific optimised responds
issues. for data to the
analysis; inquiry
model and
data
equipment
analysis
EIS A system Overall data: Graphic Forecast Senior
specifically used Internal, simulation responds management
by the executive external interactive to inquiry
management in
making strategic
decisions. It is a
tool that provides
online access
directly to the
relevant
information, in
the format that is
useful and can be
browsed.
Expert Computer system Knowledge, Simulate how a Reasoning Senior
system which can facts and human expert and managers
replicate the techniques thinks analysis of
human methods of decision- decisions
in problem- making to solve
solving such as problems
thinking, learning
or giving
explanations for a
solution by using
artificial
intelligence and
knowledge stored
in the database.

Let us now look into how the different types of information systems integrate with
each other to create a complete IS solution for the organisation. Based on Laudon
and Laudon, Figure 1.11 shows how a typical MIS transforms transaction-level
data from inventory, production and accounting into MIS files that are used to
provide managers with comprehensive reports.

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 TOPIC 1 INFORMATION SYSTEMS  27

Figure 1.11: A typical MIS transaction

Source: Laudon & Laudon (2018)

The three TPS supply summarised transaction data to the MIS reporting system at
the end of the time period. Managers gain access to the organisational data
through the MIS, which provides them with the appropriate reports.

1.5 INFORMATION SYSTEM (IS)

DEPARTMENT
The IS department develops and maintains the organisationÊs IS. The department is
also known as the information service department, IT department or MIS
department. The structure and department name might be different depending on
the organisation. In a small organisation, a multi-tasking individual can handle all
tasks related to the IS while in a huge organisation, there might be many units in the
IS department and many employees to execute specific work for every unit.
Figure 1.12 shows the general organisational chart for an IS department.

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28  TOPIC 1 INFORMATION SYSTEMS

Figure 1.12: General organisational chart for an IS department

SELF-CHECK 1.6

What is the role of an IS department to an organisation?

1.5.1 Information Expert

Who are information experts?

Information experts are members of the staff who are responsible for the
development and organisation of the firmÊs IS.

Basically, there are five categories of information experts, namely:

(a) System analysts (SA) develop a new system or upgrade the current system.
System analysts will define a problem, document the analysis, create the
system design and develop the recommended system. Interaction and
cooperation from the user and the management is needed in developing a
system which fulfils the userÊs needs.
(b) Database administrators develop and maintain the database, which consists
of the required data for producing information for users.

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(c) Network administrators develop and maintain data communications which

connects and allows the sharing of computer resources. Internet
development has created new experts in this field, known as Web masters or
Web designers.
(d) Programmers write the programming codes using the programming
language based on the design documentation, earlier written by the system
analysts. The programmers also test the written program to ensure it is bug-
free from any syntaxes and logical errors.
(e) Computer operators operate large-scale computers such as the main
framework and minicomputer. They operate the routine jobs, operate the
printersÊ data storage and help users troubleshoot.

ACTIVITY 1.3
Are there any organisations that do not have any of the information
experts as mentioned in Subtopic 1.5.1? List the effects or disadvantages
of such a situation. Share your answers in the myINSPIRE forum.

1.6 CHANGES AND IMPACT ON

MANAGEMENT INFORMATION SYSTEM
(MIS)
With the emergence of new technology in the IT world, MIS has become more
relevant as a competitive advantage for any business or organisation. As a
customer, we will always look for the best services and value provided by these
businesses or organisations at a reasonable cost. How can these businesses and
organisations sustain their offerings to the customers? Nevertheless, the answer is
by ensuring their MIS are equipped with the latest trends and technology
available.

LetÊs look further on the latest trends and technologies that have a significant
impact on MIS and the businesses (see Table 1.4).

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Table 1.4: Major New Trends in Business Uses of Information Systems

Perspective Trend Business Impact

Technology Cloud computing platform A flexible collection of computers on

emerges as a major business area the Internet begins to perform tasks
of innovation traditionally performed on corporate
computers. Major business
applications are delivered online as an
Internet service (Software as a Service,
or SaaS).

Big data Businesses look for insights from

huge volumes of data from Web
traffic, e-mail messages, social media
content and machines (sensors) that
require new data management tools
to capture, store and analyse.

A mobile digital platform The Apple iPhone and Android

emerges to compete with the PC mobile devices are able to download
as a business system hundreds of thousands of applications
to support collaboration, location-
based services and communication
with colleagues. Small tablet
computers, including the iPad, Google
Nexus and Kindle Fire, challenge
conventional laptops as platforms for
consumer and corporate computing.

Management Managers adopt online Google Apps, Google Sites, Microsoft

collaboration and social Windows SharePoint Services and
networking software to improve IBM Lotus Connections are used by
coordination, collaboration and over 100 million business
knowledge sharing professionals worldwide to support
blogs, project management, online
meetings, personal profiles, social
bookmarks and online communities.

Business intelligence applications More powerful data analytics and

accelerate interactive dashboards provide real-
time performance information to
managers to enhance decision-making.

Virtual meetings proliferate Managers adopt telepresence

videoconferencing and Web
conferencing technologies to reduce
travel time and cost, while improving
collaboration and decision-making.

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Organisation Social business Businesses use social networking

platforms, including Facebook,
Twitter and internal corporate social
tools, to deepen interactions with
employees, customers and suppliers.
Employees use blogs, wikis, e-mail
texting and messaging to interact in
online communities.

Telework gains momentum in the The Internet, wireless laptops,

workplace smartphones and tablet computers
make it possible for a growing
number of people to work away from
the traditional office. Fifty-five
percent of US businesses have some
form of remote work program.

Co-creation of business value Sources of business value shift from

products to solutions and
experiences, and from internal
sources to networks of suppliers and
collaboration with customers. Supply
chains and product development
become more global and
collaborative; customer interactions
help firms define new products and
services.

Source: Laudon & Laudon (2008)

SELF-CHECK 1.7

How is an organisation affected by the changes in IT? Provide an

example of any organisation that has significant impact on these
changes.

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32  TOPIC 1 INFORMATION SYSTEMS

 Data is a raw fact which is meaningless while information is the data that has
been processed into meaningful form. Knowledge is derived from information
in the same way information is derived from data.

 Information technology (IT) and information system (IS) are major enabling
tools for organisations to develop new products and services, as well as
creating new business models.

 An IS is a combination of hardware, software and telecommunication systems,

which can support business operations to increase productivity and help
managers make decisions.

 Management Information System (MIS) is a system that has information

processing capabilities that include collecting, processing, storing and
disseminating data in the form of information through analytical processing
and conveying information to whoever needs it.

 Information is one of the important organisational resources and needs to be

managed properly. The growth of businesses and improvements in computer
expertise are the catalysing factors of information management.

 Every manager at each level of management (strategic, tactical and

operational) and department has to have the necessary skills to implement his
or her functions with a different focus, depending on the level of management.

 The main types of information systems are the accounting information system
(AIS), management information system (MIS), office automation system
(OAS), decision support system (DSS), executive information system (EIS) and
expert system (ES).

 The unit in an organisation responsible for developing and maintaining the

system is known as the IS department. The department has information
experts, namely, the system analyst, database administrator, network
administrator, programmer and computer operator.

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 TOPIC 1 INFORMATION SYSTEMS  33

Accounting information system Information experts

(AIS)
Information management
Big data
Information system (IS)
Cloud computing
Information technology (IT)
Computing platform
Knowledge
Data
Management information system (MIS)
Decision support system (DSS)
Networking
Digital firm
Office automation system (OAS)
Digital platform
Telecommunications
Executive information system (EIS)
Transaction processing system (TPS)
Expert system (ES)
Information

Boddy, D., Boonstra, A., & Kennedy, G. (2005). Managing information systems: An
organisational perspective (2nd ed.). Harlow, England: Pearson.
Laudon, K. C., & Laudon, J. P. (2018). Management information systems:
Managing the digital firm (15th ed.). Upper Saddle River, NJ: Pearson.
McLeod, R. (2006). Management information systems (7th ed.). Upper Saddle
River, NJ: Prentice-Hall.

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Topic  Analysing
2 System

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain various elements of a system;
2. Describe the four types of models and their usage in business;
3. Discuss the general model system (physical and conceptual system)
in organisations;
4. Explain the concept of problem-solving; and
5. Apply the system approach in problem-solving.

 INTRODUCTION
In this topic, you will be introduced to the system concept, which is important for
modelling and problem-solving especially involving information systems. An
information system (IS) is usually derived from sets of organisational
requirements and problems that need to be rectified. The managers must have
knowledge and understanding about the whole concept of the IS.

With this knowledge, managers need to ensure the information systems are able to:
(a) Capture the right and relevant input into the IS;
(b) Perform the right processes on the data capture; and
(c) Produce relevant and significant information as output such as reports.

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 TOPIC 2 ANALYSING SYSTEM  35

This topic will introduce models which can assist managers in solving problems,
namely, physical, narrative, graphical and mathematical models. You will see
more details of the general system model elements which include the physical
system and conceptual system. You will also be introduced to another system
element called standard. Generally, standard is the performance level achieved by
the system output. Managers ensure the system standard is fulfilled by comparing
the output system and standard. Actions can be taken if the output is more or less
than the standard. Let us continue with the lesson!

2.1 MANAGING SYSTEM

In order to solve a problem efficiently, managers have to view the organisation as
a system. Every system has a concept and element which can be seen either from
a general or specific aspect. This will make it easier for managers to view the
overall system or part of the system in detail, and its relationship with other parts
of the system. New systems are developed to solve problems which exist in the
current system. Let us look at the system concept in the context of the management
information systems.

2.1.1 What is a System?

As stated before, a system is defined as a group of elements that work together to
achieve an objective. Organisations such as a firm, institution or department is an
example of a system. An organisation is established from several elements such as
humans, hardware, software and devices which work together to achieve the
organisationÊs objective.

2.1.2 What are System Elements?

Every system has a different combination of elements. In general, a system has
basic elements such as objectives, control mechanisms, input, transformation and
output, as shown in Figure 2.1.

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36  TOPIC 2 ANALYSING SYSTEM

Figure 2.1: Elements of a system

For a system, input resources are transformed to output resources. The control
mechanism monitors the transformation process to ensure the system achieves the
process objectives.

To understand this better, let us look at a few examples. The human body has
several systems which possess control mechanisms. Note how our respiratory
systems make us sweat in the hot weather so that our skin becomes cooler, while
our hair rises to trap more heat in the cold weather. Have you ever experienced
food poisoning before? If yes, you will remember how frequently you had to go to
the toilet, or how you vomited all day as your digestive system flushed out the
toxins in the body. The reaction occurs because the control mechanism in our body
system changes the normal transformation process.

In automobile manufacturing for example, if there were a deficiency in the car

inventory, the management would inform the input system to take action to
resolve the identified problem.

Now, look back at Figure 2.1. In a system, the control mechanism is connected by
a feedback loop (as shown in the arrow flow). The control mechanism monitors
the systemÊs performance by comparing the feedback signal with the systemÊs
objective. If the system output achieves the objective, then the system will be in a
stable condition. In the unlikely event that the system output does not meet the
systemÊs objective, a signal is sent to the system input so that necessary action can
be taken to change the system operations.

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 TOPIC 2 ANALYSING SYSTEM  37

2.1.3 Open-loop and Closed-loop Systems

Not all systems have the control mechanism, feedback loop and objective to
control their operations. Systems with no control mechanism are known as open-
loop systems, as illustrated in Figure 2.2. An example is an IS that automatically
generates reports on a regular basis without monitoring the input, performance or
activities.

Figure 2.2: Open-loop system

Meanwhile, the closed-loop system has three control components, namely, control
mechanism, feedback loop (comprising input, transformation and output) and
objective, as illustrated in Figure 2.1. An example of this system is the budgetary
control system in an organisation in which during the budget presentation, the
issues are communicated through the feedback system and each expenditure is
compared with the objectives through the control mechanism.

2.1.4 Open and Closed Systems

What is an open system?

An open system is a system that is connected to its environment through the

flow of resources.

Most of the systems that exist are open systems. An example is the election voting
system which counts voting input from voters around the country and declares
the results back to them.

On the contrary, a closed system is not connected to its environment.

A closed system is a system that is not connected to its environment. It was

conducted separately and in isolation to produce controlled results.

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38  TOPIC 2 ANALYSING SYSTEM

You might have conducted a science experiment in the laboratory during your
school days. Was the experiment connected to any environmental elements
outside the laboratory? If the answer is no, then the system conducted in the closed
and remote laboratory is a good example of a closed system.

2.1.5 Subsystem
A system has many stages. For instance, the human body has many systems such
as the respiratory system and the digestive system, which, in turn, have many
subsystems that can be further divided to a single cell. For example, a system in a
clinic has many subsystems, which can be divided into the simplest form. A system
in a clinic may have the registration, appointment and medical treatment
subsystems for instance. Figure 2.3 shows an example of a system that has many
subsystems.

Figure 2.3: Example of a system and subsystems

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 TOPIC 2 ANALYSING SYSTEM  39

2.1.6 Super System

A super system is a bigger system which consists of many subsystems. For
example, a department subsystem is part of the universityÊs super system.
A faculty system also makes up part of the university super system.

2.1.7 Physical System and Conceptual System

What is a physical system?

A physical system is a system that originates from tangible physical

elements.

An example of a physical system is the business firm which consists of humans,

building materials, hardware and office equipment.

Meanwhile, what is a conceptual system?

A conceptual system is a system that uses conceptual resources which cannot

be seen physically to represent the physical system.

Conceptual resources are data and information. The conceptual system exists as
an idea in the managerÊs mind, graphs, papers or data statements captured on the
screen.

Let us take manufacturing for instance. Manufacturing is a physical system. It

consists of humans, raw materials and machines which work together to create a
product.

However, data and information which are stored in the system are the conceptual
system which reflects the physical system. Through the manufacturing conceptual
system, managers can identify the quantity of raw material used, transformation
process sequences, workers who handle the manufacturing operation, quantity
and destination of finished products on a daily, weekly or monthly basis.

More explanation about physical and conceptual systems will be deliberated in

Subtopic 2.3.

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40  TOPIC 2 ANALYSING SYSTEM

2.1.8 The Importance of System View

What is system view? System view is the way on how we look at an issue, problem
or event in the context of a system. The view looks at business operations as a
system that is part of a bigger environment. A system view benefits managers by:
(a) Elaborating on the structural and functional complexity of organisations
with the concept of super system and subsystem;
(b) Identifying the objectives and the directions of the organisation;
(c) Determining how the components of the system need to collaborate with
each other in order to achieve the organisational objectives;
(d) Identifying the relationship between organisation and its environment; and
(e) Prioritising the value of feedback information which is achievable from the
closed-loop system.

SELF-CHECK 2.1

Briefly summarise all the systems you have just learnt.

2.2 MODEL
What is a model? A model is a representation of things; like an object, a concept or
a real activity known as an entity. The model is used to represent problems, which
need to be solved in a form that is easily understood. The types of models and their
usages are explained in the next subtopic.

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 TOPIC 2 ANALYSING SYSTEM  41

2.2.1 Types of Models

Models can be classified into four types as shown in the following Figure 2.4.

Figure 2.4: Types of models

These four types of models are further explained as follows:

(a) Physical Model
A physical model is a representation of three-dimensional entities, which can
be seen by the naked eye. Usually, the entity is re-modelled to a scale smaller
than the actual one. Examples of physical models are normally applied in the
business environment such as a building or car model.

(b) Narrative Model

A narrative model is used by managers to explain an entity through oral and
written communication. Through the explanation, the audience can
understand the details of the entity. This model is the most popular model
because it covers every single aspect of business communication.

(c) Graphical Model

Have you heard the English expression „a picture paints a thousand words‰?
This is the power of pictures as compared to words. There are many tools
that can be used as a graphical model to visualise things such as graphs,
charts, forms, symbols and lines. Apart from businesses, the graphical model
is also applied in the design of information systems. You would surely recall
the graphical models used in system analysis and design. Among the
examples of graphical models are the data flow diagram (DFD), entity
relationship diagram (ERD), flowchart and structure chart. The following
Figure 2.5 shows the flow in both DFD and ERD.

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42  TOPIC 2 ANALYSING SYSTEM

Figure 2.5: Graphical modelling using DFD and ERD

(d) Mathematical Model

This mathematical model is a formula or mathematical equation which
consists of a few variables and constants. How do you calculate sales profits?
You can calculate the profits through a simple formula by adding the values
in the following equation:
Profit = Sale – Cost
Managers need to continuously monitor the situation after the solution has
been executed to ensure it can solve the problem as expected. If an error
occurs, remedial action must be taken to correct the situation.

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 TOPIC 2 ANALYSING SYSTEM  43

ACTIVITY 2.1
1. Search for a data flow diagram (DFD) and entity relationship
diagram (DFD) in the Internet. Based on the website that you
found, discuss the details on how DFD and ERD are developed for
an IS. Share your ideas in the myINSPIRE forum.
2. Based on the four types of models, develop a diagram which links
all the models. Compare the diagram with your coursemates in the
myINSPIRE forum.

The four models that we discussed make understanding and communication

easier. This is because the entity is presented in a simple form. The models can be
used separately or combined together to suit the circumstances. For example, the
mathematical model has an advantage because it can forecast the future.

SELF-CHECK 2.2

If you are a manager, which model would you prefer to use and
explain your choice.

2.3 GENERAL MODEL SYSTEM

The general model system was introduced to enable the easy use of the IS concept
by various organisations. The element of this system is the foundation for
information systems in every organisation. If you can understand the fundamental
concept of the general model system, you can easily understand the entire concept
of the general model system and organisational structure. You only need to add or
modify the system with the current types of information systems and the
organisational structure when analysing and designing the IS.

2.3.1 Physical System

An organisationÊs physical system transforms the input resources to the output
resources, as shown in Figure 2.6.

Figure 2.6: An organisationÊs physical system

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44  TOPIC 2 ANALYSING SYSTEM

Input resources are extracted from the environment, processed to form the output
resources and then returned to the same environment. Since interaction exists
between the organisation and its environment through physical resources, the
organisationÊs physical system can be classified as an open system.

If we look at the example of the process of producing cooking oil, we can imagine
how input resources such as palm oil are processed to be cooking oil. The palm oil
is extracted from the organisationÊs environment while the cooking oil is marketed
to the customers living within the environment.

On top of this material flow, there are other types of flow such as material flow,
personnel flow, machinery flow and monetary flow.

(a) Material Flow

Material input such as raw materials and components are provided by the
suppliers. The materials are stored in warehouses or stores before being
processed. After undergoing the transformation process, the materials will
be converted into products and stored in the warehouse before being
delivered or marketed to customers.

(b) Personnel Flow

Personnel flow refers to the flow of manpower. Personnel are employed
through recruitment agencies or via announcements in printed and
electronic media. The job application is a process conducted by the human
resource department. The new personnel are then posted to various
departments within the organisation where they are trained and exposed to
the job scope so they can function well in their work.

There are some personnel who will work until retirement, while others may
resign earlier. In both cases, the personnel will then return to their
environment.

(c) Machinery Flow

Machinery flow explains how machines are supplied and used in the
organisation. They are then returned to the environment when they can no
longer function and be replaced with new ones. Computers, printers,
photocopier and facsimile machines are among the machines commonly
used in an organisation.

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 TOPIC 2 ANALYSING SYSTEM  45

(d) Monetary Flow

Monetary flow starts with stakeholders such as banks or individuals who
finance the organisationÊs operations. Cash is also obtained from customers,
generating revenue for the organisation. Cash is then returned to the
environment to repay loans, for investment purposes or given back as
donations.

ACTIVITY 2.2
How can a control mechanism be linked to the flow of resources to
enable progress monitoring and system development? Discuss with
your coursemates in the myINSPIRE forum.

2.3.2 Conceptual System

You were introduced to control mechanism system components earlier in this
topic. The existence of these components enables the system to control its output
in order to fulfil the systemÊs objectives. This type of system is known as the closed-
loop system. On the other hand, a system that does not have a control mechanism
is known as an open-loop system.

In organisations, the management can be regarded as the control mechanism

which controls the systemÊs performance. The management needs information,
usually in the form of written reports and other related documents to control the
organisation. Management reports consist of input, transformation and output
information that assist the managers to evaluate the organisationÊs overall
performance. Figures 2.7, 2.8 and 2.9 show examples of input, transformation and
output reports.

Figure 2.7: Supplier report gives input information

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46  TOPIC 2 ANALYSING SYSTEM

Figure 2.8: Job status report gives transformation information

Figure 2.9: Sales report gives output information

(a) Information Dimensions

The manager evaluates the output produced by the information processor
based on four information dimensions:
(i) Relevant
Information is relevant if the contents fulfil the requirement of the
problem faced. The manager can obtain the related information
without any support from other unrelated information.

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 TOPIC 2 ANALYSING SYSTEM  47

(ii) Accurate
Information must be accurate and without errors. It is especially
important when it involves issues pertaining to salary, loans and bills.
The future forecast and performance report must also be produced
accurately by using accurate information.

(iii) On Time
Information must always be available when it is needed. Past and
latest information can help the manager decide better.

(iv) Complete
Information must be comprehensive and complete but not excessive to
the point of being irrelevant to the problem being solved.

(b) Standards
What are standards?

Standards are the measurement of an organisationÊs performance and

are stated in specific terms and can be measured quantitatively in the
form of money, numbers, percentage and so on.

Managers need information that can explain what is achieved by a

department or unit and the performance standards that need to be observed.
You already know that every system must have objectives, which are the
overall goals that need to be achieved.

Every system has at least one objective. Even though objectives are stated in
general, something more specific must be determined to measure whether
the systemÊs objectives can be achieved.

For example, the companyÊs objective is to deliver excellent services to

customers; the performance standard is that there should be less than
10 complaints a month. Another example is a universityÊs objective is to
produce high calibre graduates; the performance standard is to ensure that
10 per cent of the graduates obtain first class degrees and 20 per cent of the
graduates obtain an A in their final project.

The manager compares the organisationÊs standard and performance in

order to control the physical system. The difference between them will
confirm whether action must be taken. Figure 2.10 shows the standard as an
additional element of the physical system.

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48  TOPIC 2 ANALYSING SYSTEM

Figure 2.10: Performance standard is delivered to management

and information processor

Therefore, the conceptual system controls the physical system by using three
important components, which are management, information processor and
standard.

(c) Management Techniques

There are two management techniques that help managers to execute their
tasks efficiently and effectively, namely:

(i) Management by Exception

This technique is applied when a manager takes action only if an
activity occurs out of the fixed performance and norms. Therefore, as
long as the organisationÊs activity is within the performance parameter,
the organisation is considered as stable. This technique is implemented
by comparing the actual standard and performance of the system
produced by the information processor. For example, the total number
of fans produced by a firm is fixed between 500 and 800 units per day;
the manager will have do a follow-up if the production does not
achieve this target. The management by exception technique can be
executed by the computer-based information system (CBIS). Therefore,
the manager can effectively focus on other tasks.

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 TOPIC 2 ANALYSING SYSTEM  49

(ii) Critical Success Factors (CSF)

The management technique that uses the same concept as the
management by exception is known as the critical success factor (CSF).
CSF is the technique used by managers to identify several main factors
which bring success to a particular function. Usually, the organisation
determines several CSFs that need to be completely fulfilled. CBIS
supports CSF by producing the information for the manager.

CSF and management by exception are similar in terms of the emphasis on

certain parts of the system as compared to the entire system. The difference
is that CSF remains constant in the long term, while management by
exception can change over time.

2.3.3 Environment
In the general system model, resource flows into the organisation from the
environment and will return to the environment after completing the
transformation process. The environment completes the general system model, as
shown in Figure 2.11.

Figure 2.11: The general model system of an organisation

Physical resources enter the physical process and conceptual resources

(information and data) enter the information processor to be stored or used by the
manager. It can also flow to or from the environment.

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50  TOPIC 2 ANALYSING SYSTEM

2.3.4 Problem-solving
The manager will make several decisions when solving a problem. Decision-
making is an action taken following a decision or strategy that is considered to be
a better solution to the problem.

System development is closely related to the activities of problem-solving in

business or the opportunity to use IS to increase organisational efficiency. The IS
can greatly help the organisation to perform its daily activities as well as expedite
and facilitate the decision-making of the management.

First, we need to understand the concept of problem-solving before learning about

the method for system development. Table 2.1 gives you the important terms
related to problem-solving.

Table 2.1: Important Terms in Problem-solving

Term Definition

An undesirable or complex situation which will lead to negative

Problem
consequences.

Problem- A process or an activity that is performed to overcome a problem or to

solving grab an opportunity so that the negative consequences can be avoided.

An outcome that has been agreed upon to plan for the next step of
Decision
action.

Trouble or The source of problems.

sign

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Further explanation on problem-solving is as follows:

(a) Problem-solving Element

For better problem-solving, the manager should deal with several elements.
The problem-solving elements that must be identified are shown in
Figure 2.12.

Figure 2.12: The problem-solving elements

Standards show a desired situation, which is the performance that needs to

be achieved by an organisation, while information shows the current
situation, that is, the actual achievement of the organisation. The manager
must achieve both to know if a problem exists. Problems occur when there is
a difference between standards and information. In addition, a problem will
occur when the actual performance is either higher or lower than the
standard. Therefore, a problem can be an advantage or disadvantage to the
organisation. It may be better to give a higher standard so as to maintain
good performance.

On the other hand, if the organisationÊs performance cannot achieve the

standard, we need to investigate the reasons why the problem occurred.

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52  TOPIC 2 ANALYSING SYSTEM

When the problem is identified, the manager needs to determine several

alternative solutions by using the information from other staff or his or her
own experience.

The IS can be used to evaluate each alternative solution. The evaluation has
to consider any constraints within and outside the organisation. They are two
types of constraints namely:
(i) Internal constraint is limited to the resources in a firm.
(ii) External constraint refers to constraints from the firmÊs environment
which limit the flow of the resources to and from the firm.

Problems that are often faced by an organisation happen because of two

reasons, which are:
(i) Internal influence: This may originate from the staff or human
resources, raw material supply management and others.
(ii) External influence: For example, the political situation of a country or
the world, economic stability, government policies, competitors,
suppliers and customers.

(b) Problems and Symptoms

The difference between problems and symptoms must be understood.
Symptoms are situations resulting from a problem. The manager can always
observe the symptom as compared to the problem. To understand the cause
of the problem, the symptoms need to be studied carefully.

For example, a doctor will study the symptoms to know the cause of a
disease. In the same vein, managers must study the symptom of any
circumstance such as reduction in sales; the actual problem is why sales have
decreased.

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(c) Problem Structure

Problems have a structure that influences the way they are solved.

A structured problem is a problem that has certain elements and the

relationship between the elements can be clearly understood and seen.

For example, the equation „Profit = Sale – Cost‰ can explain why the
organisationÊs profits increase or decrease.

Some problems are not understood by the manager and they are known as
non-structured problems. The problem of human behaviour is an example of
this type of problem.

A non-structured problem is a problem that does not have elements or

relationships that are understood by the problem solver.

Most problems often faced by the manager are combinations of structured

and non-structured problems known as semi-structured problems.

Semi-structured problems have parts of elements or relationships that

are understood and parts that are not understood.

One example is the choice to produce new products. However, several

elements like cost and quantity of raw materials, suppliers and promotional
costs can be explained clearly. But some elements like customer reception
and percentage of profits are difficult to estimate.

The three types of problems are summarised in Figure 2.13.

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54  TOPIC 2 ANALYSING SYSTEM

Figure 2.13: Three types of problems

Problem-solving is not the task of managers alone. It is the responsibility of all

parties, especially individuals who are experts in the field related to the problem.

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ACTIVITY 2.3
1. In your opinion, why should the solution to a problem be planned
carefully and what are its components? Discuss with your
coursemates in the myINSPIRE forum.
2. How can a problem be identified in an organisation? Discuss
among your coursemates in the myINSPIRE online forum.

2.4 SYSTEM APPROACH

What is a system approach? A system approach is a step-by-step guide to solving
a problem by ensuring that the problem can be understood, an alternative solution
is identified and the solution chosen is effective. Look at Figure 2.14 to see the
phases involved in problem-solving.

Figure 2.14: System approach in problem-solving

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56  TOPIC 2 ANALYSING SYSTEM

ACTIVITY 2.4

How does the system approach help to solve a problem? Discuss and
share your answer among your coursemates in the myINSPIRE forum.

2.5 PREPARATION PHASE

There are three steps in preparation phase. However, the steps in this phase do not
have to be executed sequentially.

(a) Step 1: View the Organisation as a System

You must imagine the organisation as a system by using the general system
concept. You must map your organisation using the general system model.

(b) Step 2: Identify the Environment System

You must identity the organisationÊs environment which consists of
customers, suppliers, competitors, owners or stockholders, unions, financial
community, government and global community.

(c) Step 3: Identify Every Subsystem in the Organisation

Subsystems in the organisation can be viewed from many aspects.
Departments or units within the organisation can be viewed as subsystems,
as shown in Figure 2.15.

Figure 2.15: An organisationÊs departments as subsystems

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 TOPIC 2 ANALYSING SYSTEM  57

Subsystems in the organisation can also be viewed as management levels. These

subsystems have a „superior and subordinate‰ relationship and are connected by
the flow of decision information and decisions. Decisions and orders made by top
level management are channelled to the entire organisation. Hence, the manager
can see the importance of information clearer through this management hierarchy.
When the manager views his or her organisation as a system that comprises
several subsystems, he or she has understood the systemÊs concept and achieved
the objectives of the phase. At this stage, the manager is ready to use the system
approach in solving problems.

2.6 DEFINITION PHASE

When a problem is identified, the manager can seek the assistance of the analyst
to explain and help him or her understand the problem. The analyst has the
expertise to derive the problem, which is not clearly defined, to specifications in
the form of model, documentation and diagram for a new or upgraded system.
Several information-gathering methods like interviews and observations can be
used by the manager to understand the problem.

This phase consists of two main steps, namely continuing from the system level to
subsystem, and analysis of parts of the system according to certain sequences.

(a) Step 4: Continue from System Level to Subsystem

When a manager wants to understand a problem, he or she will initiate the
analysis of the system and take it under his or her responsibility. The system
consists of the organisation or one of the organisationÊs units. The analysis
will continue according to the systemÊs hierarchy, from one level to another
level. You should bear in mind that systems can exist at every level of the
organisation and analysis can be initiated at any subsystem in the
organisation.

Firstly, the manager studies the status of the organisation in the perspective
of its relationship with the environment. Among the questions studied are:
(i) Whether the organisation has a balanced relationship with its
environment or not;
(ii) Whether the flow to and from the organisationÊs environment occurs
as it should or not; and
(iii) Whether the system achieves its objective in producing products and
services for its environment or not.

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Then, the manager analyses the system from the aspect of the subsystem.
Every subsystem will be studied to see whether it functions together with
other subsystems to achieve the systemÊs objective.

Briefly, this step aims to identify subsystems that are problematic so that the
problem can be addressed.

(b) Step 5: Analysis of Part of the System According to Certain Sequences

The elements of the system are analysed according to certain sequences when
the manager studies every level of the system. Sequences arranged according
to this priority (for example, 1 is analysed first, followed by 2, 3 and so on)
are shown in Figure 2.16. From this, the problem in the fifth element cannot
be solved if there is still a problem in the fourth element.

Figure 2.16: Analysed system element sequences

(i) First Element

Evaluate the standard. The standard for system performance is
determined in certain quantitative forms such as amount, percentage
and finance. The standard elements are analysed to ensure the
following criteria are fully met:

 Have a valid value. The standard is supposed to be in line with the

systemÊs objectives and is able to measure the systemÊs performance
well. For example, if the systemÊs objective is to reduce cost, the use
of sophisticated IT components is an inappropriate standard.

 Realistic. If we fix profits at 50 per cent, we may be unable to

achieve it if the business is just starting or if we have been achieving
10 per cent profit all the while.

 Easily understood by individuals responsible for implementing it.

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 Can be measured in clear units. For instance „minimum cost‰ is not

as clear as „reduce costs by 15 per cent in manpower usage and
20 per cent in paper usage‰.

(ii) Second Element

Compare the system output with the standard. Once it is determined
that the standard has been fulfilled, the manager would evaluate the
system output by comparing it with the standard.

As mentioned earlier, a problem exists when there are differences

between output and standard. If the output is lower than the standard,
the root cause of the problem will be studied. However, if the output
exceeds the standard, the latter might have to be increased to ensure
continuous good achievement.

(iii) Third Element

Evaluating management. Management and organisational structure
are critically assessed from many aspects. Among the management
aspects analysed are the quality and quantity of cooperation between
teams, whether the number of managers are sufficient as well as the
skills and capabilities of the manager. The organisational structure is
also evaluated to see if it contributes to the problem. If need be, the
organisational structure can be changed by adding new units or
changing the administration structure.

(iv) Fourth Element

Through the information processor. Unreachable or insufficient
information may exist even though the existing management is
sufficiently good. If problems exist, the IS has to be re-evaluated to
provide the required information.

(v) Fifth Element

Evaluate input and input resources. If there is no problem with the first
four elements, the conceptual system is confirmed to be problem-free.
The problem occurs in the physical system. A survey is conducted
based on the physical resources in the input element and resources
which flow into the input element from the environment. For example,
is the warehouse storing sufficient raw materials and is the supplier
providing good quality raw materials?

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(vi) Sixth Element

Evaluate the transformation process. Incomplete procedures and
processes may affect the input transformation into output. The
efficiency of the transformation process can be increased with the help
of technologies such as robots, machines and computers.

(vii) Seventh Element

Evaluate output resources. This refers to the final output or products
produced. Focus is given to the physical resources in the output elements
like warehouses which store finished goods, manpower and machines
which come under the delivery and transportation department.

2.7 SOLUTION PHASE

The solution phase revolves around the determiner of the solution alternative, the
selection of the best solution and its execution.

(a) Step 6: Identify Alternative Solutions

Several different alternatives are identified to solve the same problem in
order to get the best solution. Managers usually use past experiences or
intuition in this step.

Managers always solve problems as a group. This group uses the

brainstorming method to find ideas to solve a problem. This is a formal
method that can be applied with the assistance of a facilitator.

(b) Step 7: Evaluation of Alternative Solutions

Every alternative must be evaluated using the same evaluation criteria, that
is, the stage where the alternative can be used to solve problems in the best
possible way and the extent to which the alternative meets the systemÊs
objectives. Evaluation can be considered as a way of finding the advantages
and disadvantages of each alternative.

(c) Step 8: Choose the Best Solution

The next step after evaluation of the alternative is choosing the best solution.
Mintzberg identified three methods which can be used by the manager for
this purpose:
(i) Alternative analysis is evaluated systematically by considering the
effects of the alternative towards the organisationÊs aims.

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(ii) Consideration – The thought process of a manager. For example, a

department head uses experience and intuition to decide whether an
appeal from a student who is about to be expelled should be accepted
or rejected.
(iii) Bargaining − Discussions between groups of managers.

(d) Step 9: Executing the Solution

A solution is achieved once a certain action has been executed. For example,
after a decision to obtain a loan is made, the procedure to apply for the loan
should be initiated.

(e) Step 10: Follow-up to Ensure the Solution is Effective

The manager must continuously monitor the situation after the solution is
executed to determine if the problem has been satisfactorily resolved. If
anything undesirable occurs, action must be taken to correct the situation.

ACTIVITY 2.5
The solution phase is the last phase in the system approach. In your
opinion, what action can be taken if the solution is not found? Discuss
with your coursemates in the myINSPIRE forum.

SELF-CHECK 2.3
1. Define the following:
(a) Standard; and
(b) Problem.

2. What is the advantage of the mathematic model compared to other

models?

3. Which general model system elements provide the required

information? Describe a current situation.

4. What or who should be solving structured problems, unstructured

problems and semi-structured problems?

5. Clarify the methods used to split the firm into subsystems.

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 A model is a representation of an object, concept or real activity, known as an

entity.

 There are four types of models, namely, physical, narrative, graphical and
mathematical.

 The general model system can be used to analyse various types of

organisations.

 The model has a standard which determines the systemÊs performance that
needs to be achieved and information processor which produces information
for the actual performance of the organisation.

 The information produced should have four important dimensions, namely,

relevance, accuracy, punctuality and completeness.

 This information can be used by the manager to execute two techniques of

management – management by exception and critical success factor or CSF.

 Problems exist when there are differences between information from the
standard and information processor. The manager solves the problem, which
affects the organisation either in a positive or negative manner.

 The problem is classified as structured, semi-structured or non-structured.

 The system approach can be used by the manager when solving problems. The
system approach consists of three phases, namely, the preparation, definition
and solution phases. Every phase has certain steps that can be used as
guidance.

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Closed system Open system

Closed-loop system Open-loop system
Conceptual system Physical model
Critical success factors (CSF) Physical system
Environment Problem-solving
External constraint Problem structure
Graphical model Standards
Information dimensions Subsystem
Internal constraint Super system
Mathematical model System approach
Model System elements
Narrative model System view

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Topic  Information
Technology
3 (IT) Support
and Strategy
in the
Organisation
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the architecture and infrastructure of information technology
(IT);
2. Describe the three types of organisational structures for business
organisation;
3. Analyse the relationship between an organisation and IT;
4. Assess the steps that should be taken in IT management;
5. Discuss the usage of IT in organisational strategies; and
6. Discuss the strategies at business level and the support of information
system (IS).

 

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STRATEGY IN THE ORGANISATION

 INTRODUCTION
The development of information technology (IT) facilities is closely related to the
business objectives of an organisation. This is evident from research on the
requirements of information for enhancing organisational results.

Therefore, IT facilities are actually very closely related to the organisational

structure and are based on the main functions of the organisation. This is further
extended to the support that IT provides in fulfilling as well as enhancing the
organisational strategies.

In this topic, you will also be exposed to the business strategy concepts such as
strategic management, the Porter value chain model, supply chain management,
industrial level strategy and how these concepts are related to information system
(IS). Happy reading!

3.1 CAPITAL STRUCTURE OF A COMPANY

Today, information is a crucial factor in the success or failure of an organisation.
In this regard, an organisationÊs business objectives should include the proficient
use and management of information so that it may function efficiently with
optimum production.

Organisational information needs are manifested based on the analysis of the

information requirements. From one perspective, the technology emerging is in
the form of IT applications such as software that needs a suitable environment for
it to function. In order to achieve this, an appropriate information design is needed.

Therefore, information architecture is needed and it stands for the mapping of the
information needs of an organisation, its direction, management and
implementation, both now and in the future.

The realisation and implementation of this IT requires certain support

infrastructure involving equipment and software. We can see this relationship as
illustrated in the following Figure 3.1.

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Figure 3.1: Relationship between organisational needs and IT architecture and

information infrastructure
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Look at Figure 3.1 carefully. Can you see, in general, the effects from this
relationship on the approach for constructing information architecture and the
usage of IT in the organisation? IT planning and usage begin from the top. The use
of technology must start with an analysis of the organisational needs in the context
of the business the organisation is in. It must also support the organisationÊs
business planning and objectives.

Therefore, the process of designing IT involves current and future users, as well as
the management and planning personnel in the organisation. It is not the work of
technologists alone.

Only at the end of the process of designing information architecture would the
technology be chosen to support operational processes.

ACTIVITY 3.1
1. Visit the website for General Electric (GE) (www.ge.com) and
compare it with the website for Kodak (www.kodak.com).
Differentiate the organisational objectives of these two websites.
2. Plan an approach for developing an information architecture from
the bottom, which is by looking at the current available technology.
Then, suggest the IT development that can operate it. Following
this, compare it with the approach discussed previously.

Share your answers for discussion in the myINSPIRE forum.

3.2 EVOLUTION OF INFORMATION

TECHNOLOGY (IT) INFRASTRUCTURE
Previously, you have seen how IT infrastructure support the organisation and how
it will be used in supporting the whole information needs. IT has evolved
throughout the years since the first ever computer was invented.

However, the IS initially began from electronic data processing era. The usage of
mainframes at that time supported basic business needs. Nowadays, IT has
changed tremendously; thus, organisations must be able to adapt to these changes
in order to be competitive.

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Based on Laudon and Laudon (2018), there have been five eras in this evolution,
each representing a different configuration of computing power and infrastructure
elements. Figure 3.2 provides an overview of these five eras.

Figure 3.2: Five eras in IT infrastructure evolution

Source : Laudon & Laudon (2018)

As a manager, you have to be knowledgeable on the IT infrastructure so that any

business needs that requires the use of IT can be addressed accordingly. For
example, in making a decision to implement an IS, you must be able to analyse the
different types of infrastructure from both the technical and investment
perspectives. The decision made will have a big impact on the organisationÊs
return on investment.

3.2.1 Enterprise Applications

As mentioned earlier, there are several types of information systems namely
accounting information system (AIS), transaction processing system (TPS),
management information system (MIS), decision support system (DSS) and
executive information system (EIS). All these information systems are based on their
own software applications and databases. Imagine if you were to run all these
information systems in the organisation, but these systems did not „talk‰ to each

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other. All systems will produce their own sets of reports and managers are required
to make decisions based on these manual hardcopy reports that usually are not up-
to-date with real-time data. Thus, it would be difficult for the managers to
understand the whole business situation and make any strategic decision.

How can we solve this problem? It can be done by integrating all the information
systems based on a pre-defined required business process. For example, the sales
records from TPS need to reflect the financial reporting in AIS. With this, an
enterprise system will be created in the organisation.

Enterprise system is a set of integrated software modules from different types

of information systems and a centralised database in which business
processes and functional areas within the organisation can share the data.

Figure 3.3 shows you how an enterprise system works.

Figure 3.3: Enterprise system

3.3 UNDERSTANDING ORGANISATIONAL

STRUCTURE
Understanding organisational structure is important for knowing the role of IT in
an organisation. An organisation is usually structured based on the division of
smaller units in order to facilitate the administrative and management functions.
This division can be based on location, function and other characteristics.
Important factors that influence organisational structure are the size and location.

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Both these factors rely on the type of business the organisation is involved in,
whether in the form of a service offered or the production of goods, and the
companyÊs characteristics of being either local or global.

An organisation usually has a single head office that is the location for policy
making, strategic planning and company performance analysis. Going down
another level, this company may be divided into divisions that may be located in
different sites.

These divisions will then be divided further into units. In an organisation that does
not have many branches in many different places, the division may be based on
function, that is, a division or unit represents a certain function.

The smallest unit that performs the main functions of the organisation is called a
department. Normally, an organisation is divided into the following departments
(there could possibly be more departments):
(a) Accounts;
(b) Finance;
(c) Sales and marketing;
(d) Production and operation management;
(e) Human resource management; and
(f) Information systems.

3.3.1 Types of Organisational Structure

There are many types of organisational structure. In general, we can divide these
different structures into three types:
(a) Traditional or hierarchical structure;
(b) Project-based structure; and
(c) Matrix or multidimensional structure.

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Let us look at these structures in detail.

(a) Traditional or Hierarchical Structure

A hierarchical structure is a basic structure that is most widely used in
organisations today. In this structure, the strategic and planning roles are
placed at the highest levels, while production and implementation are placed
at the lower levels. You can see this structure as illustrated in
Figure 3.4.

Figure 3.4: Example of a hierarchical organisational structure

In this hierarchical structure, the organisation is viewed as a structure with

the highest level having more power and authority than the level below. The
number of levels differs among organisations in accordance with the goals of
the organisation. The trend adopted today is to reduce the number to the
minimum. This means that more power and authority are passed down to
the next level in certain situations. The effect is that more information must
be made available to the lower levels so that decisions can be made more
effectively.

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(b) Project-based Structure

In the hierarchical structure, the division of segments is generally based on
the area or zone (division). If this division is made based on the type of main
product or service (if the company offers a service), then it is known as a
project-based organisational structure. Look at Figure 3.5 to get a general
idea of this type of structure.

Figure 3.5: Example of a project-based organisational structure

A team that is based on a project can sometimes be characteristically

permanent and has ad-hoc or temporary features based on the duration of
that project. In this structure, the main basic organisational functions such as
finance, accounts, marketing and production are normally placed at the
bottom of a group or division based on the project.

(c) Matrix or Multidimensional Structure

In general, a matrix structure is based on a project but with a significant
difference, that is, the group members can be from different projects; on the
other hand, the project-based structure limits the members of a project to a
single grouping. Figure 3.6 shows an example of a matrix structure for an
organisation. In the example, each group is placed under two superiors
(division leader and manager).

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Figure 3.6: Matrix structure – this arrangement forms a matrix figure

The group in this matrix is a permanent group that is directed to manage a

series of special projects. A problem that arises in this type of structure is the
existence of two command flows from two different superiors. This is
because its basic characteristics are from the crossings between different
groups.

SELF-CHECK 3.1
List the types of organisational structures and compare them from the
perspective of the most appropriate structure at a given time.

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3.4 IMPLEMENTATION OF INFORMATION

TECHNOLOGY (IT) IN ORGANISATIONAL
STRUCTURE
Looking at the forms of organisational structure that we have discussed earlier, we
can determine the implementation of IT based on the levels of organisational units.
Table 3.1 shows the examples of IT support that can be given by information
systems in each level of the organisation.
Table 3.1: Levels of Information Systems

Level Characteristic

Departmental level Collaboration of small programs developed by each

department to support other departmental functions. This
covers the human resource management information system
(HRMIS) and accounts information system (AIS).

Plant level Collaboration among departmental information systems. This

generally enables a connection among departments to be
performed to enable employees to work together using a
computer system.

Divisional level Collaboration of plant information systems.

Enterprise level Collaboration of divisional information systems.

Organisational level An IS that is larger and more complex that can provide a
connection of information systems among organisations. This
system enables the same information to be used among
different organisations.

3.5 INFORMATION TECHNOLOGY (IT)

MANAGEMENT
Today, the importance of IT to many organisations can no longer be denied.
However, not all implementation or use of IT in organisations or business
companies has borne fruit. There have been many cases where reliance on IT
without any comprehensive form of IT management has led to negative results,
such as decrease in profits and operational turbulence in performing the daily
activities.

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For example, back in 1998 the failure of IT caused the operations at the new Hong
Kong airport to be halted for several days. A similar occurrence was experienced
by the company Hershey Foods in the United States in 1999 when the failure of a
newly installed IT system caused losses and a drop in profit that amounted to more
than USD20 million during the third quarter of that year. This scenario made the
issue of IT management very critical.

In general, the aim of IT management is to stabilise the technology so that it can be

accessible and at the same time enable the technology to be adaptable to changes
and needs that go beyond boundaries.

Let us now continue our discussion on the important aspects of IT management.

3.5.1 Goals of IT Management

Briefly, the goals of IT management can be divided into two parts:
(a) Ensuring Continuous Technology in a Stable Condition
Stability is measured in terms of consistency and reliability. Consistency
enables the technology to be used with an interface that is uniform wherever
it is accessed from. Meanwhile, reliability refers to the capability of the
technology to guarantee that its performance at any given time is as it should
be at any other time.

(b) Ensuring that Technology can be Adapted According to Changes that Occur
Change is inevitable for advancement. Hardware technology and computer
software change relatively quickly. This change will create problems for the
user if proper management and planning are not performed. The question
that arises here is how can a person manage the IT requirements according
to the changes? The answer is that all changes in technology need to be
anticipated and planned for even earlier.

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3.5.2 Managing IT Organisations

Currently, the trend for managing a companyÊs IT organisation is by adopting a
combination of centralised and non-centralised control infrastructure. This
development follows the change in the computing trend. The change to this form
of distributed technology has caused the organisational structure in managing IT
to become distributed as well.

The use of a distributed system has caused the resources of computers to be

distributed to different computer systems in the computing platform. For example,
a database is no longer placed in a centralised mainframe computer; rather, it could
be in a server computer located in a different department from the client computer
that is accessing the database. This causes the IT support staff to be placed at
different departments, which changes the structure of past IT management.

3.5.3 Functions of an IT Organisation

What are the tasks or functions of an IT organisation? They are summarised in
Figure 3.7.

Figure 3.7: Functions of an IT organisation

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3.5.4 Forms of IT Organisation Implementation

Let us look at Figure 3.8, which illustrates the forms of IT organisation
implementation.

Figure 3.8: IT support structure

In todayÊs business environment, many forms of implementing an IT support

structure are being used. These include:

(a) Internal Department

Establishment of an IT department on its own, equipped with a special
function to support the implementation of IT in the company.

(b) Subsidiary Company

Establishment of an IT subsidiary company as a separate business entity that
has two functions – supporting the implementation needs of internal IT and
at the same time, providing services in the form of business to external
companies.

(c) Privatisation
Privatisation of IT support services wholly to external companies known as
system integrators. These companies offer services in several forms such as:
(i) Application service provider (ASP), which usually focuses on the
service needs of a company with regard to software including
databases, company resource planning and customer relations.
(ii) Business service provider (BSP), which develops Internet software that
can be bought through Web technology.

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(iii) Internet service provider (ISP), that is, a company that provides a
service to connect the customers to the Internet and related services.
(iv) Wholesale service provider (WSP), which provides grouped
application packages that are distributed through the Internet.

In the next subtopic, we will discuss the aspects of how IT can be used to support
the organisationÊs business strategy.

SELF-CHECK 3.2
1. What are the two main goals of IT management?

2. Explain the four functions of IT organisation.

3. Discuss three important forms of IT implementing support

structure.

4. Differentiate between the following private IT support services:

(a) ASP (c) ISP
(b) BSP (d) WSP

3.6 USAGE OF INFORMATION TECHNOLOGY

(IT) IN ORGANISATIONAL STRATEGIES
A strategic plan is the nerve of an organisation, particularly a business entity which
has to compete in a knowledge-based economy. How far the organisation can
withstand the competition depends on how effective and efficient is the strategic
planning of the organisation. Information systems can assist managers when
executing good strategic management.

We will now continue our discussion on the strategic management concept, the
Porter value chain model, supply chain management, industrial level strategy and
IS which cover the competitive and network economy. You must know that each
IS discussed in this module is integrated within one another. The information
systems can solve organisational problems. Effective strategic planning can
integrate information systems in an organisation.

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3.6.1 Strategic Management

What is strategic management?

Strategic management is management which can change the objectives,

operations, products, services and environmental relationships of an
organisation in efforts to assist the organisation to achieve competitive
advantages. Generally, strategic information systems can do the same.

An effective management can assist in the implementation of IS in the

organisation. Strategic information systems can be used at every level of the
organisation and it is more comprehensive and detailed compared to other
systems.

Strategic IS changes the way a firm handles a business and transaction in depth
and in detail. Generally, there is no complete strategic system. What is available is
a few systems operating at different strategic levels whether at the business, firm
or industry levels, and these systems combine to become what is known as
strategic information systems.

ACTIVITY 3.2
Imagine that you are working in a recruitment agency. In your opinion,
do you think support staff need to know the strategic direction of the
organisation? Why? Discuss this matter in the myINSPIRE forum.

3.6.2 Strategy at the Business Level and the Value

Chain Model
At the business level, the main question is „How can an organisation compete in
the market?‰ The market sectors may be automobiles, microchip boards or cables.
Generic strategies at this level are as follows:
(a) Become a low-cost producer;
(b) Differentiate between product and services;
(c) Change the scope of competition by enhancing the market to enter the global
market; and
(d) Decrease the market by focusing on a smaller niche market.

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ACTIVITY 3.3
In your opinion, how can the support staff contribute their ideas and
expertise to make the organisation competitive in the market? Discuss
this matter in the myINSPIRE forum.

3.6.3 Use of Technology in the Value Chain

The commonly-used model at the business level is the Porter value chain model.
The model proposes specific activities in the business in which these activities are
the competitive strategies which can be used as best as possible.

The value chain model can assist in increasing competitive forces by identifying
the focus point of the critical and specific influence where IT can be used effectively
to reinforce the position in the competition.

This model views the organisation as a network to fundamental activities which

can increase the value to the products and services of the firm. Now, refer to
Figure 3.9, which shows the relationship between activities in the Porter value
chain model.

Figure 3.9: Use of technology in the Porter value chain model

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By looking at Figure 3.8, you may find that the activities can actually be categorised
as:

(a) Primary Activities

Primary activities are activities related to the production and distribution of
products and services which create value for the customers. These activities
include logistics, operations, sales and marketing.
(i) Logistics activities refer to the acceptance and storage of goods for the
distribution process right up to the production activities.
(ii) Operation activities refer to the change of input up to a finished
product.
(iii) Sales and marketing activities include efforts to promote and sell
products and services of the organisations.

(b) Support Activities

Support activities are needed to ensure that primary activities can be
implemented and they include the organisationÊs infrastructure
(administration and management), human resources (recruitment,
compensation and training), technology (enhancing the product and
production processes) and procurement (to get the input).

Organisations gain a competitive advantage in business if they can prepare

more valuable products or services; or if they can sell products and services
of the same value but at a much lower price to customers. A strategic IS can
give a strategic impact by helping firms produce products and services at a
lower cost compared to other competitors; or it can help produce products
or services at the same cost but with higher value.

3.6.4 Information System (IS) Products and Services

Organisations can create brand excellence by creating new products and services
which can be easily differentiated from products and services offered by other
competitors. The new products and services cannot be imitated by existing rivals
or potential competitors. Producers have started to develop information systems
to develop products and services which can be modified to meet the requirements
of customers.

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Businesses can develop new scopes for their markets by differentiating the focus,
that is, by identifying specific targets for each product and service so that both can
deliver the best service. A firm can offer better products and services to a specific
target compared to currently available products and services offered by the
competitors. Information systems can give a competitive advantage to firms by
producing data to enhance sales and marketing techniques.

An IS considers information as a source that can be used by the organisation to

increase the profit margin and to control the market. It also enables the
organisation to analyse purchasing patterns, tastes and priorities of
their customers so that the organisation can direct advertising and marketing
towards a focused market. Data mining tools software finds data patterns from a
large group of data while using guidelines for decision-making.

Data can be gathered from a huge group of information resources such as credit
card transactions, purchasing data from points of sale, and demographic data from
websites. Companies can collect data internally or purchase the data from other
organisations. Through pattern assessment of customer purchasing, companies
can define a detailed image on purchasing interest, develop a relationship with
customers and prepare specific products and services.

3.6.5 Supply Chain Management and Effective

Customer Relationship Management System
Inventory can be a burden to organisations. When goods are in the warehouse or
workers are not fully utilised, firms have to bear the cost without gaining any
income. To overcome this problem, many organisations use IT for inventory
management to eliminate or reduce inventories.

An IS for strategic management is good for suppliers. Suppliers can monitor

product specifications, factory scheduling and customersÊ commitment in order to
ensure the inventory is sufficient. When the inventory system is operated
smoothly, this efficiency and facility will prevent their vendor customers from
buying from their competitors. However, it will be more effective to have a
customer relationship management (CRM) system in place.

Organisations use the CRM system to assist in managing their relationships with
customers. It provides all relevant information such as sales, marketing, customer
purchasing behaviour, customer satisfaction, after-sales services and customer
retention. This will allow organisation to coordinate all their business processes in
dealing with customers. Thus, increasing profit and creating new opportunities for
organisations to obtain more revenue.

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Figure 3.10 shows the relationship between strategies at various levels of business.

Figure 3.10: Business level strategies

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3.6.6 Industrial Level Strategy and Information

System (IS): Competitive Forces and Network
Economy
Firms comprise industries such as the automotive, telecommunications, television
broadcasting and forestry industries. The strategic question at this point of
analysis is „How and when to cooperate with other firms in the same industry?‰
The majority of strategic analysts stress on competition but data can be gained by
cooperating with other firms in the same industry or related firms in the industry.
For example, firms can cooperate to develop industrial standards in specific
industries; they can collaborate to develop customer sensitivity and work in
groups with vendors to reduce the cost.

3.6.7 Information Partnership

Recently, many companies have been using information systems to achieve a
strategic advantage by joining partnerships with other firms where, through these
partnerships, all firms cooperate by sharing information or services. These
partnerships are normally information-sharing partners in which two or more
firms share data to get mutual advantages.

This partnership enables firms to get new customers, open new opportunities for
cross-selling and product targets, as depicted in Figure 3.11.

Figure 3.11: Information partnership

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In addition to this, partnership allows the collaborating firms to share the purchase
of hardware and software. Sometimes, traditional competitors can gain benefits
from this partnership. At the industrial level, two types of analytical models are
used:

(a) Competitive Force Model

In the competitive force model, a firm might face various challenges and
opportunities; challenges from new competitors entering the market and
other companiesÊ products and services taking over the position of the firm.
In addition, there is the pricing power by customers, suppliers and
traditional industrial competitors to deal with.

Competitive advantages can be achieved by increasing the firmÊs capability

to handle customers, suppliers, replacement products and services, new
entrance of competitors into the market, where this will probably bring
changes to the balance of power between the firm and its competitors in the
industry.

(b) Network Economy

The second strategy which is useful at the industrial level is the network
economy. In a network economy, when there is a new customer, the marginal
cost will not increase, while the marginal profit will increase. For instance,
the value of the phone or Internet system will increase with more users. The
same can be said for the cost involved in managing a television station; one
which has 1,000 users compared to another which has 10 million users.

From the perspective of the network economy, IT can be used strategically.

Firms can use websites to develop a community of users such as users who
want to share their experiences. This will establish loyal users and foster a
good relationship with them.

ACTIVITY 3.4
Do you think countries need partnership blocks such as the European
Union or East Asia Economic Cooperation? Discuss this matter with
your coursemates in the myINSPIRE forum.

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3.6.8 Internet Usage in Business

Through the various services offered by the Internet, an organisation enjoys the
following benefits as well as opportunities:
(a) Global relations for companies or enterprises to expand and manage the
international branches and business units;
(b) Reduction in both communication and business costs;
(c) Facilitation of communication and coordination;
(d) Expeditious information dissemination;
(e) Promotion of electronic commerce and business;
(f) Interactive marketing. The Internet enables an organisation to interact
directly with clients through online discussion groups, bulletin board
systems, electronic questionnaires, mailing lists, electronic newsletters and
electronic mail; and
(g) Facilitation of the implementation of strategic collaborations between
organisations and customers, suppliers, consultants, contractors or
competitors.

An enterprise may fully benefit from the Internet in its organisational connections
by using all the facilities offered by the Internet to connect all its Web pages at the
global level, while the intranet can be used to contact its subsidiary companies at
other locations. The extranet can be fully realised to form relations with its other
partners.

The use of the Internet in business has helped set up millions of new businesses
that operate at a minimal capital cost but cover the whole world. It also helps
organisations to save cost on internal and external communication. How can this
happen? It is done through several forms of creative and productive Internet use.
Figure 3.12 shows briefly the use of the Internet in businesses.

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Figure 3.12: Internet usage in business

These electronic business application are further explained as follows:

(a) Collaborative Enterprise Communication

These are applications that support communication, coordination and
corporation among members in a work group or business team like workers
and external consultants in a project that make use of the Internet, intranet
and extranet to support electronic mail, video conferencing and others.

(b) Electronic Commerce (E-commerce)

The Internet, Web pages as well as Internet-based technologies like the
intranet and extranet provide a global connection between companies, clients
and suppliers. They encourage electronic trading activities like marketing,
purchasing, selling, and support for products and services to be performed
through this work Web.

(c) Internal Business System

Internet-worked e-business application supports the process and operation
of internal business of a company. For example, a worker may use the
intranet enterprise information portal to access information about the
remaining number of leaves that has been taken or apply for leave. The
company could also join the intranet with the Internet and this would make
it easier for workers or the management to obtain information about their
company wherever they may be.

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(d) Web-based Discussion Forums

Nowadays, discussions among workers can be conducted through the
Internet. The message that needs to be sent to all parties can be done quickly
and effectively through USENET, for example. Replies can also be received
instantly.

(e) Mining Data with Intranet Search Tools

The Internet has an efficient data searching mechanism through the use of
the browser. This technology enables the user to find information by using a
user- friendly interface.

 The need for information technology (IT) architecture has become the
supporting structure or platform for the implementation of an information
system (IS).

 The goals of managing IT are to ensure that IT functions efficiently and is

adaptable to changes, thereby achieving organisational objectives.

 In order to use such technologies to reap strategic benefits, organisations need

efficient planning and management.

 The use of a strategic management system may require the organisation to

change its business objectives, its relationships with its customers and
suppliers, its internal operations and its information architecture.

 The three types of organisational structure are traditional or hierarchical,

project-based and matrix or multidimensional.

 When an organisation makes the IS part of their corporate strategy, the internal
structure of the organisation also needs to change to reflect current
developments.

 Managers need to restructure all organisational processes so that they can take
advantage of sophisticated IT. Such changes will bring changes to the
organisational borders (internal and external).

 Suppliers and customers need to closely communicate and perhaps share the
responsibility to fulfil demands.

 Managers need to find a mechanism to coordinate their firmsÊ activities with

customers, suppliers and other organisations.
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Collaborative enterprise IT management

communication
Matrix or multi dimentional
Competitive force model structure
Customer relationship management Mining data
(CRM)
Network economy
E-commerce
Organisational structure
Electronic business application
Project-based structure
Enterprise applications
Strategic management
Hierarchical or traditional structure
Supply chain management
Information architecture
Value chain model
Information partnership
IT infrastructure

Laudon, K. C., & Laudon, J. P. (2013). Management information systems –

managing the digital firm (13th ed.). Upper Saddle River, NJ: Pearson.

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Topic  Information
Systems
4 Integration in
the
Organisation
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the processes involved in information system (IS) planning;
2. Discuss organisational change;
3. Examine IS support for various levels of management;
4. Describe management information system (MIS); and
5. Explain transaction processing system (TPS).

 INTRODUCTION
In order to achieve success, an organisation needs a detailed and effective planning
process. The management plays a very important role in this process. Failure to
formulate an effective strategic plan will cause the organisation to lag behind its
competitors in the market.

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In this topic, we will look at the contribution of information systems in helping the
management to conduct better and more effective planning. Information system
(IS) serves as the main tool for competing in the world of business. Redesigning an
organisation with an IS is a wise step by the management if it intends to compete
in a borderless world.

Many successful organisations owe their achievements to the skills of their

management in using information systems in their daily business activities. Many
organisations had to close down because they could not compete in the wave of
information technology (IT).

You will also learn about two important and popular information systems used in
organisations, namely, management information system (MIS) and transaction
processing system (TPS). Happy reading!

4.1 REDESIGNING THE ORGANISATION WITH

INFORMATION SYSTEMS
Redesigning an organisation with an IS is not easy. There has to be detailed
planning so that the IS fully supports the main activities of the organisation.

4.1.1 Information Systems and Organisational

Planning
IS planning has to be performed after all parties have agreed to redesign the
organisation using an IS.

Information system (IS) planning is a process using goals, strategies,

objectives and organisational information to identify and select a system that
will be developed and a suitable time to develop it.

Before the planning of an IS can be done, several matters need to be given

attention, especially by the upper management. Some of them are:
(a) The upper management must accept IT as an important resource for overall
organisational activities.

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(b) The use of an IS in the organisation must be planned like how the
implementation of other complex resources are planned. An IS comprises not
only computers, but also hardware, software, telecommunications, people,
procedures and data.
(c) IT is a resource that is owned by all organisational staff, not only the IS
department.
(d) The upper management must recognise the IS as a resource to achieve
strategic goals, not merely as a support for problem-solving.

Once the management understands these points and agrees to the use of an IS for
the overall activities of the organisation, the planning of the system development
can commence.

Appropriate planning and consideration should be given attention to ensure that

the IS developed is not merely completed within the prescribed time and budget,
but its implementation can be accepted by all parties involved.

There are several steps to ensure the success of the IS planning process. Figure 4.1
shows the steps necessary in the planning of an IS.

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Figure 4.1: Steps for IS planning

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A brief explanation for each step is as follows:

(a) Corporate Mission

Strategic planning starts with the corporate mission that details the overall
goals and aims of the organisation. Determining the corporate mission is
important because each organisational function will be focused on that
mission.

(b) IS Mission
The management of the IS plans the mission of the IS based on the goals of
the organisation. The mission encompasses the goals to be achieved with the
use of an IS that is consistent with the goals of the organisation.

(c) IS Vision
The manager of IS outlines the vision of the IS in relation to the hardware,
software and telecommunications that can contribute to the achievement of
organisational goals. For example, the customer is allowed to access the
organisationÊs website.

(d) IS Strategic Planning

Strategic planning of an IS explains in greater detail the action that has to be
taken in relation to IT and IS facilities in order to achieve the organisational
objectives. Strategic planning is normally for three to five years.

Strategic planning of an IS must fulfil the following three criteria:

(i) In line with the organisational strategic planning.
(ii) Prepares the IT architecture to enable the user, application and
database to be networked and integrated.
(iii) All resources for developing the system must be readily available for
use to guarantee that all the projects will be completed on time, within
the stipulated budget and that it functions properly.

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(e) IS Tactical Planning

Tactical planning explains how and when the strategic goals can be achieved.
Tactical planning is usually made for short periods as compared to strategic
planning. Tactical plans are more detailed and have a more direct bearing on
short-term activities than strategic plans. This plan focuses on prioritising
and scheduling IS development efforts, establishing action plans for
development and performance measures to be used during operational
planning.

(f) Operational Planning

Operational planning is related to the implementation of daily activities by
considering the resources and tasks that have to be performed. Operational
planning must ensure that the IS functions always fulfil their objectives. This
includes addressing the barriers to those functions, like technology, finance
and human resources.

(g) Budget
Organisational activity planning that suits the financial resource.

SELF-CHECK 4.1

Differentiate between strategic, tactical and operational planning.

4.1.2 Standardisation in Planning

It is important to have standardisation in planning. Management should
standardise its IT when it decides to adopt a certain IT resource for all its units.

Standardisation results in several benefits:

(a) Cost Savings

When the decision is made to purchase the same hardware or software for
all units in an organisation, it has better bargaining power and can obtain
lower prices from vendors. This applies to purchasing computers of all
classes, as well as licensing software.

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(b) Efficient Training

It would be easier to train employees on how to use a small range of software
than to train them on how to use a larger range. Less trainer time would be
required; employees would spend less time on training and more time on
their normal tasks. This would save cost by having fewer labour hours spent
on training.

(c) Efficient Support

Standardising on a small number of computer models and software
applications enables the IT staff to specialise in the hardware and software
they have to support. Specialisation makes it easier for the organisation to
recruit support personnel, and the users would be more satisfied with the
support service.

4.2 ORGANISATIONAL CHANGE

Designing an IS for an organisation does not simply mean developing and using
an IS in the organisation. The main goal is to help solve the organisationÊs
problems as well as increase work quality, thereby producing high-quality
products or services.

If this goal is not achieved, and the use of the IS adds to the organisational burden,
the management should perhaps think it over.

ACTIVITY 4.1
In your opinion, what are the changes that may occur in an organisation
with the implementation of an IS. Discuss with your coursemates in the
myINSPIRE forum.

4.2.1 Organisational Change Due to IS

The restructuring of the organisation with an IS will directly or indirectly affect the
daily activities of the organisation. The changes brought by IT have to be realised so
that the function and task for each party will proceed smoothly with the use of an
IS. This change is normally divided into four parts, as shown in Figure 4.2.

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Figure 4.2: Changes brought about by the IS

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ACTIVITY 4.2
Refer to Laudon, K. C., & Laudon, J. P. (2013). Management information
systems – Managing the digital firm (13th ed.). Upper Saddle River, NJ:
Pearson at https://bit.ly/38mtGQj.
Read Chapter 3 (Information Systems, Organizations, and Strategy) and
identify the changes that information systems can bring to an organisation.
Post your answer for discussion in the myINSPIRE forum.

4.3 INFORMATION SYSTEM (IS) SUPPORT IN

THE ORGANISATION
As we have discussed in Topic 1, various levels of management have different
needs and based on this, they require customised support of their IS based on these
needs.

4.3.1 IS Support for Various Levels of Management in

the Organisation
Based on the role played by each manager as well as the type of information he or
she needs, several types of information systems to help decision-making have been
developed and adapted for each level. Table 4.1 shows the types of management
and the forms of IS appropriate for their functions.

Table 4.1: IS Categories for Different Levels of Management

Level of
Category Example
Management

Strategic  SIS – Strategic information system

Strategic
management
management  EIS – Executive information (support) system
system

Tactical  MIS – Management information system

Mid-level
management  DSS – Decision support system
management
support system
 OAS – Office automation system

 TPS – Transaction processing system

Operations Operations
 PCS – Process control system
management support system
 ECS – Enterprise collaboration system

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 ES – Expert system
All three levels
Other types  KMS – Knowledge management system
of management
 FIS – Functional business system

(a) IS for Supporting Operations Management

This IS processes the data produced or used in business operations. It
processes various data for internal and external use by the organisation.
However, it does not provide specific information that is normally required
by the tactical management or upper management. The process should be
performed subsequently by the MIS on the output produced. The roles of the
support system level on operations include:
(i) Processing business operations effectively;
(ii) Controlling industrial processes;
(iii) Aiding communication and collaboration; and
(iv) Updating the corporate database.

Examples of the information systems that are involved are the transaction
processing system (TPS) and process control system.

(b) IS for Supporting Tactical Management

IS for tactical management assists in the decision-making functions normally
used by middle management. This system plays the role of accessing,
arranging, producing summaries and displaying the information to assist in
the decision-making process. It collects data on daily or weekly sales,
company profit and others, and then it processes the data to produce a report
and report summary for use by mid-level managers to plan the companyÊs
subsequent steps.

It gives focus to the preparation of information and the support for managers
to make effective decisions. It assists in decision-making at the highest level of
management (strategic), middle (tactical) and also at the operations levels.

(c) IS for Supporting Strategic Management

IS for strategic management prepares the latest information quickly for
upper level management, especially information related to the critical
success factors (CSF) that need to be identified in order to achieve the set
objectives. The system is capable of producing information and is reported
to gain a competitive edge when faced with the organisationÊs rivals in the
global market arena.

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ACTIVITY 4.3

Visit the Amazon online bookstore (www.amazon.com). Observe the

services provided. What is your opinion of this website? What system
category would it be placed under? Share your views with your
coursemates in the myINSPIRE online forum.

4.4 MANAGEMENT INFORMATION SYSTEM

(MIS)
As mentioned in Topic 1, a MIS is a system that has information processing
capabilities that include collecting, processing, storing and disseminating data in
the form of information through analytical processing and conveying information
to whoever ne eds it.

The aim of MIS is to develop a viable system to maximise the effective use of latest
data approaches to management practices. It is also aimed at assisting higher
management and managers of organisations to construct timely and accurate
information, not only to decide current and future operations, but also to identify
potential problems that need to be rectified.

With MIS, organisations save valuable time for their workforce and ultimately
save operational costs. Where in the past, business information had to be manually
processed for filing and analysis, it can now be entered immediately and easily
into a computer by a data processor, enabling faster decision-making and quicker
reflexes for the organisation as a whole. This had pretty much helped decisions
made in organisations, as effective decision-making demands accurate, timely and
relevant information. MIS cannot create business strategies by themselves but they
can assist management in understanding the effects of their strategies and help
enable effective decision-making. MIS systems can be used to convert data into
information useful for decision-making.

MIS and the information it generates are considered necessary components of

practical and reasonable business decisions in organisations. MIS and business
systems are particularly helpful in the collation of business data and the
production of reports which are used as tools for decision-making. Thus, the
success of decision-making, which is the centre of administrative process, is highly
dependent partly on available information and partly on the functions that are the
components of the process.

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As you should be aware by now, information is absolutely essential for the

survival of an organisation especially in making good and accurate decision. If the
pertinent information required for planning is not available at the appropriate
time, it will trigger situations such as poor planning, poor priority of needs,
inappropriate decision-making and flawed programming or scheduling of
activities. Hence, the organisationÊs system will not be efficient and effective in its
operation. Poor management of the IS will definitely create a bottleneck in the
successful management of an organisation.

ACTIVITY 4.4

Can you think of a system that you are using in your learning
institution (such as registration system, learner management system)?
Can the system that you have identified be categorised as an MIS?
Discuss this matter with your coursemates in the myINSPIRE forum.

4.4.1 Input and Output MIS

In general, MIS consists of several collections of subsystems that focus on certain
functions or tasks, like accounting MIS, marketing MIS and manufacturing MIS.
For example, finance MIS consists of several subsystems relating to financial
reports, profit and loss analysis, cost and usage analysis, and fund management.

The input for MIS is information produced from internal data, which is obtained
from the results of the transaction processing system (TPS) and external data.

The output is a collection of reports that are distributed to the managers. These
reports are divided into three main categories, which are:

(a) Periodical Report

(i) Produced after a certain amount of time or according to a schedule,
such as daily, weekly and monthly.
(ii) Example: Monthly departmental report.

(b) Requested Reports

(i) Produced when requested by the superiors or customers.
(ii) Example: Reports that are requested by the departmental manager
about the number of working hours of a certain employee during that
week.
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(c) Unexpected Reports

Produced automatically when an unexpected event occurs that rarely or has
never happened which requires the action of the management.

4.4.2 Characteristics of MIS

The following are the characteristics of MIS:
(a) Prepares reports using a permanent and uniform format. For example, a
periodical financial report will have the same fields and types of data at the
same locations for every report.
(b) Prepares reports in softcopy or hardcopy forms. The report can be printed on
paper (hardcopy) or it can be read directly from the computer screen.
Whatever the format, the report remains the same.
(c) Uses internal and external data. Most MIS applications use internal data from
the organisational database, though external data is also used.
(d) Usually, the input for MIS is the result of the TPS.
(e) Enables the end user to produce the report that he requires. It may need the
production of certain programs with the help of a programmer.
(f) Prepares information for the use of strategic and tactical managers.

4.5 TRANSACTION PROCESSING SYSTEM (TPS)

Every organisation performs business transactions daily. Basically, a business
transaction occurs each time the organisation produces a product or service for its
customers. It also includes the daily management and main management activities
performed by the organisation.

Some of the examples are:

(a) Teaching and evaluating students in a university or a college.
(b) Managing the booking and sale of tickets to customers in an airline system.
(c) Managing the ticket sale for the light rail transit (LRT) ticketing system.

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In order to perform these transactions more effectively and efficiently, the

transaction processing system (TPS) is introduced. Its main function is to collect
all information relating to the business transactions and to process it as well as
produce a relevant output.

4.5.1 TPS Objectives

The main objective of the TPS is to prepare the required information so that the
organisational operations can be implemented effectively and accurately. Its other
objectives include:
(a) Enabling the organisation to operate efficiently and effectively.
(b) Preparing reports and documents right on time.
(c) Increasing the competitive advantage of the organisation.
(d) Preparing accurate data for the strategic and tactical systems; for example,
data for the MIS and decision support system (DSS).
(e) Ensuring the accuracy and reliability of the data and information.
(f) Controlling the security of the data and information.
(g) Helping to maintain loyalty of the user or customer.

4.5.2 TPS Methods or Processes

There are three general methods for TPS, which are:

(a) Batch Processing

All transactions are collected into a batch for a certain period before
processing. This gives time for updating the records in a transaction.

The system gathers all the departmental transactions into several batches,
prepares them for processing and then processes them at the end of each
operation day.

For example, a wage system collects all the information related to attendance
and the number of working hours each day within a working month. While
waiting for the end of the month to process the data, the information may
still be updated if required. When the set time arrives (such as end of the
month), the system calculates the total working hours and the wage that each
worker should receive.

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(b) Online Transaction Processing (OLTP)

The OLTP is also known as real-time processing. The transaction is processed
as soon as it occurs.

For example, the cash withdrawal system in banks – when a customer

withdraws money from his or her account, the system immediately updates
the account. When you book a plane ticket for instance, the system updates
the database which contains information on the seating arrangements,
payment total and others. You will then instantly get your booking status.
This online transaction processing gives the latest status of each transaction.

(c) Hybrid System (Online Entry with Delayed Processing)

This process or method is a combination of both the earlier methods. The
information or data from the transaction is taken and entered into the
computer, but it will not be processed automatically.

For instance, when you make a booking through a tax-free channel, your
booking will be taken and entered into a computer. Even though the booking
has been entered into the computer, it may only be processed after office
hours or at the following day.

ACTIVITY 4.5

State other examples of the three processing methods mentioned earlier.

Post your answer for discussion on the myINSPIRE forum.

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 TOPIC 4 INFORMATION SYSTEMS INTEGRATION IN THE ORGANISATION  105

4.5.3 TPS Activities

Now, let us look at the six main tasks in the transaction processing activity cycle
(see Figure 4.3).

Figure 4.3: General data processing activities in TPS

Source: Stair & Reynolds (2005)

Let us discuss each data processing activity stated in Figure 4.3.

(a) Data Collection

(i) The process of obtaining and collecting the data required for a complete
transaction.

(ii) Exists in two forms, which are:

 Manual, like collecting product orders in writing.

 Automatic, like obtaining data from a terminal scanner or input

peripheral.

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(iii) The method of entering data can be implemented in various ways, such
as:
 Using the keyboard.
 Source data automation – It is faster and its accuracy is guaranteed
because the data collected will be scanned straight into the system
from its source. Example: Scanning using a barcode reader in a
supermarket.

(b) Data Editing

(i) The process of checking data to ensure data integrity and the
completeness of data.
(ii) Example: A workerÊs name must be in the form of letters and his or her
staff number in numerical form, otherwise the data is invalid and
incorrect.

(c) Data Validation/Correction

(i) The process of editing the data found the re-entered data to be
incorrectly typed.
(ii) The TPS should produce a reminder message if there are any errors to
the data being entered.
(iii) Example: An error message is produced if you accidentally entered a
number when keying in the workerÊs name.

(d) Data Manipulation

(i) The process of carrying out calculation and data transformation which
are related to the business transaction.

(ii) This includes the classifying of data into certain categories, performing
calculation and storing data in a database for the next process.

(iii) Examples:
• The calculation of a studentÊs average marks in a semester will take
into account the total marks attained by the student, which are
divided by the total credit hours taken.
• A wage system that multiplies the number of working hours with
the wage per hour of each worker.

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(e) Data Storage

(i) The process of updating one or more databases with a new transaction.

(ii) After the database is updated, other systems can obtain and use the
data for other processes.

(iii) Exists in two forms, which are:

• Manual, such as collecting product orders in writing.
• Automatic, such as obtaining data from a technical scanner.

(f) Production of Reports and Documents

(i) The process of producing output records and reports, whether in
softcopy or hardcopy form.
(ii) Example: Obtaining your examination results document in hardcopy,
which is the examination result transcript that is printed, or in softcopy
that is displayed on the computer screen.

ACTIVITY 4.6
After learning about the characteristics and activities of the TPS in
general, can you think of the TPS examples that are usually performed?
Share your views with your coursemates in the myINSPIRE forum.

4.5.4 Traditional TPS Applications

There are three main applications for a traditional transaction processing system,
which are:

(a) Order Processing System

Some of the processes in this system are:

(i) Entry of Orders

Obtaining the basic data required for customer order processing.

(ii) Sales Configuration

 Ensuring that the products and services ordered fulfil customersÊ

specifications and that everything runs smoothly.

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 For instance, with the sales configuration, the printer salesperson

will know that the computer printer needs a certain cable together
with a local area network (LAN) card in order to enable it to be
connected to the LAN.

(iii) Logistical Planning

Planning what has to be sent where in accordance with the orders.

(iv) Logistical Implementation

Coordinating the product outflow from the organisation with the
objective of delivering quality products on time to the customers.

(v) Inventory Control

Updating using a computerised inventory record system related to
displaying the correct quantity for each share held.

(vi) Customer Interaction

Monitoring and tracking each customer transaction with the company.

(vii) Scheduling

 Determining the best time and method of delivering the products

and services so that they arrive on time and in good condition.

 For example, for sending fresh vegetables from the farm to the city
centre, a system determines whether transport by train or lorry will
ensure that the vegetables will arrive fresh at their destination.

(b) Purchasing System

A purchase transaction processing system has four processes:

(i) Inventory
Operating like the inventory system discussed previously.

(ii) Purchase Order Processing

Helping the purchasing department to complete the purchase
transaction more efficiently and effectively.

(iii) Receiving

 Making a record of the receipt of the goods delivered.

 Ensuring the goods delivered are checked by the buyer to

determine their quality and if they are in bad condition, they will
be returned to the supplier.

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(iv) Receivable Account

Increasing organisational control over purchasing, improving cash
flow, increasing profit and providing more efficient management in the
face of current liabilities.

(c) Accounting System

Some of the processes in an accounting system are:

(i) Budget Transaction Processing

Automating many tasks necessary for collecting budget related data,
distributing it to the user and consolidating the budget.

(ii) Non-receivable Account

 Managing the organisational cash flow by tracking amounts owed

by the buyers or service users.

 Identifying debtors as well as ensuring that each debt is settled.

(iii) Salary
Relating to the salary payment transaction beginning with the calculation
until the production of a report in the form of a payslip.

(iv) Asset Management

Controlling the investment in capital tools and managing the
depreciation to maximise the tax benefits.

(v) General Ledger

Automating financial reporting and data entry.

A summary of the main applications for traditional TPS are shown in Table 4.2.

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Table 4.2: Some Subsystems that Support the Order Processing System, Purchasing
System and Accounting System

Order Processing System Purchasing System Accounting System

 Order entry system  Inventory system  Budget transaction

 Sales configuration  Purchase order processing system
system Processing system  Non-receivable
 Logistical planning  Receiving system accounts system
system  Receivable accounts  Salary system
 Logistical System  Asset management
implementation system system
 Inventory control  General ledger
system system
 Customer interaction
system
 Scheduling system

SELF-CHECK 4.2

Describe the characteristics of transaction processing systems (TPS)

and the roles they play in a business.

• Information System (IS) planning must be done in tandem with redesigning

the organisation to use IS.

• The seven steps of IS planning considers the organisational aspect, ensuring

that the implementation of IS would be aligned with the business needs.

• Standardisation is much needed to efficiently plan for the IT implementation.

Standardisation helps in cost saving and the provision of effective training. It
also results in efficient support.

• The organisational changes may occur with the use of information systems and
this change is normally divided into four parts, which are automation,
rationale procedure, business process restructuring and paradigm shift.

• Different levels of management need different and customised support from

their IS.
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• Management information system (MIS) is basically concerned with the process

of collecting, processing, storing and transmitting relevant information to
support the management operations in any organisations.

• Transaction processing system (TPS) is used in the operational level and it

executes and records the routines or daily transactions of the organisation.
Examples for TPS are the payroll system, registration system, customer request
system and examination result system.

Batch processing Operational planning

Business process reengineering Operations support system
Corporate mission Strategic management system
Hybrid system Strategic planning
Information system planning Tactical management support system
Information system vision Tactical planning
Management information system Transaction processing system (TPS)
(MIS)
Online transaction processing (OLTP)

Hammer, M., & Champy, J. (1993). Reengineering the corporation: Manifesto for
business revolution. London, England: Nicholas Brealey Publishing.

Stair, R., & Reynolds, G. (2005). Principles of information systems (7th ed.). Boston,
MA: Course Technology.

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Topic  Decision
Support
5 System (DSS)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the elements of decision-making for different levels of
management;
2. Explain what decision support system (DSS) is;
3. Analyse the types and model of DSS; and
4. Describe the concept of the group decision support system (GDSS).

 INTRODUCTION
You have just learned several information system (IS) concepts such as the use of
IT in strategic planning and system concepts. The system is developed according
to information obtained from the end user. However, did you know that the
information obtained is insufficient to make decisions in solving certain specific
problems, especially problems encountered by strategic management? In this
topic, we are going to discuss the decision-making process and how the decision
support system (DSS) helps managers make effective decisions.

You will recognise DSS as a system that provides communications facilities which
include information in helping consumers solve problems. We will also learn
about the format or structured information that results from DSS such as special
reports and periodic report formats. These reports are generated from managerial
science and mathematical models. Let us continue with the lesson.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  113

5.1 DECISION-MAKING
Before discussing the DSS, let us learn about the decision-making process. Decisions
are made to prevent problems. As a learner, decision-making is vital. You need to
decide on, for example, the courses that you need to take this semester. From the
moment you try to solve any problem, you will encounter multiple decisions. How
do you define decisions and decision-making?

Decisions are forms of actions taken to avoid or to reduce the negative effect,
or to take advantage of a situation.

Decision-making is the process of making a decision that is accurate and clear

in solving a problem or doing something new.

In brief, decision-making begins from the analysis of a problem or opportunity and

then deciding what should be done to solve the problem or grab the opportunity.
It also includes the strategic planning of the organisation in achieving its vision
and objectives.

5.1.1 Types of Decisions

According to the management scientist, Herbert A. Simon (1977) from the
University of Carnegie Mellon, the decision process comes from programmable
(structured) categories of decisions to non-programmable (unstructured)
decisions. The programmable process here means that the problems encountered
are a routine, repeatable structure and that a standard procedure is developed to
solve similar problems if they occur again. The closest example is the problem of
calculating the studentsÊ cumulative grade point average (CGPA) that can be
solved using available models.

On the other hand, an non-programmable decision is more complex, is semi-

structured or unstructured, vague and cannot be solved using available models or
standard procedures because of no or rarely occurring situations. Perhaps, the
problems need additional thinking processes that are unique and different in order
to reach a decision.

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Figure 5.1 shows the pyramid structure for decision-making for each of the three
levels of management:

Figure 5.1: Decision-making structure

The following is an explanation of the decision-making structure in Figure 5.1:

(a) Unstructured Decisions

(i) Unstructured decisions are made at the strategic management level.
(ii) This level makes strategic decisions on matters such as the direction of
the organisation, performance, investment choices and strategic
development. The information required to assist strategic management
in the process of making these decisions comes in many forms such as
brief information reports, ad-hoc reports, non-periodical reports,
forecasts as well as external information that can help in their planning.
(iii) Examples of information that are needed include profit or loss reports
for the whole organisation, profit or loss report of every department,
market forecasts, available capital and total cash needed.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  115

(b) Semi-structured Decisions

(i) Made at the tactical management level like those made by the head of
department or divisional manager.

(ii) Has a guide for reference in order to obtain a more detailed decision
consistent with its authority that is less than the strategic management
level.

(iii) The managers are responsible for making short-term and mid-term
plans for the organisation. Some of the tasks of the managers are:

 Scheduling or distribution of tasks;

 Formulation of the budget;

 Giving explanation of the policies, procedures and objectives of the

organisation to the sub-units under their control; and

 Distributing the resources and controlling the execution of tasks by

each sub-unit in the organisation.

(iv) The types of problems that need to be addressed by the managers are
simpler than those to be addressed by strategic management but much
more complex than the ones to be addressed by the operations division.

(v) Information from the upper management and operations management

is necessary. This is because the tactical manager has to ensure that all
plans by the strategic management can be implemented by the
operations management.

(vi) Examples of information included in mid-level management are

productivity measurement, budget control, gap analysis, cash flow
prediction, profit decision, short-term purchase and worker transfer.

(c) Structured Decisions

(i) A detailed and clear guideline has been set to form the procedures that
can be followed to obtain accurate answers.
(ii) This is carried out at the operations management level which is directly
involved in performing and controlling the daily operations of the
organisation, like supervising and managing operations.
(iii) All distributed and scheduled tasks must be successfully performed.

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(iv) The common problems encountered are structured problems that can
be solved based on specific procedures, like resolving the problem of
workers who always come late to the office.
(v) Examples of information used by managers at the operations level are
the information related to the processing of wages, detailed
information about daily transactions and information on the process of
producing a product.

SELF-CHECK 5.1

Compare structured, semi-structured and unstructured decisions. Give

examples for each of them.

5.1.2 Decision-making Phases

Every time you make decisions, you are unaware that you are actually following
the phases of decision-making as described by Simon (1977). You have to
understand the phases of decision-making to further understand how humans
make decisions. According to Simon (1977), there are four phases of decision-
making. These phases are shown in Figure 5.2.

Figure 5.2: Four phases of decision-making

Source: Simon (1977)

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  117

SimonÊs decision-making phases are an interpretation of a systematic approach.

Managers and IS experts use this pattern to make decisions or when developing a
system.

ACTIVITY 5.1
How can a manager prepare a report from all forms of reports, analyse
them and make a decision? Discuss with your coursemates in the
myINSPIRE forum.

5.1.3 Information Technology (IT) Support in

Decision-making
Why do managers need IT support? Even though it is not impossible to make
decisions without IT, its use facilitates the process because:
(a) It provides many alternatives in obtaining information from new
communications technology like the Internet and electronic commerce.
(b) It reduces the pressure of deadlines because it expedites processing.
(c) It reduces the complexity of decision-making because IT facilitates and
expedites the process of analysis of information.
(d) It can help fulfil the need to access information and expertise from a long
distance. For example, through the use of the Internet, you can access
information from a university in Australia or even contact a specialist doctor
in China through video conferencing.

5.2 DECISION SUPPORT SYSTEM (DSS)

The DSS concept came about when Gorry and Scott-Morton (1971) from the
Massachusetts Institute of Technology (MIT) created a working outline to classify
computer applications into several categories. SimonÊs decision concept and
AnthonyÊs management level concept (Anthony, 1965) were used. It is popularly
known as the „Gorry and Scott-Morton grid‰ as shown in Figure 5.3. Now,
Figure 5.3 should not be confused with Figure 5.1. Figure 5.1 shows the
structures of decisions across the levels of management, whereas Figure 5.3
shows the structures of problems across the levels.

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118  TOPIC 5 DECISION SUPPORT SYSTEM (DSS)

Figure 5.3: Gorry and Scott-Morton grid

Source: Gary& Scott-Marton (1971)

5.2.1 Definition of DSS

Two definitions of DSS that need to be understood are the general definition and
specific definition.

General definition: DSS is a system that provides facilities to problem-solving

and communication in semi-structured problem-solving.

Specific definition: DSS is a system that supports managers or a small group

of managers who relatively work as a problem-solving team that find the
solution to semi-structured problems and provide information or give
suggestions related to the specific decision.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  119

Management in an organisation uses a management support system (MSS) which

comprises neural network, intelligence agent, expert system and others to improve
the effectiveness of decision-making, especially in deciding complex tasks. The
DSS that you have learnt about is one of the components in the management
support system.

DSS is a system based on computer interactivity. DSS helps decision makers use
data and models to solve structured, semi-structured and unstructured problems.
Why do we need to know DSS? We need to do so because in decision-making, the
person responsible for making the decision needs correct, precise and the latest
information in order to make a quality and effective decision.

Apart from that, DSS can be defined as a system that enables managers to solve
semi-structured and unstructured problems.

DSS interactivity helps decision makers use data and models to solve semi-
structured and unstructured problems.

In addition, DSS can help management analyse information from the level of lower
management onwards, including outside the organisation. It is used to manage
unstructured decisions such as „What will happen if⁄?‰ It can also use a database
management system (DBMS), question language, monetary model, electronic
spread sheets, statistical analysis, report generator or graphic software to provide
information. Figure 5.4 provides an overview of how a DSS operates.

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120  TOPIC 5 DECISION SUPPORT SYSTEM (DSS)

Figure 5.4: Overview of how DSS operates

5.2.2 DSS Objective

Every system has its own aims and objectives. However, there are information
systems that are interrelated, which support other systems or need support from
other systems. For example, management information system (MIS) needs input
from the financial information system (FIS) to prepare a companyÊs financial
report. Keen and Scott-Morton (1978) at MIT provide three main objectives that
DSS must achieve. The following are the objectives of DSS:
(a) Helps and prepares support for the manager in the decision-making process
to solve semi-structured and unstructured problems.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  121

(b) Supports the manager in the decision-making process but does not replace
the manager in making decisions.
(c) Concentrates on improving the effective (as compared to efficiency) process
of decision-making by the manager.

The three objectives stated are related to the three basic concepts of DSS; problem
structure, support decision and the effectiveness of decision. Actually, it is difficult
to find completely structured or unstructured problems because most problems
are semi-structured.

The second objective of the DSS clearly shows that a computerised system cannot
in many ways replace humans in decision-making. From this objective, we
understand that the DSS only helps decision makers handle part of the structured
problems but some parts of unstructured problems still require human intuition
and consideration for solutions.

The third objective states that efficiency and the speed of data and information
processing are not the main objectives of a DSS. The main advantage of using a
DSS is to utilise its ability to help users make good quality and effective decisions.
According to McLeod (2006), managers must not find the solutions to their
problems using output from a DSS only because finding the solution or the
decision-making can be done using mathematical models. On the other hand,
managers have their intuition and judgement to fall back on in selecting the
solutions for their problems.

ACTIVITY 5.2

If, for instance, you are given a choice of going to Phuket or Tioman for
a holiday, what are the criteria that would help you make your decision?
In your opinion, does DSS help you choose the best destination if all the
data needed is entered into the system? Discuss with your coursemates
in the myINSPIRE forum.

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5.2.3 DSS Characteristics

Since there is no universal definition of the DSS, there is no understanding of the
characteristics and abilities of DSS. The following are some of the characteristics of
DSS:
(a) DSS provides support to the decision maker in solving semi-structured and
unstructured problems. Usually, these problems cannot be solved using
computerised IS and any other tools or quantitative methodology.
(b) All management level support, from operations to the executive level, is
provided.
(c) Individual and group support is also available.
(d) Support to interrelated decisions or a series of decisions. Decisions may be
made once, several times or just repeated.
(e) All four phases of decision-making are supported by DSS; intelligence,
design, decision and justification.
(f) All types of processes and styles of development of decisions are supported
by DSS.
(g) DSS is very adaptive, so it will always be relevant to the current demand.
(h) DSS has an interesting graphical user interface.
(i) DSS is more effective to the user in decision-making (in terms of quality,
accuracy, and so on) but less efficient (incurs decision-making cost).
(j) The decision maker has full control over DSS. The DSS objective is to support
users, not to replace them.
(k) The end user can modify DSS easily.
(l) DSS will usually use models to analyse a problem. This ability to apply
models to problems helps the user to test a few different strategies in
different situations.
(m) DSS allows the user to obtain data from a database.
(n) DSS is Web-based.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  123

ACTIVITY 5.3
Observe point (g) of the DSS characteristics given earlier. Explain briefly
this characteristic by providing suitable examples. Compare your answer
with your coursemates by posting your answer on the myINSPIRE forum.

5.2.4 Analytical Modelling for DSS

Apart from the characteristics stated in Subtopic 5.2.3, DSS needs to have the
ability to analyse. There are four basic analytical modelling activities of DSS which
are:
(a) What-if Analysis
The decision maker can make changes to the variables or the relationship
between the variables, to observe changes in another variable.
(b) Awareness Analysis
Often a variable is changed several times and the resulting variable changes
are observed. It is usually used when the decision maker is not sure of how
to approximate the value of the key variables. For example, inventory must
be reduced by 10 per cent several times. Then, we would be able to see the
relationship between sales and marketing department.
(c) Objective Analysis
Changing the analysis direction from what-if analysis to sensitivity analysis.
Apart from observing how the changes in the variable can affect other
variables, it also sets one target value for the variable. Then, it will change
the other variables repeatedly until the targeted value is achieved. For
instance, increasing the percentage of stock inventory until the sales and
marketing department reach a profit of RM1 million and a net profit of
RM850,000.
(d) Optimisation Analysis
A process that is very complex, from information analysis that not only sets
one target but also finds the optimum value for one or more targeted
variables. Then, one or several variables are changed based on constraints
given until the best value of the targeted variable is achieved. For example,
what is the best exposure for an advertisement, its budget and the type of
media available?

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SELF-CHECK 5.2

What is the what-if analysis? Explain its importance to a managerÊs

analysis.

5.2.5 Types of DSS

Based on Gorry and Scott MortonÊs (1971) work, Alter (1976) identified six types
of DSS. As seen in Figure 5.3, the six types of DSS have been classified based on
the degree of their problem-solution support ability. Now, look at Figure 5.5.

Figure 5.5: Types of DSS

Source: Alter (1976)

The lowest support level in DSS Type 1 is to enable managers to obtain specific
information elements. One example is getting the total sales of one department in
one location only. If the system helps to analyse all the files, is it a DSS Type 2? A
manager who wants to create a special report using data from the entire inventory
file is one example. The example only involves one type of file which is the
inventory file.

Often, you have to obtain data and information from multiple sources, and all
kinds of files and from multiple departments. In these cases, the degree of
complexity and support in problem solution is higher. Preparing reports from
multiple types of files is an example of DSS Type 3. You should already be clear
about the need for taxonomy in understanding the DSS concept at this level.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  125

The three types of DSS discussed earlier provide support in forming special reports
resulting from the query or questioning of a database. The other three DSS types
involve the use of a mathematical model or scientific management model in
supporting a manager in making decisions.

An example given by Alter (1976) for DSS Type 4 is the DSS model used to estimate
the effect of a solution. For example, a manager wants to know the effect of
increasing or decreasing the price of products on the monthly and yearly profits of
the company. The manager will input DSS, for example, RM25 per unit. DSS will
show the manager if the product is priced at RM25 per unit; this will lead the
organisation to obtain a profit of RM5,000 monthly.

However, you must understand that the model is not capable of explaining
whether the price of RM25 is the best option for the manager to choose. The system
can only explain what will happen to the profit if that decision is taken. In order to
provide additional support, you can add some DSS models that can analyse risks,
which can be used by the manager through the estimation of analytical
probabilities.

The DSS Type 5 suggests decisions. It gives more support to the decision maker
but the degree of complexity of the DSS increases, such as the DSS that uses the
linear algorithm model. A manager can input data about the structure of a factory
and its equipment into this DSS model. This will enable the manager to produce
the most effective decision.

The DSS Type 6, offers the most support to its user although it is difficult and
complex to develop the solution to his or her problem. An example of use of DSS
Type 6 is when an insurance company sets insurance premiums. Many company
managers let this DSS make decisions for them because they are very confident
with its capability to make good decisions.

There are two reasons for altering experiments:

(a) Firstly, it supports the concept of developing a DSS system to solve certain
types of decisions; and
(b) Secondly, a DSS should not limit itself only to mathematical and scientific
management, but should also produce a periodic report other than a special
report.

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ACTIVITY 5.4
Think of the objective of DSS with regard to its important
characteristics. How far can DSS be used to provide the best evaluation
for a certain decision? Discuss your answer in the myINSPIRE forum.

5.2.6 DSS Model

Let us look at Figure 5.6. It is a DSS model that shows you how components of DSS
interact to support decision makers. The DSS model has the same structure as the
MIS and FIS models.

Figure 5.6: DSS model

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  127

Although they have the same structure but the characteristics, concepts and
objectives of the three information systems are different from one another. As
indicated by Figure 5.5, data and information from the environment are input into
the database. A DSS database might also receive similar data and information from
the FIS and other systems and subsystems. The content of the database will then
be utilised by four subsystem software consisting of:
(i) Report writing software;
(ii) Mathematical model;
(iii) Scientific management model; and
(iv) Groupware.

5.3 GROUP DECISION SUPPORT SYSTEM

(GDSS)
The government and private organisations spend millions of ringgit to cover the
travelling costs of their staff who attend meetings locally or internationally. Now,
organisations can save if they use information and communication technology
(ICT) which enables them to conduct virtual meetings with colleagues or clients
who are thousands of miles away. This can be done using digital video technology,
chat technology and other technological network such as the Internet and intranet.

Innovations in ICT have developed a new DSS concept, that is, the group decision
support system (GDSS). A team that cooperates to achieve a common objective can
use GDSS to improve communication between group members. GDSS provides an
environment conducive to and which supports the decision-making process using
a type of software called groupware.

Group decision support system (GDSS) is a computer-based system that

supports a group of individuals that cooperate to achieve one aim by
providing an interface which use the surroundings that are shared together.

There are other definitions used to describe the application of information systems
by a group, such as the group support system, computerised cooperative work and
electronic meeting system. Whatever the definitions used, they all can be applied
to all kinds of groups and environments.

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You will agree that ICT has made the world smaller because it helps us to
communicate better, even though our friends are thousands of miles away. For
example, specialist surgeons in Europe need not be in Malaysia to perform surgery
as it can be done without moving them here. Thus, the basic theory of the
development of GDSS is to communicate well to produce better decisions.

You have to understand that good communication in the context of making

decisions does not necessarily mean having good technology but refers to
discussions that concentrate on problems without wasting time discussing on
irrelevant matters. The additional time obtained can be used to search for other
alternatives to the solution chosen.

5.3.1 GDSS Environment

GDSS supports the problem-solving process by providing an environment
conducive to communication. Figure 5.7 shows four types of environments, based
on the group size and location of the group members.

Figure 5.7: Group size and location that characterise the GDSS environment

For each type of GDSS environment, group members can meet at the same time or
at different times. If group members meet and discuss at the same time, as in a
meeting, this is called synchronous exchange. On the other hand, meetings can
also be held at different times, such as in communicating through e-mail. This is
called asynchronous exchange.

When you look at Figure 5.7, you must be wondering what is meant by decision
room, local decision network and so on. Now, let us have a better understanding
of what they are.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  129

(a) Decision Room

A decision room is provided for a small group of people who gather and
meet for a discussion. However, the decision room has characteristics that
are very different from those meeting rooms you are used to, even though
the purpose is the same, which is to come to a decision. The decision room is
different from a meeting room because the decision room helps the members
communicate through the aspects of its infrastructure. A decision group is
equipped with a workstation that is equipped with microphone, video
camera, big screen display and so on. At the centre of the room is a computer
for the facilitator.

The facilitator must make sure that the discussion stays on track. Have you
interacted on the Internet using Skype or Google Hangouts? If your answer
is yes, this communication takes place in a decision room, which is almost
the same except that the text that is typed is displayed on the big screen.
Other than that, any reference material for discussion can be displayed using
video, colour slides and transparencies.

There are two unique characteristics of GDSS in the decision room which are
parallel communication and anonymity.
(i) Parallel communication occurs when all participants make statements
using the computer at the same time.
(ii) Anonymity means that no participant knows who is making each
statement. Anonymity helps the participants to voice ideas and
statements without fear of being criticised by other participants. Thus,
all ideas and suggestions are evaluated based on meritocracy and not on
who suggests it.

(b) Local Decision Network

Local decision network is a small group that uses the local area network
(LAN) to interact or discuss using various applications.

This method is used when it is impossible to gather all members in one room
at the same time.

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(c) Law Amendment/Legislative Session

A legislative session is created when the decision room is too small to be
occupied by all members. This session is limited to communication through
a few methods. Among the methods are by giving opportunities to only a
few members to communicate or by allocating limited time to every member
to communicate, or by having the facilitator select materials and ideas that
need to be displayed on the screen for the group to see.

(d) Computerised Conference

A computerised conference is more commonly known as teleconferencing.
Teleconferencing is a computer application that helps a group of humans
to communicate even though they are geographically separated.
Teleconferencing involves computer conferencing, audio conferencing and
video conferencing.

5.3.2 Group Software

The purpose of group software or groupware is software that provides support to
a cooperating group through collaboration. Group software provides the
mechanism to all members of the group to share ideas, data, information,
knowledge and other resources. Examples of groupware are CiscoÊs collaboration
meeting rooms (CMR) hybrid and Skype for Business.

However, you must realise that not all group software packages are suitable to be
used in a working group. Let us refer to the outline of time or place in Figure 5.8
and you will see the technological differences in supporting a working group
according to time and place.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  131

Note: GDSS – Group decision support system

Figure 5.8: Communication of time or place and several computerised collaborative
technical support outline

Other than that, every group software package will use different technology, based
on one package that supports the purpose of the working group, such as the type
of group assignments.

Working software must have at least one of the abilities or components listed;
electronic advisor, conference or an electronic meeting room, group timetable,
calendar, planning, conflict resolution, model development, video conference,
document sharing (such as screen, whiteboard and live board), voting and so on.

Actually, there are thousands of group software packages that contain elements of
Web conferencing software and you can look for information on the Web using a
search engine.

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ACTIVITY 5.5
1. What a group software or groupware is? In your opinion, who
would need this kind of software and why?
2. Justify how MIS differs from transaction processing system (TPS)
and from DSS?
Share your justifications in the myINSPIRE forum.

SELF-CHECK 5.3
1. Give the four phases in making decisions as stated by Simon (1977).
2. Give the definition of DSS.
3. What is the objective of DSS?
4. Give four analysis models needed by a DSS.
5. Give the definition of GDSS.
6. What is a legislative session?

 The impetus for a decision support system (DSS) is to support the manager in
making decisions effectively. DSS provides the facilities to communicate which
include information that helps them to solve problems.

 DSS supports managers who relatively work in a problem-solving team, in

searching for a semi-structured and unstructured problem solution by
providing information or making suggestions related to a specific decision.

 In developing a DSS, the decision-making process needs to be researched first.

The decision-making process can be categorised as programmable decisions
and un-programmable decisions.

 There are three main objectives in developing a DSS. The first objective is to
help and provide support to the manager in the decision-making process to
solve semi-structured or unstructured problems. The second objective is to
support the manager in the process of making decisions and the last objective
is to improve the effectiveness of the decision-making process.

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 TOPIC 5 DECISION SUPPORT SYSTEM (DSS)  133

 The decision-making process consists of four activities; intelligence, design,

selection and evaluation.

 There are 14 characteristics and abilities of an ideal DSS needed by a support

system.

 There are four types of basic analytical modelling activities usually needed in
a DSS. These activities are the what-if analysis, awareness analysis,
information searching analysis and optimisation analysis.

 Organisations can reduce the travelling costs of employees by using

information and communication technology (ICT) that enables virtual
meetings such as the group decision support system (GDSS).

 GDSS supports a group of individuals that work together to achieve one aim
by providing an interface to reach and use the shared environment.

 The fundamental theory of GDSS development is to communicate so as to

arrive at a better decision. GDSS helps a group of humans who conduct
meetings to find a solution by helping them concentrate on the problem
without wasting time discussing irrelevant matters.

 Decision rooms provide characteristics that are very different from normal
meeting rooms because they help the members communicate via technology
and room design including its equipment. Decision rooms provide anonymity;
participants do not know who is making each statement.

 DSS and GDSS are a part of the management support system technology that
help the managers make good quality decisions, but does not replace them in
making any decisions. This is because in the decision-making phase, humans
still rely on intuition or experience to come up with good ones.

 DSS and GDSS are very useful and helpful to companies in making right
decisions. DSS and GDSS are important for many people with techno-savvy
lifestyles as computer mobility enables humans to use computers anywhere to
help them make decisions.

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Analytical modelling Groupware

Computerised conference Legislative session
Decision-making Local decision network
Decision room Semi-structured decisions
Decision support system (DSS) Structured decisions
Group decision support system Unstructured decisions
(GDSS)

Alter, S. L. (1976). Decision support system: Current practices and continuing

challenges. Boston, MA: Addison-Wesley.

Anthony, R. N. (1965). Planning and control systems: A framework for analysis.

Boston, MA: Harvard University Graduate School of Business
Administration.

Keen, P. G., & Scott-Morton, M. S. (1978). Decision support systems: An

organisational perspective. Reading, MA: Addison-Wesley.

McLeod, R. (2006). Management information systems (7th ed.). Upper Saddle

River, NJ: Prentice-Hall.

Scott, G. A., & Scott-Morton, M. S. (1971). A framework for management

information systems. Solan Management Review, 13(1), 55–70.

Simon, H. A. (1977). The new science of management decision (3rd revised edition;
first edition 1960). Englewood Cliffs, NJ: Prentice-Hall.

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Topic  Executive
Information
6 System (EIS)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the roles of an executive;
2. Discuss how executives think by understanding the three studies on
management science;
3. Elaborate the tasks of executives and how they think; and
4. Explain executive information system (EIS).

 INTRODUCTION
In your opinion, what differentiates a manager of a department from a chief
executive officer (CEO) of an organisation? You might think about the aspects of
their income, personality or maybe social status. However, MartineauÊs
experiment as cited in Jin (2010) discovered otherwise. He found that the biggest
differences between the two were from the working perspective and how work
was executed. Even the type of information system (IS) a departmental manager
used is different from that used by a CEO.

A senior executive officer usually uses the executive information system (EIS). EIS
is a system that provides the latest information, history and some anticipation
about the status and environment of the company to support administration tasks
and the process of decision-making of executives. An EIS usually uses qualitative

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graphic techniques, communication technology and the latest processing system,

comprising all types of input and output mechanisms, which include storage media,
to provide the facilities. EIS is also known as the executive support system (ESS).

In this topic, you will learn how an EIS helps in the managerÊs work and in making
decisions. Let us continue with the lesson.

6.1 THE ROLES AND CHARACTERISTICS OF

AN EXECUTIVE
Before we discuss EIS in detail, it is important that we know what an executive is.
Who is actually fit to be called an executive? What are the roles and tasks of an
executive? Why must we know what an executive is and what is his or her
relationship with EIS?

Now by saying executives, we are not referring to lower level executives such as
sales executives or IT-support executives who execute tasks given by the
supervisors, although their contributions are very much important to an
organisation. Our focus here is on higher level executives who are involved in
decision-making such as chief executive officers, chief financial officers and chief
information officers.

The use of the word „executive‰ is to identify higher-level managers in the

hierarchy of an organisation. An executive has the power and authority to set the
organisationÊs direction through his involvement in outlining strategic plans and
an organisationÊs policies.

Other than that, executives are different from lower-level managers in terms of
attitude. Executives are organisation-oriented, while managers are unit- or
department-oriented. Let us take for example the vice chancellor of a university and
the dean of a faculty. The vice chancellor administers and leads a university that
may contain 10 faculties, four centres and six support units, while a dean focuses
more on the tasks of leading and planning the strategy for the faculty. We will learn
about the roles of an executive after learning about the three studies done by experts
in management science – Henri Fayol, Henry Mintzberg and John Kotter.

The studies done by The Centre for Information System Research (CISR) at MIT
found that the main users of EIS are the chief executive officers (CEO), chief
financial officers (CFO) and chief operating officers (COO).

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  137

ACTIVITY 6.1
Who would you call an executive? Name one famous executive in
Malaysia and describe his or her contribution to the country. Share your
answer for discussion in the myINSPIRE forum.

SELF-CHECK 6.1

Differentiate the tasks of an executive (such as the CEO or a companyÊs

president) with those of the the supporting employees or the
departmental manager.

6.1.1 Fayol Management Function

McLeod and Schell (2007) stated that Henri Fayol (1914) believed that all
executives were doing the same management functions; planning, arranging,
administering and hiring employees, including directing and controlling. Henri
Fayol was one of the management researchers.

6.1.2 Mintzberg Management Roles

Mintzberg (1973) believes that managers play all roles according to levels except
the orientation manager. For example, one of the roles of an executive is to make
decisions in a negotiation. Higher level managers (executives) for instance may
need to negotiate a company merger, while lower level managers may require to
negotiate with a supplier on the delivery date of a product.

Hence, both levels of managers conduct negotiations of different orientations.

Mintzberg found differences in time taken between the two levels when either one
was playing the management role. For example, higher level managers may take
a longer time when compared to lower level managers in making decisions
because they deal with more critical and strategy-related situations that involve
the survival of the organisation.

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138  TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)

If EIS is not in place, then the computer-based IS will be as depicted in Figure 6.1.

Figure 6.1: Organisation without EIS

Figure 6.1 shows that executives receive all information from the subsystem
functions like the financial information system and marketing information
system which needs to be processed. Executives still need to analyse and convert
the data into more meaningful information.

EIS, as shown in Figure 6.2, helps executives analyse and change the data into
meaningful information.

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  139

Figure 6.2: Organisation using an EIS

EIS will accept all data and information from the subsystem function and its
environment, then process and present it with a good interface to the executives.

6.1.3 Networking and Kotter Agenda

Kotter (1982), a professor at Harvard, believes that executives deal with their tasks
using the three strategies stated in Table 6.1.

Table 6.1 : Strategies Used by Executives in Dealing with Tasks

Strategies Description

Agenda  These are the objectives of the company that need to be

achieved.
 There are two types of agendas; long-term and short-term.
 For example, the long-term agenda is the type, quantity and
design of Proton cars that need to be produced within five, 10 or
20 years. The short-term agenda deals with the size of the
passenger car market in Malaysia that needs to be conquered by
the new product, Proton Preve 1.6 CFE.

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Networking  Executives must build a relationship network. This is not the

same as computer networking.
 Kotter thinks that executives need to build networks or
relationships between individuals inside and outside the
organisation which can or will help in achieving the objectives
mentioned earlier.

Surroundings  Executives need to design a good surrounding or environment.

 The surrounding is actually the emphasis on good moral values
that can help networking members cooperate with each other to
achieve the agenda.

Source: Kotten (1982)

6.1.4 How an Executive Thinks

You have to know how executives think to better understand how an EIS needs to
function, the characteristics that it needs and the unique type of information
provided compared to other information systems. An EIS has to be developed
meticulously because it will be used by executives to obtain information to make
decisions or to outline a strategic plan or company policy. You would not want to
develop a system that gives false or inaccurate information to your employer,
would you?

Researchers like Professor Daniel J. Isenberg (1984) from Harvard stated that
executives generally think about two classes of problems:
(a) First class: How to solve work problems; and
(b) Second class: How to manage big issues or general aims of an organisation.

With regard to the first class, executives concentrate more on issues concerning the
organisation and subordinate individuals to solve problems rather than think
about ways to solve them.

IsenbergÊs observation shows that executives do not always follow the correct
steps in making decisions. For example, in handling a problem, executives usually
head straight for the execution of the solution and then backtrack to the evaluation
of alternatives, which is the step prior to execution. Executives make rationale
decisions but the decisions made do not mean that decisions coming through are
correct.

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  141

Isenberg (1984) believes that executives use their intuition in every aspect of the
decision-making process. Intuition plays a major role in helping executives make
decisions. This is due to the nature of humans, where problems endured by
executives are unstructured and this includes the executivesÊ experience. This
strongly affects the process of decision making by executives.

ACTIVITY 6.2
Search for articles related to high-level executivesÊ roles in leading a
company. In your opinion, why do we need to learn and understand
how executives work? Discuss your findings in the myINSPIRE forum.

6.2 EXECUTIVE INFORMATION NEEDS

After learning about the thought process of executives, you will then understand
that their style of thinking is unique; the same can be said for their tasks and aims
in an organisation. What are the types of information they need? This is also
unique because they need information others cannot think of in order to make
decisions in their strategic planning. We will now learn about studies done by
Mintzberg, Jones and McLeod.

6.2.1 Mintzberg Research

Mintzberg was the first researcher to study information needed by executives by
identifying how executives spent their time. His research found that executives
spent their time in five fundamental activities:
(a) Twenty two per cent doing desk work (such as typing, reading or replying
to e-mails, reading reports and others);
(b) Six per cent in answering and returning calls;
(c) Ten per cent attending unscheduled meetings;
(d) Fifty nine per cent attending scheduled meetings; and
(e) Three per cent making visitations.

What you must observe here is that MintzbergÊs research has become the basis of
modern design information systems based on computers in the context of EIS. This
role is important in mixing virtual office applications for an executive. In simpler
terms, when you want to develop EIS, you have to create the Mintzberg research

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to finalise the types of related applications to be integrated in EIS. This is because

it will be used by executives with the information who need certain aspects that
are unique compared to other end users.

6.2.2 Jones and McLeod Research

Professor Jack W. Jones and Raymond McLeod (1987) saw the importance in
researching deeper on the sources of information and the medium used by
executives as reported by Mintzberg. Their research was designed to answer the
five questions stated in the following Table 6.2.

Table 6.2 : Research Questions by Jones and McLeod on Information

and Medium Used by Executives

Questions Findings

(a) How much information do  Executives receive an average of

executives receive? 29 transactions per day.
 The transactions are usually carried out
via mediums of communications like
computer reports, memos, answering the
phone,
e-mail, meetings and others.

(b) What is the value of the  According to their research, almost

information received? 26 per cent of the transactions received do
not have any value.
 Only six per cent of the received
information has high value.
 Others are just moderate in terms of
value.

(c) What is the executiveÊs source of  The organisationÊs environment such as the
information? government, universities, mass media and
others, is the main source of information but
is of low value.
 On the other hand, a small portion of
information such as information given by
members of the organisation is of a very
high value to executives.

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  143

(d) What are the types of media (i) Written medium; computer reports,
used by executives to exchange memos, e-mails, journals and others
information and to constitute sixty one per cent of the
communicate? transactions received.
(ii) Two per cent of the received information is
during a function.
(iii) Twenty one per cent is from using the
telephone.
(iv) Five per cent is from scheduled meetings.
(v) Six per cent is from unscheduled meetings.

(e) How is the received (i) Thirty two per cent is used for trade and
information used by entrepreneurship.
executives? (ii) Forty two per cent is for handling problems
or disturbances.
(iii) Seventeen per cent is used as a distribution
source.
(iv) Three per cent is used for consultancy and
business.
(v) The usage of the last six per cent is
unknown.

Source: Jones & McLeod (1987)

So, what does the information above mean? How is EIS related to all this? What is
the importance of the research? There are three main findings that we need to
know:
(a) Most of the information received comes from the organisationÊs environment
but a companyÊs internal information has higher value.
(b) Most of the information received by executives is in written form but those
with the highest value are received orally.
(c) Executives receive little information from the computer.

In conclusion, there is no EIS that is totally dependent on computers. What really

happens is that the computer is used as a support for the non-computerised
workflow. Jones and McLeodÊs research provides a good lesson to us on the
characteristics and forms of information flow that executives need in order to get
information that can be used to solve their problems.

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ACTIVITY 6.3
You have been introduced to the research done by Jones and McLeod
(1987). What was the conclusion of their research? Discuss your answer
in myINSPIRE forum.

6.3 EXECUTIVE INFORMATION SYSTEM (EIS)

What is an EIS? EIS is a system that provides information to executives about the
companyÊs performance as a whole. The information can be obtained with ease
and detailed information can be harvested based on the executiveÊs needs. EIS is a
tool that provides online access to relevant information in a useful format and can
be searched for. What is relevant information?

Relevant information is information that is current, accurate and can be used

for business according to the executiveÊs interest.

6.3.1 Definition
According to McLeod and Schell (2007), EIS is a system that provides information
to executives concerning the organisationÊs progress as a whole. In general, EIS is
defined as:

„A computer-based method for both inexperienced and knowledgeable

executives with computers to obtain, create, send information including
exploring and searching in detail certain information from the field needed
by them to make decisions.„

EIS addresses non-routine decisions requiring judgement, evaluation and insight

as there is no agreed-upon procedure in arriving at a solution.

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  145

ACTIVITY 6.4

An interesting definition about the EIS can be obtained from Chapter 2

of this book:
Laudon, K. C., & Laudon, J. P. (2013). Management information systems:
– Managing the digital firm (13th ed.). Upper Saddle River, NJ: Pearson
at https://bit.ly/38mtGQj.

Read the definition given in the book and compare with the definition
given in this module. Post your answer on the myINSPIRE forum for
discussion.

6.3.2 EIS Model

Now, let us look at Figure 6.3. It shows the infrastructure of EIS that involves a
personal computer (PC).

Figure 6.3: EIS model

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Large companies usually network their PCs with a supercomputer or mainframe.

The executive PCs will act as the executive workstation. The executive workstation
is equipped with a large hard disk to store data and information processed by the
central computer (such as the supercomputer or mainframe). Executives just select
from the menu and display certain screens to process a task.

The system is also equipped with an e-mail application which includes preparing
facilities for the executive to download data or information from the
supercomputer or certain servers. There are also EIS variations that provide
explanations on current information, competitors, or social and economic
information, both internally and externally.

There are many EIS software and applications available in the market, provided
by commercial software vendors. Usually, this software comprises office
automation, e-mail, information management, information connection and
information analysis.

6.3.3 EIS Input and Output

In order to enable EIS to function effectively, it has to be supplied with general as
well as specific data. Referring to Figure 6.2, the input into EIS comes from another
IS such as the transaction processing system (TPS), management report system and
management information system (MIS).

The EIS data needed for input depends on the executiveÊs needs as an end user.
Whatever information needed to make decisions, as well as information deemed
necessary by the executive, should be included in the EIS.

However, sorting the data and the types of information that need to be processed
by an EIS is difficult. This is due to the development of EIS which starts with
several features that the executives are interested in. Then, it is expanded
according to the information needed by the managers using it. Subsequently, the
format and type of information in EIS will become outdated and divert from
strategic planning.

The output of an EIS is as follows:

(a) Standardised reports;
(b) Graphics and online facilities; and
(c) On-demand information.

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  147

SELF-CHECK 6.2
Give examples of other systems that produce output, yet become the
input of EIS.

6.3.4 Characteristics of the EIS

Some of the important characteristics of the EIS are:
(a) Usually it is specifically for executives – The goal of the EIS is to give accurate
information to individuals at the correct time and in the correct format.
(b) Easy to use because most users are decision makers who are usually not
proficient in technical matters.
(c) Supports the need for external data because most of the information needed
at the upper level is from outside sources.
(d) Assists in highly unpredictable situations by giving useful information and
suggestions for making critical decisions.
(e) Has a future-time orientation because the decision made is for the long term
and can be used in the next few years.
(f) It is connected to the process of value added business which is then
connected to the DSS to increase the effectiveness and capabilities of the
system to make better decisions.

6.3.5 EIS Capabilities

Some of the capabilities of the EIS are to:
(a) Support strategic management because the EIS enables decision-making for
the long-term.
(b) Support the formation of an overall organisational vision with the strategic
planning that is made.
(c) Support strategic management and staff recruitment.
(d) Support strategic control in monitoring and managing organisational
operations.

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148  TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)

(e) Support crisis management, especially planning, in the event of an accident

(fire and the like), which can halt organisational operations. The EIS can help
executives to plan for these disasters.

SELF-CHECK 6.3

1. Define an EIS.
2. What is the output of EIS?

3. Sketch the EIS model, including its important components and the
data flow.

 Higher level executives have their characteristics on their own in terms of

management and decision, which are different from lower ranking executives.

 Research shows that the information needs for executives are more
organisation-oriented.

 Higher level managers play an important role in forming the organisationÊs

success, and the performance of their employees is also critical in achieving the
mission and vision of the organisation. Thus, a system such as EIS is very
important because it supports the long-term planning of an organisation.

 EIS is capable of creating a new information source that can help the company
improve its performance and at the same time provide excellent services to its
employees and customers.

EIS model Management roles

Executive information system (EIS)

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 TOPIC 6 EXECUTIVE INFORMATION SYSTEM (EIS)  149

Isenberg, D. J. (1984). How senior managers think. Harvard Business Review, 62,
80–90.

Jin, D. Y. (2010). Global media convergence and cultural transformation: Emerging

social patterns and characteristics. IGI Global

Kotter, J. (1982). What effective general managers really do. Harvard Business
Review, 60(2), 157–169.

McLeod, R., & Schell, G. (2007). Management information systems (10th ed.).
Upper Saddle River, NJ: Prentice-Hall.

Mintzberg, H. (1980). The nature of managerial work. Prentice Hall.

Copyright © Open University Malaysia (OUM)

Topic  Expert
7 System (ES)

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe what an expert system (ES) is and its applications;
2. Explain the steps involved in producing rules and information
gathering;
3. Discuss ES architecture and development;
4. Describe the main characteristics of an ES; and
5. Explain the advantages and disadvantages of an ES.

 INTRODUCTION
In this topic, you will learn about one of the branches of artificial intelligence (AI),
which is the expert system (ES). The ES is also known as the knowledge-based
system. The ES comprises many types of systems based on rules, frames and fuzzy
sets. In this topic, you will also be exposed to the most popular ES, the system
based on rules. Are you ready? Let us get going.

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7.1 WHAT IS AN EXPERT SYSTEM (ES)?

Before we go on further, can you explain the main word in „expert system‰, which
is „expert‰?

An expert is a person that has the expertise and knowledge of his or her
specialised field.

Examples of experts are a heart specialist and a mathematician. Through

experience, an expert expands his or her skills to enable him or her to solve
problems heuristically, efficiently and effectively.

According to Efraim Turban (2001), the ES comes from the knowledge-based ES

terminology. A good ES is a system that can copy the process of reasoning in a
human being.

Prof Edward Feigenbaum (1983) from Stanford University, a famous researcher on

ES defines ES as:

„⁄an intelligent computer program that uses knowledge and reasoning

procedures to solve difficult problems that need certain expertise to solve the
problems.‰

Based on the definition given earlier, we can define ES as follows:

Expert system (ES) is an information system (IS) that is capable of mimicking

human thinking and making considerations during the process of decision-
making.

ES uses human knowledge stored inside a computer to solve problems that

requires human expertise to solve. ES is an IS that has been used to solve a problem
that usually requires an expert to solve. ES is developed to model the ability of an
expertise in solving problems. In the process of modelling the method which an
expert uses to solve a problem, ES must be able to provide users with the services
and facilities that an expert can usually provide.

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ACTIVITY 7.1
Currently, the ES is a popular topic in the field of management
information system (MIS). In your own words, explain what an ES is.
Share your answer for discussion in the myINSPIRE forum.

7.1.1 Why is an ES Needed?

You must be thinking of the rationale behind the process of transferring the
knowledge of an expert to a computer. Table 7.1 will answer your query by
comparing the ES to that of human beings.

Table 7.1: Comparisons between an ES and a Human Expert

Factor Human Expert Expert System (ES)

Time (can be obtained) Working days only Anytime

Geography Local Anywhere

Safety Cannot be replaced Can be replaced

Damages Yes No

Speed and efficiency Changes Consistent

Cost High Intermediate

An ES is built because of two factors, either to replace or to help an expert.

Some of the reasons for the need of an ES to replace an expert are:

(a) To enable the use of expertise after working hours or at different locations;
(b) To automate a routine task that requires human expertise all the time
unattended, thus reducing operational costs;
(c) To replace a retiring or a leaving employee who is an expert; and
(d) To hire an expert is costly.

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The ES is used to:

(a) Help experts in their routine to improve productivity;
(b) Help experts in some of their more complex and difficult tasks so that the
problem can be managed effectively; and
(c) Help an expert to obtain information needed by other experts who have
forgotten about it or who are too busy to search for it.

ACTIVITY 7.2
Has your car ever broken down? Think about how an ES can help you
in that situation. Discuss this with your coursemates in the
myINSPIRE forum.

7.1.2 Application of ES
ES is widely used in all types of fields and sectors like medicine, engineering,
education, marketing, tax planning and more. We will study several other
applications in the financial, production and military sectors. Examples of
applications in the banking and financial sector and production industries are
discussed in the proceeding sections.

(a) Application of ES in the Banking and Financial Sector

(i) An ES that helps bank managers in making decisions on granting loans.
(ii) An ES that advises bank managers in giving housing loans.
(iii) An ES that advises insurance companies on the risks involved in
insuring a customer or a company.
(iv) An ES that helps banks to decide on whether a customer is entitled for
a credit card or not.
(v) An ES that identifies computer fraud and controls it.

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(b) Application of ES in Production Industries

(i) An ES capable of diagnosing some technical malfunctions in
aeroplanes, gas turbines and helicopters.
(ii) An ES that helps identify threats that may put security at risk.
(iii) An ES that helps to form and produce small mechanical items.

As mentioned earlier, an ES is widely used in many application areas. This is due

to its capability to solve various patterns or paradigms of problems. Table 7.2 lists
10 paradigms in problem-solving that an ES is capable of solving.
Table 7.2: Problem-solving Paradigm

Problem-
solving Example of Expert System (ES) Application
Paradigm

Control Controlling the behaviour of the system according to specification.

Design Aligning objects by following limits.

Diagnosis Providing reasons for system malfunction based on observation.

Instruction Diagnosing and improving behaviour of students.

Translation Providing reasons for situations based on data given.

Assessment Comparing observation data with expectations.

Planning Designing a plan of action.

Prediction Providing reasons on the cause and effect of a certain decision based
on situation.

Selection Identifying the best selection from all alternatives and probabilities.

Prescription Suggesting solution to improve a malfunctioned system.

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SELF-CHECK 7.1

Differentiate between human expertise and the ES. You may use the
following table:

Factor Human Expertise Expert System (ES)

Time (which can be

obtained)

Geography

Security

Malfunctions

Performance and speed

Cost

7.2 KNOWLEDGE AND EXPERTISE

Around the 1970s, computer scientists accepted the fact that in order to enable a
machine to solve intellectual problems, a machine must know how to first solve it.
In other words, it has to have the relevant know-how to solve problems in a
specific domain.

(a) What is Knowledge?

Knowledge is a theoretical or practical understanding of a subject or

domain.

Knowledge is a combination and mix of information that is already known,

and knowledge is power. Anyone who has a certain amount of knowledge
may be considered an expert. Experts are people who have power in the
organisation. In any successful company, there are a certain number of first
class experts and the companies will not succeed without them. As an
example, Sun Microsystem has James Gosling, the founder of Java
programming.

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(b) Who is Fit to be Called an Expert?

Anyone can be called an expert as long as that person has a vast knowledge
of the particular field and has practical experience in a certain domain.
However, the person is restricted to his or her own domain. For example,
being an IT expert does not mean that the person is an expert in all IT
domains but he or she may be an expert in intelligence systems or an expert
in only the development of an intelligence agent.

(c) How Does an Expert Think?

The human mental process is too complex and complicated to be drafted as
an algorithm. Many experts can only create rules in solving certain problems.
We will learn more about the steps in referencing the knowledge acquired
from an expert with the rules when we learn about the basic architecture of
an ES. Figure 7.1 and Figure 7.2 show the different ways of thinking between
an expert and a machine.

Figure 7.1: Human problem-solving architectural structure

Figure 7.2: An ES problem-solving architectural structure

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ACTIVITY 7.3

Knowledge helps humans to solve problems. How is knowledge used

in an ES? Discuss this matter with your coursemates in the myINSPIRE
forum.

7.3 EXPERT SYSTEM (ES) ARCHITECTURE

An ES merges knowledge, facts and reasoning techniques in reaching a decision.
In order to produce a decision, an ES fundamental architecture is required, as
shown in Figure 7.3.

Figure 7.3: Basic components of an ES

From Figure 7.3, you can see the basic components of an ES, which are:
(a) Knowledge acquisition facility;
(b) Knowledge base;
(c) Inference engine; and
(d) Explanation facility.

Let us now discuss the components in detail.

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7.3.1 Knowledge Acquisition

What is knowledge acquisition?

Knowledge acquisition is a process of gathering and transferring problem-

solving expertise from all sources of knowledge in a computer program.

The expert information that has been acquired will be used to develop and expand
the base knowledge. The source of knowledge stated here includes experts,
journals, the Internet, online databases or research reports and experiments.

7.3.2 Knowledge Base

A knowledge database stores two important things:
(a) Stored facts – Information or data in a designated field.
(b) Rules or heuristic rules – Explain procedures of reasoning used to solve a
certain problem.

Knowledge representation has been earlier discussed. It is a procedure used to

manage knowledge. A knowledge database is quite different from the
conventional database. A knowledge database does not store information like
numbers, texts, logical values and others, as found in a normal database.

On the other hand, it stores concepts and dedicated procedures that need to be
done in order to solve a problem. There are several different methods of storing
knowledge in a database. Some of the methods are predicate calculus, semantic
network, script and mainframe.

Rules Creation
Rules are divided into two operators:
(a) IF, called before (a premise or condition); and
(b) THEN, it is called effect (conclusions or actions).

In general, rules can have a few conditions by relating each condition to the
keywords AND, OR or a combination (AND and OR). On the contrary, it is better
to avoid combining both in one rule.

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See the following example that shows how a few conditions are related to AND.
IF<condition 1>
AND<condition 2>


AND<condition n>
THEN<action>

The next example shows how a few conditions are related to AND and OR.
IF<condition 1>
AND<condition 2>
OR<condition 3>
THEN <action>

Rules can represent a relationship, suggestion, instruction, strategy and heuristics.

Look at Table 7.3 to see the example.

Table 7.3: Representation of Rules

Representation Rules
Relationship IF „tank‰ is empty
THEN car cannot start
Suggestions IF monsoon season
AND cloudy sky
AND weather station predicts rain
THEN you are advised to bring an umbrella
Instructions IF car cannot start
AND „tank‰ is empty
THEN put petrol in the tank
Strategy IF car cannot start
AND „tank‰ is empty
THEN put petrol in the tank
Step 1 is done

IF Step 1 is done
AND tank is full
THEN check the car battery
Step 2 is done
Heuristics IF fluid spills
AND pH of the spill < 6
AND smells acidic or sour
THEN the spills is an acetic acid

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7.3.3 Inference Engine

The inference engine is the most important component and is considered the brain
of an ES. The inference engine is the knowledge process that is modelled on the
methods of human expert reasoning. It is a process in the ES that pairs the facts
stored in the working memory with the knowledge domain that is stored in the
knowledge database, to get the method from the problem. It is also known as the
control structure or the rule interpreter for an ES base rule.

Inference engine is a computer program that drives to the conclusion or

solution and at the same time provides the reasoning methodology for
information stored in the knowledge database.

Inference engine also provides a guideline on using the knowledge in the ES by

developing an agenda that manages and controls the steps needed for solving a
problem during the consultation process executed by the user.

There are two strategies used by the inference engine when making decisions or
conclusions. These strategies are forward and backward chaining.

(a) Forward Chaining Strategy

The inference engine starts reasoning from the facts provided and moves on
until it achieves its decision or conclusion. This strategy is guided by the
provided facts in the memory space and the premises which it can obtain
them from. The inference engine will try to match the required premise (IF)
for all rules in the knowledge database with the facts given, which are in its
memory. If there are several rules that match, the solving procedures will be
used. The inference engine will repeatedly match the rules of the basic
knowledge to the data stored in its memory.

(b) Backward Chaining Strategy

This strategy is the opposite of the forward chaining strategy. It starts from
the decision and moves backward to obtain supporting facts for the decision
made. If there are no matching facts that support the chosen decision, the
decision will be rejected and another decision will be selected. The process
continues until a suitable decision and the facts that support it are obtained.

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The strategy of forward chaining can obtain a decision and produce more
information with fewer questions compared to backward chaining. Thus, it is
always used for large scale and complex ES.

However, the weakness in this approach is the long duration taken for processing.
Certain ES developed employs a combination of both the strategies of chaining,
which is called mixed chaining.

ACTIVITY 7.4

Search for a few resources (either printed or online) for explanation

regarding the use of strategic forward and backward chaining. In your
opinion, which strategy is more frequently used? Post your answer in
the myINSPIRE forum for discussion.

SELF-CHECK 7.2
1. Is the inference engine reasoning process the same as your
reasoning process? Which will you use to solve a problem? Can
both processes be used?
2. Write down the differences between the human problem-solving
architecture and the ES.

7.3.4 Explanation Facility

This component acts to help the user understand how an ES reaches a certain
decision or conclusion of the problem that needs to be solved. The user can obtain
the logic or rationale for a certain decision that he or she makes. This component
is capable of answering questions like:
(a) Why is this question being addressed by the system?
(b) How is a decision made?
(c) On what basis is the decision made?
(d) Why are certain alternatives rejected from being a decision or solution?

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For example,

ES : Is the car going to start?

User : Why?
ES : If I know my car will not start, I may assume that the problem is
due to the failure of the electronic system of the car.

An expert will act based on what he or she can conclude from the answers, whereas
ES responds to the question of WHY by displaying the rules it is executing.

(a) Explanation of WHY

Apart from providing the final decision, an ES can explain how it comes to a
decision.

Developing a conventional system is done based on the defined problems

but it is not the same for an ES. Thus, ES needs a justification facility to
explain to the user all the decisions it makes.

For example:

ES : The battery of your car has failed.

User of ES : How?
ES : It is because your car cannot be started, thus, the system
assumes that the electronic system in your car has failed.
When the system finds that the voltage level is below 10V,
thus it is proven that your car battery has failed.

The ES responds by stepping back to the rules that the system uses to achieve
the decision. Stepping back to the rules is how the ES does the reasoning.

7.3.5 The User Interface

The user communicates with the ES through the user interface. It enables the user
to query the system, input information and then receive advice. The ES aims to
provide communication between the system and the user, as if the user was
interacting with the expert. However, the ES is still unable to understand normal
language and general knowledge.

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Occasionally, the ES processes language which enables interaction and

communication between the user and ES in a user-friendly manner. When the ES
was first introduced, the ES interface was only text based.

However, a language that was more similar to the human language made
communication more natural. Now, certain ES provides graphical user interface
like menus and graphics in the Windows environment.

7.3.6 Working Memory

Another important component in an ES is the working memory. It contains facts
of problems that are happening during the consultation process with the ES. The
system will match the information found with the knowledge stored in the
knowledge database to consider the new facts. The conclusion obtained will be
stored in the working memory. Thus, the working memory contains the
information that is supplied by the user or the reasoning done by the ES itself.

7.4 THE EXPERT SYSTEM (ES)

CHARACTERISTICS
An ES is usually designed with several characteristics as shown in Figure 7.4.

Figure 7.4: ES characteristics

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The following explains in detail the characteristics.

(a) The Highest Level of Expertise

This characteristic is most useful. This expertise in an ES comes from the
knowledge and problem-solving steps provided by the best experts in their
own domains. This will lead to efficiency, accuracy and imaginative
problem-solving.

(b) Right-on-Time Reaction

An ES must function and interact within a reasonable time with the user.
Ideally, the total time must be less than the time taken by a real-life expert to
solve the same problem.

(c) Accepting Incorrect Reasoning

This type of application is used when the information used for the solution is
unclear, vague or cannot be obtained and not in a domain that is very clear.

(d) Good Reliability

The ES must be highly reliable and it must be improbable for the system to
make a mistake.

(e) Easily Understood

The ES must be able to explain the reasoning of steps during the execution
or the inference process for the user to better understand what is happening.
An ES must be able to explain why such actions are taken the same way an
expert would explain the decision he made.

(f) Flexible
Due to the large amount of knowledge possessed by an ES, it is important for
the ES to have an efficient mechanism to administer the compilation of the
existing knowledge in it.

(g) Symbolic Reasoning

The ES represents knowledge in symbolic terms by using one set of symbols
that represents all the concepts of the problem in the specific domain. All the
symbols, when combined or paired, will demonstrate a relationship between
the problems. When this relationship is represented in a program, they are
called structured symbols.

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For example,

Statement : Ahmad has a fever.

Rule : IF a person has a fever, THEN take paracetamol.
Conclusion : Ahmad takes paracetamol.

(h) Heuristic Reasoning

An expert does efficient problem-solving by relating to experience as the
basis of reasoning. If the problem encountered is new, then the expert
combines the knowledge and experience to solve the problem.

An example of heuristic reasoning used by an expert:

(i) I will usually check the electronic system first.
(ii) Humans will not usually be infected with flu during summer.
(iii) If I suspect cancer in a patient, I will check the patientÊs family
background first.

(i) Making Mistakes

Since most of the knowledge in the ES database was input by humans, it is
subject to human error. This might happen due to the rules, facts or steps not
being considered or being wrongly entered during the process of knowledge
acquiring.

(j) Expanding with Tolerable Difficulties

The problems that an ES need to solve must be complex and difficult but at
a tolerable level. However, the problem must not be too easy either.

(k) Focus Expertise

Most experts are skilful and knowledgeable in their own field only. The ES
must be made to focus on a specific domain and not mix up the knowledge
of two experts from different domains.

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Table 7.4 shows the differences between conventional system and ES.

Table 7.4: The Differences between Conventional System and ES

Conventional System Expert System (ES)

Knowledge and processing are Knowledge database and the processing

combined in one program. mechanism (inference) are two different
components.

Program does not make errors (only The ES program may make a mistake.
programming error).

Usually it will not explain why the data Explanation is part of an ES component.
needs to be input or how the decision is
achieved.

System is operational only when fully An ES can operate with a small number of
developed. rules.

Step-by-step execution according to Execution done logically and heuristically.

fixed algorithms is necessary.

Needs complete and full information. Can operate with sufficient or insufficient
information.

Manipulates a large and effective Manipulates a big and effective database.

database.

Referencing and use of data. Referencing and use of knowledge.

Main objective is efficiency. Main objective is effectiveness.

Easily operated with quantitative data. Easily operated with qualitative data.

SELF-CHECK 7.3

Describe five main characteristics of an ES.

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7.5 EXPERT SYSTEM (ES) DEVELOPMENT

An ES team must consist of:
(a) A domain expert;
(b) Knowledge engineer; and
(c) User.

Let us look at the team of experts in detail.

(a) Domain Expert

A domain expert is a person who has the knowledge, experience and skills
in a certain field or a particular subject. He or she should also be able to guide
and possess unique problem-solving methods and is better than others in the
field.

Even though an ES usually models the expertise of either one or more

experts, an ES also models expertise based on other alternative sources such
as printed material (books, manuals, journals and others). The prerequisites
to be a domain expert are that he or she must:
(i) Be knowledgeable in a particular field;
(ii) Have skills in solving problems;
(iii) Be competent in presenting knowledge;
(iv) Have time management skills; and
(v) Be cooperative.

(b) Knowledge Engineer

A knowledge engineer is a person who is responsible for creating,
developing and testing the ES. The prerequisites to become a knowledge
engineer are that he or she must:
(i) Have engineering knowledge (the art and science to develop an ES);
(ii) Have good communication skills;
(iii) Be able to match problems with software; and
(iv) Have technical knowledge (programming) in developing an ES.

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(c) User
The user is one who uses the ES when it has been fully developed. He or she
will help during the knowledge acquiring process by explaining the
problems to the knowledge engineer.

7.5.1 The Software and Tools in ES Development

An ES developer can choose three different approaches in developing an ES, which
are:
(a) Using a programming language;
(b) Using an ES shell; and
(c) Using the tools in an artificial environment.

We shall now discuss these approaches in detail.

(a) Programming Language

An ES can be developed using a symbolic language such as LISP or
PROLOG, or a conventional higher-level language such as FORTRAN, C and
PASCAL.

(i) LISP
All ES developed in the early days used LISP, or tools written using the
LISP language.

(ii) PROLOG
The ongoing research of artificial intelligence has given birth to the
programming language PROLOG. PROLOG is the acronym for
„Programming in Logic‰. A program using PROLOG can be assumed
to be a knowledge database that stores facts and rules.

(b) ES Shell
An ES shell is a program used to develop an ES. The ES shell executes three
main functions:
(i) Helps the programmer to build a knowledge database by permitting
the developer to input knowledge in the knowledge representation
structure.

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(ii) Provides the procedures for inference or reasoning deductions based

on the information stored in the information database and new facts
input by the user.
(iii) Provides the interface to let the user prepare reasoning tasks and
questions to be queried to the system on strategic reasoning.

(c) The Tools in an Artificial Environment

Compared to the programming language and shell, this tool is extremely
expensive and powerful. The advantage of using this tool is that it provides
a variety in knowledge representation techniques such as rules and frames.

7.5.2 Modelling an ES Development

It is very important to model the rules in an ES before developing the ES so that
every requirement is captured and developed accordingly.

How can we model the rules for ES? Figure 7.5 shows an example of rules in an ES
for a simple credit-granting ES extracted from Laudon and Laudon (2018).

Figure 7.5: Credit-granting expert systems

Source: Laudon & Laudon (2018)

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ACTIVITY 7.5
In your opinion, can the methodology used in developing a conventional
system be applied in developing an ES? Share your opinion with your
coursemates in the myINSPIRE forum.

7.6 THE ADVANTAGES AND DISADVANTAGES

OF AN EXPERT SYSTEM (ES)
There are several advantages and disadvantages of an ES. They are listed and
explained in the next subtopics.

7.6.1 Advantages of the ES

ES usage provides many advantages. Some of the advantages are:

(a) Consistency
One of the advantages of an ES is that the results given are consistent. This
might be due to the fact that there are no distracting elements such as fatigue
and emotions as experienced by humans.

(b) Hazardous Working Environment

Through an ES, we can avoid exposing ourselves to a toxic or radioactive
environment. An ES can take over the place of an expert to handle problems
in a high-risk area such as a nuclear power plant.

(c) Ability to Solve Complex and Difficult Problems

A very difficult problem encountered by an organisation, if not taken
seriously, can cause an adverse impact such as losses or cancellation of a
business deal. Sometimes, the problems need to be attended to quickly. The
problems can become more complicated when individuals or experts
involved in solving them are not present or cannot be contacted. Thus, an ES
serves as an alternative to experts.

(d) A Combination of Knowledge and Expertise from Various Sources

As discussed earlier, one of the important components in an ES is the
knowledge base. This component contains the accumulated knowledge and
the acquired or transferred expertise from many experts. Thus, an ES is
sometimes more superior than an expert because its knowledge and
expertise have come from many sources.

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(e) Training Tool for Trainees

An ES can be used by trainees to learn about the knowledge-based system.
Trainees who use an ES would be able to observe how an expert solves a
problem.

7.6.2 Disadvantages of the ES

The following are several disadvantages concerning the use of ES.

(a) Not Widely Used

ES is not widely used in business firms or organisations. Due to limited
usage, firms are still in doubt about the capability and, most definitely,
discouraged by the high cost involved in investing in an ES.

(b) Difficult to Use

Using an ES is very difficult and learning and mastering it requires a long
time. This discourages managers from using ES. In one aspect, developing
an ES that is user-friendly is the biggest challenge for an ES developer.

(c) Limited Scope

This is the most obvious weakness of an ES; its scope is restricted to its field
only. In the development aspect, the ES built is best developed because of its
high accuracy. However, usage-wise, decision makers face constantly
changing problems which involve different fields that are inter-related.

(d) Probable Decision Error

The main source of the knowledge is human experts and humans make
mistakes. If the experts input wrong information into the ES, this will have a
negative impact on the results produced.

(e) Difficult to Maintain

The information in an ES must be constantly updated to solve new problems.
Every new problem that occurs needs new knowledge and expertise. This
means that there must be an ongoing relationship between the domain
experts and the ES developer. This situation requires the domain experts to
update the source of knowledge and expertise to suit the current situation.

(f) Costly Development

The cost to consult a group of experts is not cheap, what if the ES was built
traditionally without involving the use of an ES shell? On the other hand,
programming cost is high because the artificial intelligence technique is
difficult to master and needs a very skilful programmer.

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(g) Legal and Ethical Dilemma

We must be responsible for our actions and decisions. An expert has to take
responsibility for the information he or she provides. The difficult question
here is who should shoulder the responsibility if a decision suggested by an
ES results in a negative outcome.

ACTIVITY 7.6
The ES also has its weaknesses and flaws. In your opinion, do these
weaknesses influence the quality of an ES? Discuss this issue with your
coursemates in the myINSPIRE forum.

SELF-CHECK 7.4

1. There are 10 paradigms involved in solving problems using an

ES. List five of the paradigms.

2. State five main factors that distinguish the problem-solving

capabilities of human beings from an ES.

3. Define knowledge.

4. State the structural differences between human problem-

solving and the ES.

5. State the types of rules below. Do the rules below represent

relation, suggestion, instruction, strategy or heuristic?

IF car cannot start

AND‘car voltage’ < 10
AND‘horn’ not functioning
THUS the battery is weak

IF the battery is weak

THENthe solution is to install a new battery

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 TOPIC 7 EXPERT SYSTEM (ES)  173

 An expert system (ES) is a system that mimics the human capability to think
and reason for decision making.

 An ES combines the use of knowledge, facts and reasoning techniques for

decision making.

 An ES is built for two main reasons – to replace an expert or to help an expert.

 The ES is used in various applications in multiple fields and sectors like

medicine, engineering, education, manufacturing, marketing, tax planning
and many more.

 Knowledge is understanding a subject or domain through theory or practice.

 Knowledge is also the combination and mix of information that is already

known, and knowledge is power. From the expertÊs knowledge, the rules are
formed.

 Rules as knowledge representation consist of two parts – the IF part, called

before (condition or premise), and the THEN part, called effect (conclusion or
action).

 The architecture of an ES is from the knowledge base, inference engine,

explanation facility and knowledge acquisition facility.

 The existence of ES provides positive and negative effects that need to be

considered in the development of an ES.

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174  TOPIC 7 EXPERT SYSTEM (ES)

Artificial environment Knowledge

Backward chaining Knowledge acquisition facility
Domain expert Knowledge base
Expert system (ES) Knowledge engineer
ES shell LISP
Explanation facility PROLOG
Facts Reasoning techniques
Forward chaining Rules
Heuristic Working memory
Inference engine

Feigenbaum, E. A., & McCorduck, P. (1983). The fifth generation. Reading Mass.
Addison-Wesley.

Laudon, K. C., & Laudon, J. P. (2018). Management information systems:

Managing the digital firm (15th ed.). Upper Saddle River, NJ: Pearson.

Turban, E., Sharda, R., & Delen, D. (2010). Decision support systems and business
intelligence systems (9th ed.). Upper Saddle River, NJ: Prentice-Hall.

Copyright © Open University Malaysia (OUM)

 Topic  Functional
Information
8 Systems
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the general categories for a functional information system;
2. Explain marketing information system;
3. Discuss manufacturing information system; and
4. Explain human resource information system.

 INTRODUCTION
In the beginning, functional information systems were developed specially for
carrying out specific functions such as a separate system for the accounts,
marketing and finance departments. These systems were not related to one
another. Thus, information management was not effective in some cases that
required a solution from several system functions.

Consequently, an integration of these systems was developed. For example, this

new system combined the functions for accounts, marketing and finance together
into one system. This was aimed at increasing an organisationÊs productivity,
quality and customer services.

In this topic, we will provide a comprehensive list of the types of information

systems and will focus on several system functions individually, specifically on
marketing, manufacturing and human resources. Are you ready? Let us continue
with the lesson.

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8.1 FUNCTIONAL INFORMATION SYSTEMS IN

BRIEF
Other than understanding about the different types of information systems, we
need to learn about the information systems based on their general characteristics
(for all types of information systems).

Information systems that perform specific functions are called functional

information systems (integrated information systems that carry out many
functions in a single system). Now, let us study the different types of information
systems as shown in Table 8.1.

Table 8.1: Characteristics of Functional Information Systems

Characteristic of Functional
Example
Information System

It consists of several subsystems of an An attendance system can store and trace

information system (IS) that support attendance records and working hours of
specific functions or activities. workers.

Even though this system focuses on An accounting information system (AIS) can be
certain activities, it can be integrated integrated with the marketing information
with other functional information system to facilitate transactions and the tasks
systems to form a single system that between those two departments.
is useful for the organisation.

Functional information systems can Attendance records, overtime claim records and
interface with others to form a salary records from different subsystems can be
complete IS for the organisation. This integrated to calculate the amount to be paid to
is the result of the integration of the employees for the previous month.
subsystems.

This IS can also interface with the The marketing information system can obtain
surroundings. feedback from the user or the client through
online feedback facilities (like feedback forms in
websites).

A clear picture about the examples of functional information systems can be seen
in Figure 8.1.

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  177

Figure 8.1: Functional information systems

As can be seen from Figure 8.1, there are five core functions, namely, finance,
accounting, marketing, manufacturing (production) and human resource in an
organisation. Some of the finance and accounting functions have already been
discussed in transaction processing system (TPS) earlier; as such, this topic will
focus on marketing, manufacturing and human resource related information
system.

8.2 MARKETING INFORMATION SYSTEM

Marketing was the first functional field that showed great interest in using the
management information system (MIS), as soon as it was introduced. The
marketing unit restructured the MIS to make it compatible with the marketing
field, until it was known as the marketing information system.

Marketing information system gathers data that explains marketing transactions

in the organisation. These data can be acquired using IT. For example, a
salesperson at the customerÊs office can store details of the orders of the customer
using a computer or laptop.

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In fact, the Internet is capable of automating most information processing activities

for the support and management of sales activities. Interactive marketing, which
involves the use of the Internet, intranet and extranet, is widely used and aims to
establish two-way interaction between an organisation and its clients.

Thus, with the rapid development of IT, gathering marketing transaction data can
be done fast. The gathered data is used to prepare marketing information in the
form of:
(a) Periodic report: Prepared according to the period. For example, monthly
reports for sales analysis according to product.
(b) Special report: Prepared when something unexpected occurs. The marketing
information prepared by the AIS in the form of a sales analysis.

What is sales analysis?

Sales analysis is the study of sales activities in the organisation.

Sales managers must plan, monitor and help increase the performance of sales staff
who market the organisationÊs products. That is why most organisations have
computer-based AIS to generate sales analysis reports that analyse sales by
products, customers, types of customers, sales person, sales area and others. These
reports help the marketing manager to monitor the sales performance of products
and sales staff. At the same time, it helps marketing managers to prepare
programmes that would improve sales for the organisation.

If an organisation does not have a good AIS, it cannot provide good information
to help managers solve the marketing problems.

SELF-CHECK 8.1

Based on your understanding, what is meant by marketing information

system?

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  179

8.2.1 Marketing Principles

Marketing is the functional field responsible for:
(a) Identifying the identity of products (items or services) offered to consumers;
(b) Identifying effective steps to pricing, planning, advertising, selling and
product distribution;
(c) Creating products and new market for the consumers; and
(d) Anticipating product demands and expected income of the organisation.

The marketing manager in an organisation has multiple resources to conduct

marketing activities. However, his or her main objective is to produce good
marketing strategies using the available resources to market products, ideas and
services offered by the organisation. The marketing strategy, better known as
mixed marketing, consists of a combination of a few important elements like
product, venue and idea.
(a) Product element: Something bought by the user to fulfil his or her needs or
wants. The product can be a physical product, service or an idea.
(b) Promotional element: Involves methods that encourage product sales,
including advertisement and direct sales.
(c) Venue element: Involves methods to distribute the product to consumers
using the distributing channel.
(d) Pricing element: Involves the price the customer pays for a product.

In 1966, Professor Philip Kotler (McLeod, 1998) identified three types of marketing
information related to the collection and processing of marketing information as
displayed in Figure 8.2.

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Figure 8.2: Marketing information flow

Source: Kotler (1966) as cited in McLeod (1998)

Kotler states that difficult decisions in marketing activities such as lowering prices,
increasing advertisement expenditure or identifying sales area can be done
through initial evaluation and subsequent evaluation by scientifically analysing
the data obtained.

8.2.2 Marketing Information System Model

What is marketing information system?

Marketing information system can be defined as a computer-based system

that cooperates with other functional information systems to help the
management of the organisation in solving product marketing.

The marketing information system model given by Mcleod (1998) consists of a

combination of input and output subsystems linked by a database. The input
subsystem gathers data and marketing information, and stores them in a database.
The input subsystem consists of the AIS, marketing spying subsystem and
marketing research subsystem.

The output subsystem will use the stored data to produce information related to
product marketing, promotion, venue and product pricing. The output subsystem
consists of the product subsystem, venue subsystem, promotional subsystem,
pricing subsystem and mixed-integration subsystem. All these subsystems will be
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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  181

discussed in the following subtopics. Data stored in the database can be shared by
other functional fields and is not limited to the marketing unit only. The marketing
information system model is shown in Figure 8.3.

Figure 8.3: Marketing information system

ACTIVITY 8.1
Using all four marketing elements (product, promotion, venue and price),
sketch a diagram showing the relationship between each element. Share
your answer for discussion in the myINSPIRE forum.

8.3 MANUFACTURING INFORMATION

SYSTEM
Manufacturing information system supports production functions or operations
that include planning activities and control of the production process of a product
or service. The IS used to manage the operation and transaction process can help
organisations that need to perform planning, checking and controlling inventory,
sales and product and service flow activities. The manufacturing information
systemÊs objective is to produce a product that will satisfy the customerÊs needs,
starting from the raw material by the supplier to the finished service or product
provided to the customer at a minimum cost.

The manufacturing information system explains the subsystems which produce

information related to output operation. The approach that has long been used in
managing the manufacturing process is shown in Figure 8.4.

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Figure 8.4: Four approaches in managing process

8.3.1 Material Requirement Planning (MRP)

In the early 1960s, Joseph Orlicky from the J. I. Case Company introduced an
approach called the material requirement planning (MRP). This approach aims to
anticipate the future by identifying the materials needed, the quantity of materials
needed and the period when the materials are needed. The material requirement
planning system is shown in Figure 8.5.

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  183

Figure 8.5: The MRP system

Source: McLeod (1998)

The information systems involved in this IS are:

(a) The production scheduling system needs four files to prepare the master
production schedule – the customerÊs order file, sales forecast file, finished
product inventory file, and production capacity file. The main production
schedule plans the future production by considering the lead-time factor and
the production time.

(b) Material requirement planning system decides the quality of materials

needed to manufacture the number of units desired. The input data consists
of the material schedule file, the main production file and the raw material
inventory file. The things that need to be done are obtaining the gross
requirements and the net requirements of the materials.
(i) Gross requirement is the material requirement needed for
manufacturing scheduled products.

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(ii) Net requirements are the items that need to be purchased to achieve
the main production schedule. The following are the required
formulas:

Gross Requirement = Material quantity × The number of units to be

produced
Net Requirement = Gross requirements – Existing materials

(c) Capacity requirement planning system interacts with the material

requirement planning system to ensure the production schedule is suitable
with the factoryÊs capacity. This system produces several output such as:
(i) Planned order schedule (main output);
(ii) Changes towards the planned order;
(iii) Exception report;
(iv) Performance report; and
(v) Planning report.

(d) Order production system uses the order schedule that has been planned as
input and prints the order production report of which a copy is given to the
procurement department and the shop floor manager.

ACTIVITY 8.2

Do you think that material requirement planning is a proactive

strategy? Discuss this matter in the myINSPIRE forum.

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  185

8.3.2 Just-in-Time System (JIT)

The JIT is also known as the pull system. It schedules the material flow so that it
arrives at each workstation at precisely the time it is to be used (refer to Figure 8.6).

Figure 8.6: JIT system diagram

The components or items are pulled back to the next production process as soon
as it is ready. The raw material inventory arrives just-in-time to be used by the
factory, whereas the process inventory is completed by a process as soon as it
needs to be used by the next process.

This approach has less or no stored stocks. The JIT system minimises inventory cost
by producing items in small quantities. The suitable lot size for a JIT system is 1. This
lot size is the number of items to be produced at one time. It needs good time
planning and cooperation from the suppliers.

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In forwarding one item to the next production process, when a worker is ready to
receive the next item, he or she will signal the worker before him or her to send
the item. Kanban (in Japanese) is like a card or light. The JIT approach does not
stress on the use of computers.

SELF-CHECK 8.2

You have already been exposed to the reordering point, material

requirement planning and manufacturing material resource planning.
In your opinion, what is the importance of the JIT system? Share your
thought for discussion in the myINSPIRE forum.

8.4 HUMAN RESOURCE MANAGEMENT

SYSTEM
Now, let us shift our discussion to the human resource management system.

8.4.1 Human Resources’ Main Management Activity

The function of human resource management involves processing of information
related to the organisationÊs staff. The aim of the human resource department is
to manage the use of human resources in the organisation better and more
efficiently. Thus, the human resources information system was designed to aid
planning in meeting the staff needs, staff development and control towards staff
policy and programmes.

Most organisations are using computer-based information systems to produce

payslips and staff payment reports, store staff records and analyse the use of staff
in business operations of the organisation. There are four main activities carried
out by the human resource management:
(a) Staff intake and hiring;
(b) Staff education and training;
(c) Staff data management; and
(d) Staff compensation and benefits.

The main activity of the human resource management is shown in Figure 8.7,
which describes staff resource flow in an organisation.

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  187

Figure 8.7: Staff resource flow in an organisation

SELF-CHECK 8.3

Why do we need to train the staff of an organisation?

8.4.2 Human Resource Information System Model

The human resource information system model also uses the model suggested by
McLeod (McLeod, 1998). This model consists of three input subsystems, a database
and six output subsystems (see Figure 8.8).

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188  TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS

Figure 8.8: Human resource information system model

Source: McLeod (1998)

The input subsystem consists of the accounting information system, human

resource research subsystem and the human resource investigation subsystem.
The output subsystem consists of the workforce planning subsystem, workforce
recruitment subsystem, workforce management subsystem, compensation
subsystem, benefit subsystem and the environment report subsystem. These
subsystems will be explained in the following subtopics.

The database for the human resource information system consists of both staff and
non-staff data. Staff data refers to the storing of data on the organisationÊs staff.
Meanwhile, non-staff data is the storage of data obtained from the organisationÊs
environment such as the government, labour union, recruitment agencies and
others.

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  189

ACTIVITY 8.3
Discuss and share your answers to the following questions in the
myINSPIRE forum:
(a) If you are an employee in an organisation, have you ever
wondered why all your personal information is needed by the
organisation? Is the information stored based on a model that you
have learnt about or the organisation is using a model of its own?
(b) How can you relate the management information system to
human resource management?

8.4.3 Human Resource Research Subsystem

This subsystem collects data by handling special research projects as shown in
Table 8.2.

Table 8.2: The Human Resource Special Research Project List

Special Research Project Description

Inheritance study  Done with the aim to identify eligible staff candidates to
fill a position in the organisation.
 Example: The chief financial officer (CFO) is retiring.
Who is qualified to replace him?

Task analysis and  To study each task in a field to identify its task scope.
evaluation
 Identify the knowledge and expertise needed by certain
tasks offered in the organisation.

Complaint study  Collect all complaints voiced by the organisationÊs staff.

SELF-CHECK 8.4

What is the roles the human resource research subsystem?

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190  TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS

8.4.4 Human Resource Intelligence Subsystem

This subsystem gathers data related to human resource which is obtained from the
organisationÊs environment. These elements of the environment provide the data
as shown in Table 8.3.

Table 8.3: The Human Resource Intelligence Subsystem List

Organisation
Description
Environment

GovernmentÊs  The government gives information that helps the

intelligence organisation so that the staff abide by the laws of the
country.

SupplierÊs  Example: Insurance companies, recruitment agencies,

intelligence institutions of higher education and others.
 Gives information that helps the organisation recruit and
hire workers.

Labour unionÊs  Gives data and information on managing labour contracts

intelligence between the organisation and the union.

Global communityÊs  Gives information that explains local resources such as

intelligence housing, education and others.
 Used during staff recruitment based on the area
measurement; national and international.

Financial  Gives economic information used in staff planning.

communityÊs
intelligence

CompetitorÊs  Gathers information about the trained and skilled staff in

intelligence competing companies.
 Gathers information on certain employees who have the
potential to be recruited by the organisation.

SELF-CHECK 8.5

What is the difference between human resource research and human

resource intelligence?

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  191

8.4.5 Workforce Planning Subsystem

This involves activities that enable the management to identify future staff needs.
Some of the popular applications in workforce planning is organisation mapping,
salary forecasting, analysis and evaluation of tasks, planning and modelling the
workforce.

ACTIVITY 8.4
Read articles related to workforce planning. List the consequences of not
managing the workforce planning properly. Post your finding for
discussion in the myINSPIRE forum.

8.4.6 Workforce Recruitment Subsystem

New staff are recruited by the organisation through the staff recruitment
subsystem. This function must be supported by an IS that records and traces the
human resources in the organisation so that staff usage is maximised. Two
applications widely used are the application trace and internal search.

Today, the Internet technology allows an organisation to use recruitment services

and commercial databases to obtain new staff.

8.4.7 Workforce Management Subsystem

The workforce management subsystem is a subsystem that has many applications
but the percentage of usage is low. This subsystem can help the human resource
manager plan and monitor training and development programmes for staff by
analysing the success of the staff programmes conducted in the future. The
manager will also analyse the status of career development for all staff to
determine whether the procedures for staff development like performance
training and evaluation can be carried out. Some of the applications under this
subsystem are performance evaluation, training, position or title control,
relocation, expertise, inheritance and discipline.

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8.4.8 Compensation Subsystem

The IS can help analyse the distribution of compensation given to the
organisationÊs staff and make comparisons with the compensation given by other
organisations that have the same business operations. This information is useful
when planning for staff compensation, especially if it involves legislation
concerning labour union. This subsystem can also help in terms of compensation,
so that the compensation given by the organisation is competitive and just, and at
the same time the compensation cost is under control. Some of the more popular
applications are merit increment, salary payment, executive compensation, bonus
incentives and attendance.

ACTIVITY 8.5
If you are an employee in an organisation, you might have heard of
employees being given compensation for certain matters. Have you ever
wondered how such compensation is evaluated and what is the
justification for giving that compensation? Discuss this matter in the
myINSPIRE forum.

8.4.9 Benefit Subsystem

This refers to giving package benefits to existing and retiring staff. If the human
resource manager prepares a plan and sets the contribution and benefits that
should be obtained by staff, this will help staff to know about their collected
retiring fund. There are organisations that provide an incentive outline that is
flexible and allows the staff to select the incentives that they want. Among the
applications in this subsystem are permanent contribution, fixed incentive,
incentive statement, flexible incentive, buying of shares and claim processing.

8.4.10 Environment Report Subsystem

Currently, preparing reports to be submitted to government agencies is one of the
main responsibilities of the human resource management. Thus, many
organisations use computer-based information systems to trace the statistics and
produce reports needed by the government. The organisations need to obey the
rules and regulations set by the government. Reports on policies and practices of
the organisationÊs staff must be submitted to the government. For example, the
generation of statistics on staff health, hazards at the workplace, security
procedures and others must be reported to the government. Among the

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 TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS  193

applications for this subsystem are records of equal opportunities, analysis of

equal opportunities, addition of unions, health records, toxic materials and
complaints.

SELF-CHECK 8.6

Reports have become a main necessity in searching for solutions to a

decision. What is meant by environment report?

 Functional information systems cover areas related to finance, accounting,

marketing, manufacturing (production) and human resources.

 Information systems involved in these areas are transaction processing system,

marketing information systems, manufacturing information systems and
human resource information systems. These systems are based on specific
functions, but are inter-related with each other depending on the
organisational needs.

 Marketing information system gathers data that is related to marketing field

and explains marketing transactions in the organisation.

 The manufacturing information systemÊs objective is to support the production

of products or services that will satisfy the customerÊs needs, starting from the
raw material by the supplier to the finished product or service provided to the
customer.

 The human resource information system involves the processing of

information related to the recruitment, placing, evaluation, compensation
payment and staff development of an organisation.

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194  TOPIC 8 FUNCTIONAL INFORMATION SYSTEMS

Capacity requirement planning Just-in-time (JIT) system

system
Manufacturing information system
Functional information systems
Marketing information system
Gross requirement
Material requirement planning system
Human resource information system
Next requirement
Human resource intelligence
subsystem Order production system

Human resource research subsystem Production scheduling system

McLeod, R. (1998). Management information systems. Upper Saddle River, NJ:

Prentice-Hall.

Copyright © Open University Malaysia (OUM)

Topic  Security and
Social Issues
9 Related to
Information
System (IS)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the importance of information system (IS) security;
2. Discuss the issues in security and the Internet;
3. Explain the types of security threats and how to control them;
4. Analyse the social issues faced due to IT usage; and
5. Discuss the ethical issues involved in IT usage.

 INTRODUCTION
Information system (IS) plays a critical role in businesses, government functions
and daily life. It can be used for the progress of a business but like other
technologies, it can also be abused to do harm or commit crimes upon individuals
and organisations. Therefore, organisations need to consider special steps to
protect their information systems.

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INFORMATION SYSTEM (IS)

This topic will explain how far information systems can be controlled and
protected so that they can perform the tasks accordingly. We will also look at the
social impact and ethical issues that result from the implementation of the IS.
Happy reading!

9.1 THE IMPORTANCE OF SECURITY

Before the existence of office automation brought by computers, data on
individuals and organisations were stored as paper records which were
distributed to different business units or organisations. Information systems
brought together computer files which could be accessed easily by many people
and groups outside the organisations. Consequently, automated data is more
exposed to deletion, falsification, errors and misuse.

Organisations that depend heavily on computers will suffer great financial losses
or business malfunctions when their computer systems crash or fail to perform the
required tasks. The longer the systems are inoperable, the worse the damage is
done to the organisation. There are also some businesses which would fail if the
computer system cannot be used for a few days.

What are the resources that need to be controlled or managed from the perspective
of their safety? The resources that need to be protected include:
(a) Raw data;
(b) Information;
(c) Computer hardware;
(d) Peripheral devices that are connected with the computer;
(e) The IT used; and
(f) Support software that is used in the IT unit, like operating technology.

Let us look at how we can manage IT safety. Firstly, from the basic concepts and
then from the steps that need to be performed practically today that form the safety
control of IT.

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 TOPIC 9 SECURITY AND SOCIAL ISSUES RELATED TO  197
INFORMATION SYSTEM (IS)

9.1.1 Objectives of System Safety Management

In general, system safety management can be said to be the effort to control access to
technology to ensure the four important objectives are met, which are:

(a) Confidentiality
This is for ensuring that data or information is not exposed to others who
are not supposed to see it. The executive information system (EIS),
company accounting system and human resource management system are
among the systems that are critical to the organisation and need to be
protected in this regard.

(b) Integrity
This is for ensuring that the information stored can be trusted and that the
data as well as the program that manages it is always accurate or functions
like it is supposed to. In other words, it represents the actual technology
capability for each time when access is made.

(c) Availability
This is for ensuring that the technology, data and service in this system can be
accessed at all times when they are required by anyone who is allowed access.

(d) Adherence to the Rules

This is for ensuring that all aspects of the operations related to this IT follow
all the laws, rules, policies, agreements, contracts and ethical principles used
in an organisation.

ACTIVITY 9.1
Imagine that you are an employee in an organisation. Why would your
personal information be needed by the organisation? Is the
information kept according to the model you are studying? If not, do
you think the organisation uses its own model? Discuss this matter in
the myINSPIRE forum.

9.2 SECURITY AND THE INTERNET

Connecting an organisationÊs IS to the Internet or channelling information through
the Internet or extranet of an organisation requires an IS with special security
features. A large public network, including the Internet, is more vulnerable to
security threats because it is open to anybody to hack and when hacked, it will

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INFORMATION SYSTEM (IS)

lead to an adverse effect to the organisation. When the Internet becomes part of
the corporate network, the organisationÊs IS is exposed to actions by external
parties at any time.

A firewall is generally located between the internal LAN and WAN, and external
networks like the Internet. A firewall protects the organisationÊs internal network
access by acting as a gatekeeper which studies every userÊs qualification before
they can access the network. A firewall will identify the name, IP address,
application and other traffic features. It checks this information based on the access
regulations which have been programmed into the system by the network
administrator. As you can see in Figure 8.1, a firewall blocks illegal communication
into or out of the network, allowing the organisation to enforce security policies
on the traffic flow between the network and the Internet.

Figure 9.1: Firewall

There are two types of firewall technology which are required:

(a) Proxy
Proxy stops data which starts from outside the organisation at the firewall,
checks the data and discontinues the proxy to other parts of the firewall. If
the external user wants to communicate with an internal user, the external
user will first „talk‰ to the application proxy and the application proxy will
communicate with the internal computers. The internal user will also talk
through proxy to the external computer. As the real order does not go
through the firewall, the proxy is considered to be safer than real checks.

However, they need to do a lot of work and can use a lot of system resources
which makes for unsatisfactory network access.

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INFORMATION SYSTEM (IS)

(b) Real Check

In the real check, the firewall filters all incoming data packets, checks the
sources, destination address or services. Access regulation defined by the
user must identify every type of packet not wanted by the organisation.
Although the real check uses lesser network resources compared to the
proxy, theoretically, it is not safe because some data does manage to pass
through the firewall.

The Cisco system firewall product is an example of a firewall which can stop, but
cannot overall prevent network entrance from the outside, and should be seen as
one of the elements in the overall security plan.

To handle the Internet security issues, organisational procedures and policy scope
must be broad, responsible to users and aware of the need for security training.

ACTIVITY 9.2

Find out other details on the functions and usage of a firewall. Discuss
your findings in the myINSPIRE forum.

9.2.1 Security and E-commerce

E-commerce security is a main control issue for companies using this mode of
business. It is vital that the data of the seller and buyer related to commerce be kept
confidential when channelled electronically. Sent data must be protected from
individuals other than the sender, who has decided to make the business
transaction.

Many organisations depend on encryption to protect sensitive information being

channelled through a network. Encryption is coding and mixing the order so as to
protect sent data from being understood by hackers. Orders can be encrypted by
using confidentially numbered codes known as encryption keys so that they are
sent as a pair of numbers which have been mixed up (the key contains large groups
of letters, numbers and symbols).

To be readable, the order must be decrypted with a suitable key. There are several
encryption standards in existence, including data encryption standard (DES)
which is used by the US government, RSA (data security RSA), SSL (secured socket
layer) and S-HTTP (secured-hypertext transportation protocol). SSL and S-HTTP
are used for traffic-based Web.

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There are many alternatives for encryption; however, public key encryption is
popular. Public key encryption uses two different keys, one for public and another
one for private. The keys are related mathematically, so that data encrypted with
one key only can be decrypted with the other key. To send and receive orders, the
communicating parties must first prepare a pair of public and private keys that are
different.

The public key is kept in the directory, while the private key is kept in a secret
place. The sender will encrypt the order with the public key of the receiver. When
the order is received, the recipient will use the private key to decrypt it.

Encryption is useful for protecting orders on the Internet and other public
networks which are less secure than private networks. Encryption helps to protect
the sent payment data such as credit card details, enquiries which require address
verification and order integrity. Verification refers to the ability of one party to
know the other party present. In the non-electronic world, we use signatures.

Banking through mail has prevented the use of signatures on cheques given to
customers through a protected private network, where the source requesting for
payment is recorded and can be proven. Order integrity is the capability to ensure
orders sent arrive without being copied or amended.

Computer security experts are still finding ways involving encryption to establish
digital signatures which are agreed upon and verified. A digital signature is a
digital code which is attached to an order sent electronically and used to verify the
orderÊs content. It provides a method of linking the order with the sender,
performing a similar function as a written signature.

Verification can be enforced by attaching a digital certificate to the electronic order.

The digital certification system uses a trusted third party known as certifying
authority to verify a userÊs identity. The certified authority system can be operated
as a function in the organisation or by external organisations such as Verisign Inc.
and MIMOS Berhad.

ACTIVITY 9.3

There are many online banking websites that use encryption or digital
certification. Why are these two needed especially in online banking
websites? Discuss in the myINSPIRE forum the difference between
encryption and digital certification.

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INFORMATION SYSTEM (IS)

9.3 SYSTEM SECURITY THREATS

What do system security threats refer to?

System security threats refer to the act or incident that can and will affect the
integrity of an IS, which in turn, affects the reliability and privacy of business
data.

Most organisations are dependent on computer systems to function, and thus must
deal with system security threats. Small enterprises, however, are often
understaffed for carrying out IT functions as well as maintaining the system
security.

Hence, to protect their IS and ensure business continuity, all organisations must
designate an individual or a group with the responsibilities for system security.
Outsourcing system security functions may be a less expensive alternative for
small organisations.

Examples of security threats are as in Figure 9.2.

Figure 9.2: Examples of security threats

In the following subtopics, we will look at the security threats faced by

organisations in detail. In addition, we will learn how to handle the threats
effectively.

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9.3.1 Viruses, Spyware and Adware

Viruses, spyware and adware are further explained as follows:

(a) Viruses
A computer virus is a software code that can multiply and propagate itself.
A virus can spread into another computer via e-mail, through the
downloading of files from the Internet or the opening of a contaminated file.
It is almost impossible to completely protect a network computer from virus
attacks.

Viruses are just one of several programmed threats or malicious codes

(malware) in todayÊs interconnected system environment. Programmed
threats are computer programs that can create a nuisance, alter or damage
data, steal information or cripple the system functions. Programmed threats
include computer viruses, Trojan horses, logic bombs, worms, spam,
spyware and adware.

According to a study by the University of Maryland, more than 75 per cent

of participants received e-mail spam every day. There are two problems with
spam. Firstly, employeesÊ waste time reading and deleting spam and
secondly, it increases the system overhead to deliver and store junk data. The
daily average spam is 18.5 messages per day, and the average time spent
deleting them all is 2.8 minutes.

(b) Spyware
Spyware is a computer program that secretly gathers the userÊs personal
information and relays it to third parties, such as advertisers. Common
functionalities of spyware include monitoring keystrokes, scanning files,
snooping on other applications such as chat programs or word processors,
installing other spyware programs, reading cookies, changing the default
homepage on the Web browser, and consistently relaying information to the
spyware home base. Unknowing users often install spyware as the result of
visiting a website, clicking on a disguised pop-up window or downloading
a file from the Internet.

(c) Adware
Adware is a program that can display advertisements such as pop-up
windows or advertising banners on Web pages. A growing number of
software developers offer free trials for their software until users pay to
register. Free-trial users view sponsored advertisements while the software

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is being used. Some adware do more than just display advertisements,

however; they can report the usersÊ habits, preferences or even personal
information to advertisers or other third parties, similar to spyware.

Effective Control of Virus, Adware and Spyware

To protect computer systems against viruses and other programmed threats,
organisations must have effective access controls and ensure computer users
install and regularly update the quarantine software. With effective protection
against unauthorised access and by encouraging staff to become defensive
computer users, virus threats can be reduced. Some viruses can infect a desktop
through operating system vulnerabilities. It is thus critical to install system
security patches as soon as they are available.

Fighting against programmed threats is an ongoing and ever-changing battle.

Firewalls and routers should also be installed at the network level to eliminate
threats before they reach the desktop. Anti-adware and anti-spyware software are
signature-based, and organisations are advised to install more than one type to
ensure effective protection. Installing anti-spam software on the server is
important because increased spam results in productivity loss and a waste of
computing resources.

Important considerations for selecting anti-spam software include the systemÊs

effectiveness, impact on mail delivery, ease of use, maintenance and cost. Many
Internet service providers conveniently reduce spam on their servers before it
reaches subscribers. Additionally, organisations must maintain in-house and off-
site backup copies of corporate data and software so that data and software can be
quickly restored in case of a system failure.

9.3.2 Insider Abuse of Internet Access

The Internet in an organisation is used to increase the organisationÊs productivity.
Unfortunately, it can be abused. For example, e-mail and Internet connections are
available in almost all offices to improve productivity, but employees may use
them for personal reasons, such as online shopping, playing games and sending
instant messages to friends during work hours.

As a preventive control, every organisation should have a written policy regarding

the use of corporate computing facilities. In addition, organisations should update
their monitoring policies periodically, to keep up with ITÊs rapid evolution.

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9.3.3 Laptop or Mobile Theft

Because they are relatively expensive, laptops and personal digital assistant (PDA)
have become the targets of thieves. Besides being expensive, they often contain
proprietary corporate data, access codes to company networks and sensitive
information.

The following suggestions can help minimise the chance of theft when outside the
office:
(a) Never leave a notebook or PDA unattended, including in a car or hotel room.
(b) Install a physical protection device such as a lock and cable or an alarm.
(c) Put the notebook in a non-descript bag or case.
(d) Install stealth-tracking software.
(e) If a notebook is stolen, automatic logins make it easy for a thief to access
sensitive information. Password protection does not deter a theft, but it does
make it more difficult for thieves to use the stored information. Biometric
security, such as the fingerprint readers, is even better.
(f) Back up data regularly, or install a desktop, notebook or PDA sync program.

9.3.4 Denial of Service (DoS)

A denial of service (DoS) attack is specifically designed to interrupt normal system
functions and affect legitimate usersÊ access to the system. Hostile users send a
flood of fake requests to a server, overwhelming it and making a connection
between the server and legitimate clients difficult or impossible to establish. The
distributed denial of service (DDoS) allows the hacker to launch a massive,
coordinated attack from thousands of hijacked (zombie) computers remotely
controlled by the hacker.

A massive DDoS attack can paralyse a network system and bring down giant
websites. Unfortunately, any computer system can be a hackerÊs target as long as
it is connected to the Internet. DoS attacks can result in significant server downtime
and financial loss for many organisations, but the controls to mitigate the risk are
very technical. Organisations should evaluate their potential exposure to DoS
attacks and determine the extent of control or protection they can afford.

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9.3.5 Unauthorised Access to Information

To control unauthorised access to information, access controls, including
passwords and a controlled environment, are necessary. Computers installed in a
public area, such as in a conference room or reception area, can create a serious
threat and should be avoided if possible. Any computer in a public area must be
equipped with a physical protection device to control access when there is no
business need. The LAN should be in a controlled environment accessed by
authorised employees only. Employees should be allowed to access only the data
necessary for them to perform their jobs.

SELF-CHECK 9.1

What is the difference between insider abuse of Internet access and an

unauthorised access to information?

9.3.6 Abuse of Wireless Networks

Wireless networks offer the advantage of convenience and flexibility, but system
security can be a big issue. Attackers do not need to have physical access to the
network. They can take their time cracking the passwords and reading the network
data without leaving a trace.

One option to prevent an attack is to use one of several encryption standards that
can be built into wireless network devices. One example is the wired equivalent
privacy (WEP) encryption that can be effective at stopping amateur snoopers, but
it is not sophisticated enough to foil determined hackers. Consequently, any
sensitive information transmitted over the wireless networks should be encrypted
at the data level as if it were being sent over a public network.

9.3.7 System Penetration

Hackers can penetrate systems illegally to steal information, modify data or harm
the system. The following factors are related to system penetration:

(a) System Holes

The design deficiency of operating systems or application systems that allow
hijacking, security bypass, data manipulation, privilege escalation and
system access.

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(b) Port Scanning

A hacking technique used to check TCP/IP ports to reveal the services that
are available and to identify the weaknesses of a computer or network
system in order to exploit them.

(c) Network Sniffing

A hardware and software program to collect network (traffic) data in order
to decipher passwords with password-cracking software, which may result
in unauthorised access to a network system.

(d) IP Spoofing
A technique used to gain unauthorised access to computers, whereby
hackers send messages to a computer with a deceived IP address as if it were
coming from a trusted host.

(e) Back Door/Trap Door

A hole in the security of a computer system deliberately left in place by
designers or maintainers.

(f) Tunnelling
A method for circumventing a firewall by hiding a message that would be
rejected by the firewall inside another acceptable message.

Organisations can use software tools or system-penetration testing to scan the

system and assess the systemsÊ susceptibility and the effectiveness of any
countermeasures in place. The testing techniques must be updated regularly to
detect new threats and vulnerabilities. Other controls to counter system
penetration are as follows:
(a) Install anti-sniffer software to scan the networks; use encryption to counter
data-sniffing threats;
(b) Install all the server patches released by vendors. Servers have incorporated
numerous security measures to prevent IP spoofing attacks;
(c) Install a network firewall so that internal addresses are not revealed
externally;
(d) Establish a good system development policy to safeguard against a back
door/trap door; thereby removing the back door as soon as the new system
development is completed; and
(e) Design security and audit capabilities to cover all user levels.

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9.3.8 Telecom Fraud

In the past, telecom fraud involved the fraudulent use of telecommunications
(telephone) facilities. Intruders often hacked into a companyÊs private branch
exchange (PBX) and administration or maintenance port for personal gains,
including free long-distance calls, stealing (changing) information in voicemail
boxes, diverting calls illegally, wiretapping and eavesdropping.

As analogue and digital data communications have converged, some

organisations have utilised the voice over Internet protocol (VOIP) to lower phone
bills. The originating and receiving phone numbers are converted to IP addresses
and the PBX is linked to a companyÊs networked computers, and hackers can get
into systems through the PBX (private branch exchange) or computerised branch
exchange (CBX). In addition, every PBX/CBX system is equipped with a software
program that makes it vulnerable to remote-access fraud, and intruders use
sophisticated software to find an easy target. Once a PBX is hacked, hackers have
the same access to a companyÊs phone system and computer network as do the
employees.

Hence, organisations should install software to monitor service usage at various

points on the network, including the VOIP gatekeeper, VOIP media controller and
broadcast server. The software can monitor the system packet performance and the
router applications on the converged network. The software can also automatically
alert the responsible person if any abnormal activities have been detected.

9.3.9 Theft of Proprietary Information

Information is a commodity in the e-commerce era, and there are always buyers
for sensitive information, including customer data, credit card information and
trade secrets. Data theft by an insider is common when access controls are not
implemented. Outside hackers can also use „Trojan‰ viruses to steal information
from unprotected systems. Beyond installing firewall and anti-virus software to
secure systems, a company should encrypt all its important data.

Access privilege and data encryption are good preventive controls against data
theft by unauthorised employees who steal for personal gain. The access controls
include traditional passwords, smart-card security and more sophisticated
biometric security devices. Organisations can implement some appropriate
controls, including limiting access to proprietary information to authorised
employees, controlling access where proprietary information is available and
conducting background checks on employees who can have access to proprietary
information. There will, however, always be some risk that authorised

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employees will misuse data they have access to in the course of their work.
Organisations can also work with an experienced intellectual property attorney,
and require employees to sign non-compete and non-disclosure agreements as a
precautionary measure.

9.3.10 Financial Fraud

The nature of financial fraud has changed over the years with the advent of IT.
System-based financial fraud includes scam e-mails, identity theft and fraudulent
transactions. With spam, con artists can send scam e-mail to thousands of people
in hours. Victims of the so-called 419 scam are often promised a lottery winning or
a large sum of unclaimed money sitting in an offshore bank account, but they must
pay a „fee‰ first to get their shares.

Phishing is a form of identity theft. Spam is sent claiming to be from an

individualÊs bank or credit union or a reputable e-commerce organisation. The
e-mail urges the recipient to click on a link to update their personal data. The link
takes the victim to a fake website designed to elicit personal or financial
information and transmit it to the criminals.

A user should never give out their credit card numbers, PINs or any personal
information in response to unsolicited e-mail. Instead of clicking a link in a
suspicious e-mail, call the office or use a URL that is legitimate to verify an e-mail
that claims to be from a bank or financial institution. When submitting sensitive
financial and personal information over the Internet, make sure the server uses the
secure sockets layer protocol (the URL should be https:// instead of the typical
http://).

9.3.11 Misuse of Public Web Applications

The nature of e-commerce − convenient and flexible − makes Web applications
vulnerable and easily abused. Hackers can circumvent traditional network
firewalls and intrusion-prevention systems and attack Web applications directly.
They can inject commands into databases via the Web application user interfaces
and secretly steal data, such as customer and credit card information.

User authentication is the foundation of Web application security, and inadequate

authentication may make applications vulnerable. Organisations must install a Web
application firewall to ensure that all security policies are closely followed. The
following additional controls can mitigate Web application abuses:
(a) Installing security patches promptly;

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(b) Using a Web application scanner to discover any vulnerability;

(c) Monitoring the server and applications to identify any potential problems
and terminate malicious requests; and
(d) Hiding information that end users do not need to know, including the server
machine type and the operating system.

9.3.12 Website Defacement

What is website defacement? Website defacement is an act of sabotage by hackers
who insert or alter information in Web pages. The altered Web pages may mislead
unknowing users and represent negative publicity that could affect a companyÊs
image and credibility. Web defacement is in essence a system attack, and the
attackers often take advantage of undisclosed system vulnerabilities or unpatched
systems.

Network firewalls cannot guard against all Web vulnerabilities. Organisations

should install additional Web application security to counter the defacement risk.
All known vulnerabilities must be patched to prevent unauthorised remote
command execution and privilege escalation. It is also important that only a few
authorised users are allowed route access to a websiteÊs contents. Access to
different Web server resources, such as executables, processes, data files and
configuration files, should be monitored. Commercial website monitoring services
are also available.

9.3.13 Sabotage
System security crimes are committed by insiders as much as by outsiders. Some
of the controls discussed above can provide protection against the sabotage
committed by outsiders, but no organisation is immune from an employee abusing
its trust. When it comes to security, organisations often pay attention only to the
parameter of the organisation, and not the inside. Sabotage by insiders is often
orchestrated when employees know their termination is coming.

In some cases, disgruntled employees are still able to gain access after being
terminated. Another potential threat of unauthorised use is when employees quit
or are terminated but there is no coordination between the personnel department
and the computer centre.

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Sometimes, employees still have system access and an e-mail account after they
have left an organisation. It is also not unusual that employees know the user IDs
and passwords of their colleagues. In order to prevent sabotage by insiders, the
organisation should promptly deny access to terminated staff.

9.4 SOCIAL ISSUES IN INFORMATION

TECHNOLOGY (IT) USAGE
The introduction of information systems and IT in various aspects of daily life of
society has impacted society in so many ways. In the following subtopics, we will
look at several social issues that have emerged following the widespread use of IT.

9.4.1 Threat to Jobs

Many types of jobs which were previously performed by humans are now done
by computer systems or machines. Computers have replaced clerks and other
workers. For example, with the use of an executive information system (EIS),
management can produce executive reports straight from the system for analysis.
Previously, this task had to be performed by several clerks or workers. This
situation has led to rising unemployment.

Even though computer usage has reduced the number of jobs, it has also
contributed new positions related to the use of computer systems, such as chief
information officer and other related positions.

In brief, it can be said that the introduction of computers has removed the positions
which entailed repetitious tasks and added job titles that require more skills and
intellect. These new positions are filled by people known as knowledge workers.

9.4.2 Human Relations

There are complaints that the introduction of the computer system has caused
relationships between individuals to deteriorate. This is because some operations
which previously required human contact are now performed autonomously by
computers. A computer system does not consider human feelings or logic in
performing the tasks that have been programmed into it, unlike humans. Tasks
like bill payments, for example, may make companies appear to be profit driven
and impersonal, since the system allows no flexibility.

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9.4.3 Health Issues

Computer use to perform work in the office can also give rise to new problems,
such as work stress and ailments such as strain to neck muscles, the back or spine,
and the shoulders. Constant exposure to radiation from the computer screen can
also cause damage to the eyes. In addition to this, monitoring computer use by
workers can also be said to create excess stress to the worker which may lead to
many health-related problems.

9.4.4 Threats to Personal Rights (Privacy)

The capability of the computer system to store, process and distribute data is one
of the advantages that can facilitate and increase the efficiency of many tasks.
However, this capability can also infringe on personal rights as confidential
information can be compromised.

Owing to todayÊs advanced technology, a user surfing the Internet and entering a
website may have his or her personal information captured without his or her
consent. Private user information that is stored in institutional computer systems
like credit information and family details face the threat of the information being
exposed or wrongly used. From another perspective, there are certain institutions
that monitor the use of computers by their workers without the workers being aware
of it.

SELF-CHECK 9.2

Describe the social issues in IT usage.

ACTIVITY 9.4
IT has caused a decrease in the number of jobs with the introduction of
automation. Think of an opposite argument, that is, how does the
introduction of the Internet reduce unemployment? Discuss this issue
with your coursemates on myINSPIRE forum.

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9.5 ETHICAL ISSUES

What is ethics? From the language perspective, ethics can be defined as the right
or wrong principles held by an individual and they act as a moral agent that is a
guide for determining the behaviour code of mankind.

Ethics is a branch of philosophy related to ascertaining right or wrong. The use of

IT and information systems today has given rise to new ethical issues which were
non-existent prior to the introduction of computers. What is right and what is
wrong in the use of information systems and IT? This is the basic question that we
will address in the following subtopics. The value system that decides the right
and wrong of using IT forms that which we know as the ethical code of IT.

9.5.1 Ethical Issues in IT

What are the forms of new ethical issues that have emerged through the use of IT?
Today, IT has realised many things that were not considered previously.
Computer network technology can transfer information quickly all over the world
in a matter of minutes at minimal cost. In this situation, the question of the type of
information, which should be distributed and that which should not be distributed
becomes an issue.

For example, a type of information considered immoral in one culture may not be
considered as such in another culture. In another scenario, the use of certain types
of software that can monitor the use of IT by users who are connected to the
Internet may compromise their private information. Should the right to monitor
be given to the authorities and to what extent should they be allowed to do so?
This polemic has opened up debate on the societyÊs value systems, resulting in the
need for organisations to have a code of ethics in the use of IT.

9.5.2 Basic Framework of IT Ethics

Many organisations or institutions that use IT have outlined their own code of
ethics as a guideline for their members or employees in the use of IT. This code of
ethics will be used in deciding whether or not a certain type of behaviour is right
or wrong from the perspective of IT use within the organisation or institution. You
may need to form the code of ethics for IT use in your organisation some time in
the future. Let us decide what should be stated in that code of ethics.

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You as a user of IT should be a responsible end user. The Association of

Information Technology Professionals (AITP) has drawn up several guidelines for
a code of ethics for IT officers, which are as follows:
(a) Act with integrity – Be trustworthy, reliable;
(b) Increase professionalism in your field;
(c) Place high standards for your achievements;
(d) Be responsible for your job; and
(e) Be concerned about health, privacy as well as the general service to the
public.

SELF-CHECK 9.3

What are th ethical issues in IT.

ACTIVITY 9.5
The trend in the development of IT has given rise to several questions
regarding ethical issues. Relate how this IT trend can give rise to those
issues. Discuss and give examples in the myINSPIRE forum.

 Business operations can be disrupted by many information system (IS) threat

factors, including breach of system security.

 System downtime, system penetrations, theft of computing resources and loss

of productivity have rapidly become critical system security issues.

 The financial loss from these security breaches can be significant. In addition,
system security breaches often taint a companyÊs image and may compromise
a companyÊs compliance with applicable laws and regulations.

 The key to protecting an organisationÊs IS against security breaches is to be well

prepared for all possible major threats. A combination of preventive and
detective controls can prevent security threats.

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 The use of information technology (IT) has social effects. Therefore, it is

necessary to plan the use of IT in an organisation or the society in order to gain
maximum positive results and avoid its negative effects.

 The use of IT also leads to the basic issue of the code of IT ethics that must be
adhered to by every employees in an organisation.

Ethical issues System safety management

Firewall System security threats
Information system (IS) security Unauthorised access
Social issues Virus

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Topic  Development
10 and Quality
Issues Related
to Information
System (IS)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Identify the phases in information system (IS) development;
2. Discuss the capability maturity model (CMM), which is used as a
standard for software development;
3. Analyse the criteria for measuring the success of a system;
4. Analyse the factors that can cause a system failure; and
5. Propose a suitable strategy to manage the IS implementation process.

 INTRODUCTION
Information technology (IT) is widely used in organisations, but does the use of IT
guarantee higher returns? The answer depends on whether the use of IT has clear
goals because a comprehensive planning will guarantee positive results.

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In this topic, we will look at the development of an information system (IS) using
the system development life cycle (SDLC), which is very popular. We will also
discuss one of the main standards used in IS, which is the capability maturity
model (CMM). The aim of using these standards is to ensure the quality of the
system developed, particularly so that the software complies with software
development requirements.

In this topic, we will also look at the important aspects in implementing IT, starting
with the introduction to the problems that may arise, the sources of these
problems, and how to measure the success of the implementation. Then, we will
discuss the steps of the implementation of a planned IT project to ensure that
maximum returns are achieved. Are you ready? Let us get started.

10.1 INFORMATION SYSTEMS DEVELOPMENT

An IS built for a certain organisation normally includes various functionalities
which need a detailed and systematic development plan. Every single system in
the IS has a life cycle which consists of initial and end phases. This cycle is known
as the system development life cycle (SDLC), which is for planning and managing
a system development process.

SDLC is a complete process for developing information systems, which begins

with the initial investigation phase and ends with the operations and support
phase. SDLC begins with a request for a new system, or an upgrade of an existing
system to fulfil the needs of the business.

SDLC comprises the following phases; planning (investigation), analysis, design,

implementation (includes development such as programming and testing) and
maintenance. The SDLC is illustrated in Figure 10.1.

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Figure 10.1: System development life cycle

Let us now discuss each stage in the system development life cycle.

10.1.1 Investigation
An important task in this phase is the initial studies to identify whether the system
that will be developed is actually suitable and can fulfil user requirements. They
will identify the resource needs, cost, benefits that will be obtained and success
factors of the system to be developed.

10.1.2 Analysis
The analysis phase will only be performed after an agreement to develop a new
system is achieved in the investigation phase. In this phase, a study is conducted
to understand the business problems that the organisation plans to solve using
an IS.

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SELF-CHECK 10.1

Identify the difference between the investigation and analysis phase.

10.1.3 Design
Designing is the next step after the problem analysis. The main function of this
phase is to clarify how the system can execute the task of solving the problem.
System design is divided into two parts, namely:

(a) Logical System Design Specification

(i) Explains the tasks that the system will perform.
(ii) Abstract type specification.
(iii) Includes the designs for input, output, process, database,
telecommunications, control, security and tasks of the IS.

(b) Physical System Design Specification

(i) Explains the function that the system will perform.
(ii) Actual physical specification.
(iii) Includes the design of hardware, software, database,
telecommunications and procedure.

After the design specifications are agreed upon by all parties involved and an
agreement is signed, no further changes are permitted.

10.1.4 Programming
Once a suitable design has been identified, programming will be carried out to
translate the system design specification prepared by the system analyst into a
programming code. The selection of a suitable programming language is made
according to the requirements of the system.

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The task of writing the programming code is performed by the programmer. It

may be carried out by more than one person, depending on the complexity of the
system that is being developed. The system will be divided into several modules
before they are combined in the final phase of programming.

SELF-CHECK 10.2

1. What are the two parts of designing a system?

2. What is the end result of the programming phase?

10.1.5 Testing
The testing phase is performed to identify if there are any mistakes (errors) in the
programming that has been developed. There are two types of errors, which are:

(a) Syntax Error

Normally easy to detect, like missing commas and wrong spelling.

(b) Logical Error

This is a processing error that will cause an error in the output produced.
Unlike syntax error, this error is quite difficult to detect.

The process of testing will be performed in stages. Normally in programming, the

system will be divided into several modules. Tests will be performed on each
module. After completion, testing on the whole system is carried out to ensure that
the following features run smoothly:
(a) Integration of interfaces for every module;
(b) The system functions on the required platform;
(c) The system can support the capacity of data that is required; and
(d) The system fulfils user needs.

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10.1.6 Implementation
If the testing phase occurs without problems, this means that the system is ready
to be used. The next step is to make the required preparation to deploy this new
system. In other words, this is the process of changing the old system to the new
system.

Four strategies can be used for the changes:

(a) The old and new systems are used simultaneously, in parallel;
(b) The old system is completely replaced by the new system;
(c) The new system will only be used at several departments first for a certain
period (before expanding to other departments); and
(d) The new system will be implemented in stages (for example, all departments
will have to use the new system for a specific function first, i.e. budget, then
expand to other functions like staff leave application, tasks scheduling and
so on).

10.1.7 Maintenance
This new system that is in operation will be reviewed after a certain period. This
is to ensure that the user objectives are still being met. The process of maintenance
needs to be performed to ensure that there are no major problems during the
lifetime of that system. Maintenance is carried out by re-testing the program and
modifying the system so that it is in line with the changes that occur in the
organisation or business. This process is made without adding to the functions of
the system.

There are also maintenance procedures that have to be added to the system
functions. This process is performed by adding new features without disrupting
the overall operation of the system.

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10.2 CONCEPT OF QUALITY IN INFORMATION

SYSTEMS
What is quality? Quality can be defined as an overall feature and characteristic of
products and services which fulfil the requirements of the consumer. Many
standards have been developed by organisations to benchmark and evaluate their
products and services. Similarly, standards have also been set for the software
engineering industry which includes information systems. One of the standards is
known as the capability maturity model or CMM.

10.2.1 Capability Maturity Model (CMM)

What is capability maturity model?

The capability maturity model (CMM) is a model to evaluate the maturity of

the software development process in organisations.

The model helps organisations identify the main practices needed to enhance the
maturity of the processes.

The CMM was developed by the Software Engineering Institute (SEI), University
of Carnegie Mellon in Pittsburgh. The model gave schematic pictorial classification
of software development based on the capability of the organisations. The model
comprises five maturity levels which differ from one software development
organisation to another.

The CMM has been the de facto standard in evaluating and rectifying software
development processes. The model helps in establishing a modelling method and
evaluating the maturity of software development processes in organisations.

The CMM is designed to help both development organisations and customers

(government organisations or companies which acquire software). Software
organisations need to understand the quality of their software process and how to
improve it. Organisations contracting for software need ways to evaluate a
potential contractorÊs capability to carry out the work.

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The CMM has four intended functions to help organisations improve their
software process capabilities:
(a) Identify improvements;
(b) Identify risks in selecting contractors;
(c) Implement a process improvement program; and
(d) Guide the definition and development of the software process.

10.2.2 The Five Levels in the CMM Model

Every level has its own important process which will be implemented for product
and software quality assurance. There are five maturity levels for the CMM as
depicted in the following Figure 10.2.

Figure 10.2: CMM levels

Source: http://www.sei.cmu.edu

The model describes the principles and practices contained within and which
serves to help organisations strengthen the maturity of software development
processes from start until completion.

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Each maturity level provides a layer in the foundation for continuous process
improvement. Each key process area comprises a set of goals that, when satisfied,
stabilise an important component of the software process. Achieving each level of
the maturity model institutionalises a different component in the software process,
resulting in an overall increase in the process capability of the organisation.

ACTIVITY 10.1
Search for online resources related to the CMM and find more details
regarding each level of CMM. Compile your answer and compare it
with your coursemates in the myINSPIRE forum.

10.3 REASONS FOR SUCCESS OR FAILURE OF

INFORMATION SYSTEMS
How is an IS first used in an organisation? The initiation of system development
can be influenced by external pressure (pressure from the environment) or internal
pressure (pressure from within the organisation) or a combination of both.

Not all information systems built are successful in achieving their goals. Research
has shown that many developed information systems do not fulfil the needs of an
organisation. The point to learn from this is that the development and
management of the system must be made with a clear understanding and based
on the consideration of the experience of previous implementations.

10.3.1 Reasons for Success and Failure

From our earlier discussions, it can be said that it is quite difficult to create a
specific formula to guarantee the success of an IT system. However, there are some
factors that have great impact on the success of the IS implemented in an
organisation, as summarised in Figure 10.3.

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Figure 10.3: Factors that affect the success of IS implementation

The following is a detailed explanation of the factors illustrated in Figure 10.3:

(a) Role of the User in the Implementation Process

The lack of user involvement in the development of a system will usually
have a negative impact on the output produced. The end user is the most
knowledgeable person in the field, task or job that involves him or her. He or
she knows better the aspects that have to be given priority or those that will
give rise to most of the problems.

Nevertheless, the views of the end user still have to be clarified with regard
to the scope because the end user has only limited knowledge about the
whole organisation. He or she may know about the processes that are closely
related to his or her work, but is less familiar with the overall problems faced
by the organisation. Another advantage of involving the end user is his or
her readiness in accepting change. If he or she is involved from the early
stages, at least he or she will be aware of the changes that will take place and
will be able to take steps to prepare for these changes.

In addition, a problem that usually arises is the large communication gap

between the system developers and their clients. They speak different
languages as they are influenced by their backgrounds which creates
misunderstanding between them (one party will interpret what is said by the
other party according to the first partyÊs understanding, which clearly is not
what is meant by the second party). In solving a problem, the system
developers may tend to use machines, techniques or certain formulas, while

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the customers or users are more inclined towards solving business problems
which would facilitate their work in the organisation. This communication
gap can cause the specifications requested by the users to be omitted from
the system that is to be built.

Sometimes the project being implemented is very big and takes a long time to
complete. The continuous involvement of users would affect their daily work.

(b) Support and Commitment from the Management

A lesson to be learnt from the success of certain organisations in benefiting
from the use of IT is the huge amount of support from the management (from
the highest to middle levels of management) and the end users in the IS
implementation and technology management in the organisations.

On the other hand, failure often results when the system that is being
developed is abandoned because management has not given it their support
– because they are not ready to invest in it. Without this commitment, the
management will not be able to benefit from the IS that can enhance the
organisationÊs business processes.

In other words, the involvement of all the parties concerned in the

establishment of a certain technological structure is of utmost importance in
the planning and management of IT in organisational activities.

(c) Quality of the Management in the Implementation Process

The inefficient management of the implementation process will result in the
actual cost rising above the estimated cost, failure to meet the deadline,
technical errors that result in a lower level of achievement from that expected
failure to achieve estimated profit and other negative outcomes.

(d) Level of Complexity and Project Risks

The process of developing a system is not only complex but risky. Mega
projects involving substantial organisational transformations like business
process reengineering (BPR) and enterprise resource planning (ERP) have a
large potential of failure as they sometimes cannot be completed within the
prescribed time.

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What are the factors that can determine the level of risk and complexity of an
IS development project? According to researchers in this field, there are three
main dimensions that influence the level of risk of an IS development project.
They are:
(a) Project size;
(b) Project structure; and
(c) Level of technical experience of system developers.

Mistakes often occur in estimating the level and size of projects because of
the lack of experience or incomplete studies done on the matter.

ACTIVITY 10.2
1. What may happen if the user is not involved at the early stage of
the system development process? In your view, is this a serious
problem?
2. Have you come across any IS development projects in your
country that have been abandoned? If yes, could you identify what
was the cause? If no, then what would be the possible causes of an
IS project being abandoned?

Share your thoughts in the myINSPIRE forum.

10.3.2 Development Process – What Can Possibly Go

Wrong?
Now, let us do a step-by-step review of the five out of seven processes of IS
development (analysis, design, programming, testing and implementation phases)
and take note of the mistakes that may occur in each of these steps.

(a) Analysis Phase

During this phase, mistakes may happen in several forms, such as:
(i) Not enough attention is given to understanding the problem correctly;
(ii) The new system specification is produced without careful deliberation
of the whole system that is in use; and

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(iii) The user does not give full cooperation to the project team. The team
fails to collect the actual information about the problems that need to
be solved because information is lacking.

(b) Design Phase

The mistakes that may occur include the following:
(i) The end user is not involved in giving input during the design phase.
Instead, the design only reflects the view of the technical worker;
(ii) The design does not suit the structure, culture as well as the activities
of the organisation and it may not be in line with the priorities of the
management;
(iii) Another situation that may occur is a poor design which means that the
design produced is not prepared for future use, and it may be
developed simply to fulfil current needs; and
(iv) Failure to prepare the complete design documentation of the functions
that have been built.

(c) Programming Phase

The mistakes that may happen are:
(i) Lack of time estimated and the cost that is needed to develop the
system;
(ii) The programmers are at times not given the full specification;
(iii) The written program may be difficult to modify or maintain because it
does not fully utilise the benefits provided in the structured
programming technique or the object oriented programming
technique; and
(iv) The program documentation prepared is not comprehensive.

(d) Testing Phase

The errors that may occur include the following:
(i) The project team did not formulate an organised testing plan;
(ii) The estimation of cost and time that is allocated to testing is not
sufficient; and
(iii) The user is not sufficiently involved.

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(e) Implementation Phase

The errors that may happen include:
(i) The system documentation and user documentation are incomplete;
(ii) The maintenance of the system is inadequate;
(iii) Evaluation of the achievement of the system is not performed; and
(iv) Owing to the pressures of the allocated cost and time, the system that
is produced is used straight away even though it may not be fully
completed.

SELF-CHECK 10.3

Discuss in detail the four factors that influence the success of an IS

implementation.

10.3.3 Problematic Areas in Information Systems

An IS that has been developed may still be viewed as a failure. This failure may be
due to the weakness in implementation during the IS development process or
shortcomings in the management of IT after the system has been developed.

There are situations where the developed systems are not used as planned. How
do these happen? They occur because the system produced is not user-friendly or
the data obtained is not reliable.

A system is said to be a failure when the design fails to fulfil the needs of the
organisation or fails to enhance the achievements of the organisation. Even though
the system is able to produce the required output, the output or information may
not be produced within the given time frame, or it is not in the form required.
Furthermore, a system may have all the features as expected, but lacks user-
friendly interface. This would mean that the system is difficult to use, slow and the
validity of the data entry is difficult to confirm.

A system also fails when data-related problems received by the system as input
crop up. If the data is inaccurate or inconsistent, wrong, ambiguous or cannot be
accessed, then we can conclude that the system has failed. In some situations, the
profit gained from using the system does not justify the high cost that has been
invested in it. Besides that, system failure can surface as a result of operational
problems, such as the system always breaks down and does not run smoothly,
causes delays in production and generates a slow feedback.

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ACTIVITY 10.3

Which of the system failure problems mentioned earlier is the most

serious? Discuss your answer in the myINSPIRE forum.

10.3.4 Evaluating System Success

How can the success of the implementation of an IS in an organisation be
measured? Evaluating whether the system is a success or a failure is very
subjective because people have different opinions, beliefs, values and views about
everything in this world. One individual may view a system a success while
another may see it as failure. To make matters worse, the end user and the
organisation may also have different evaluations. What is liked by the user in an
IS may not be favoured by the organisation as the system may not be able to
increase its performance.

Nevertheless, someone should invent a mechanism for measuring the success of a

system implemented. Perhaps this machine can help identify which aspects of the
system need to be improved. Figure 10.4 shows that we can measure the success
of a system using the following five criteria:

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Figure 10.4: Measurement criteria for the success of a system

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SELF-CHECK 10.4

Discuss the five criteria for measuring the success of a system.

10.4 MANAGING THE IMPLEMENTATION OF

INFORMATION SYSTEMS
Let us now move on to the aspect of IS management by looking at risk factors and
strategies for overcoming the mistakes in the development process.

10.4.1 Controlling the Risk Factors

All implemented projects cannot avoid from facing risks. In the case of IS
implementation, we can use appropriate strategies to minimise the level of risk
faced.

Some of the strategies include the use of the correct project management
techniques adapted according to the project to be implemented. In general, we can
categorise these project management techniques into three types as indicated in
Figure 10.5.

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Figure 10.5: Project management techniques

One important strategy is to ensure that there is a high level of user acceptance of
the system. Many studies have been conducted on the attitudes of people in
general towards accepting any changes. The management should not be tight
fisted in paying the estimated cost to address this issue. Activities like training for
the user, user education, improving the quality of the user interface and
encouraging the involvement of the user can all be undertaken to „tame‰ the user.

10.4.2 Strategies for Overcoming the Mistakes in the

Development Process
It is important for the system designer to give full attention to the overall needs of
the organisation in the production of the design. Some examples include the
involvement and cooperation of workers, work design, monitoring of standards
and performance, ergonomic perspective (interaction between man and machine
in the work environment, including work design, health issues and user interface),
procedures to overcome user resistance, health and safety, and conformity with
government requirements.

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It will be more beneficial if the designers can produce an IS that can integrate the
technical expertise while considering the needs of the organisation and those of
the workers.

 The system development life cycle (SDLC) is divided into seven main phases,
namely, investigation, analysis, design, programming, testing, implementation
and maintenance.

 At the end of each phase, the result that is obtained will help in the following
phase. The SDLC will continue to turn in line with the lifetime of a system.

 Quality plays an important role in guaranteeing that products and services

fulfil the criteria fixed by the organisation; for example a software
development project should be completed on time and the product developed
should function perfectly.

 The capability maturity model (CMM), which consists of five levels – initial,
repeatable, defined, managed and optimising – is used to evaluate the maturity
of the software development process in organisations.

 In developing information systems, problems may emerge in either the

development stage or system management.

 It is important to begin the system development with a clear understanding of

the requirements of the system and the allowance of sufficient time to meet
those requirements.

 Once the system is implemented or deployed, the evaluation of the success or

failure of the system must be performed to identify any improvements that
need to be made.

 The system is successful when there is high level of usage; the users are
satisfied with the system; there is positive attitude towards the functions of the
system; the achievement of the system objectives; and the financial returns that
are obtained as a result of using the system.

 The success and failure of information systems depend on the role of the user
in the implementation process, the support and commitment from the
management, the level of complexity and project risks, and the quality of
management in implementation process.
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 The highest possibility of failure to occur is during the phases of the IS

development process.

 Each phase in the process of developing the IS has its own list of mistakes.
Thus, there is a need to reduce or eliminate these mistakes, by using the project
management techniques.

Capability maturity model (CMM) Quality of information system (IS)

Critical success factors (CSF) System development life cycle
(SDLC)
Project risks

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 MODULE FEEDBACK
MAKLUM BALAS MODUL

If you have any comment or feedback, you are welcome to:

1. E-mail your comment or feedback to [email protected]

OR

2. Fill in the Print Module online evaluation form available on myINSPIRE.

Thank you.

Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi )
Tel No.: 03-78012140
Fax No.: 03-78875911 / 03-78875966

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