COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
MODULE FOR THE COURSE
MANAGEMENT INFORMATION SYSTEM
COURSE CODE (MGMT-2091)

Prepared by
ABDURO AHMED (MBA)

BONGA ETHIOPIA
DECEMBER, 2022

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Contents
CHAPTER ONE ........................................................................................................................................... 1
1.1. INTRODUCTION TO MANAGEMENT INFORMATION SYSTEM ............................................ 1
1.2. KEY CONCEPTS .............................................................................................................................. 2
1.3. ELEMENTS OF INFORMATION SYSTEMS ................................................................................. 8
1.4. MANAGEMENT INFORMATION SYSTEM (MIS) .................................................................... 11
1.5. SUBSYSTEMS OF MIS.................................................................................................................. 14
1.6. CONTEMPORARY APPROACHES TO MIS ............................................................................... 15
1.7. TECHNICAL APPROACH ............................................................................................................. 16
1.8. BEHAVIORAL APPROACH ......................................................................................................... 16
1.9. THE EVOLUTION AND CHARACTERISTICS OF THE INFORMATION AGE ...................... 17
1.10. TYPES OF INFORMATION SYSTEM........................................................................................ 19
1.11. THE CAREER SIDE OF INFORMATION TECHNOLOGY ...................................................... 22
CHAPTER TWO ........................................................................................................................................ 26
2.1. FOUNDATIONAL CONCEPTS IN MIS ....................................................................................... 26
2.2. BUSINESS AND MANAGEMENT FUNCTIONS ........................................................................ 26
2.3. DATA, INFORMATION, KNOWLEDGE, AND WISDOM ......................................................... 31
2.4. THE INFORMATION NEEDS AND SOURCES OF MANAGERS ............................................. 33
2.5. A FRAMEWORK FOR INFORMATION SYSTEMS ................................................................... 35
2.6. E- BUSINESS SYSTEMS ............................................................................................................... 42
CHAPTER THREE .................................................................................................................................... 45
3. INFORMATION TECHNOLOGY ........................................................................................................ 45
3.2. HARDWARE: COMPUTING, STORING AND COMMUNICATING ........................................ 45
3.3. SOFTWARE .................................................................................................................................... 50
3.4. COMMUNICATION TECHNOLOGIES ....................................................................................... 51
3.5. DATABASE MANAGEMENT (DBM) .......................................................................................... 55
CHAPTER FOUR....................................................................................................................................... 69
4. COMMON BUSINESS APPLICATION OF INFORMATION SYSTEMS ......................................... 69
4.1 INTRODUCTION ............................................................................................................................ 69
4.2 FINANCIAL INFORMATION SYSTEMS ..................................................................................... 69
4.3. MARKETING INFORMATION SYSTEMS .................................................................................. 78
4.5. HUMAN RESOURCE INFORMATION SYSTEMS ..................................................................... 93
CHAPTER FIVE ...................................................................................................................................... 100

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5. KNOWLEDGE MANAGEMENT ....................................................................................................... 100
5.1. INTRODUCTION ......................................................................................................................... 100
5.2. ORGANIZATIONAL LEARNING AND KNOWLEDGE MANAGEMENT ............................. 101
5.3. KNOWLEDGE MANAGEMENT PRACTICES .......................................................................... 101
5.4. TYPES OF KNOWLEDGE MANAGEMENT SYSTEMS .......................................................... 103

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 CHAPTER ONE
1.1. INTRODUCTION TO MANAGEMENT INFORMATION SYSTEM
A number of trends affect today's business environment. One of them is the
transition from an industrial economy to an information services economy.
Beginning with the industrial revolution, productivity gains in the westerns
economy were tied to industrial production and manufacturing of goods and
services. Since the 1960s, 50 percent of all productivity gains have been
attributable to the use of information technology. The ability to capture, store,
process, and distribute information is critical to most organization.

Today, the traditional organization is being transformed in to the information based

organization, which uses information and information technology to produce
significant changes in work patterns. The organization of the past was highly
structured and composed of many different functions. In this type of organization,
each unit maintained its own information. The organization of the future will have
a flexible, changeable structure. Teams consisting of specialists from various
functional areas will work together on projects that address new market
opportunities. Shared information data bases will link individuals to each other. In
the future, manager in the information based organization will become responsible
for using and managing technology. They will use information technology (IT) as a
tool to provide effective customer service, analyze market opportunities, and
manage production and manufacturing operations. IT will become an integral part
of business. To understand the information based company of the future, let's first
learn why traditional organizations are evolving into information based
organizations.

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1.2. KEY CONCEPTS
System
A system is a group of interrelated components working together toward a
common goal by accepting inputs and producing outputs in an organized
transformation process. System will have the following basic interacting
components (functions):

1. Input
2. Processing
3. Output
4. Feedback
5. Control
Systems boundary: all systems have a boundary that separates them from their
environment. A boundary may delineate an area of responsibility. This boundary
depicts the scope of activities to be supported by the system.

Systems and subsystems: systems may consist of numerous subsystems, each of

which has elements, interactions, and objectives. Subsystems perform specialized
tasks related to the overall objectives of the total system. For example, an
educational system may consist of individual courses that are subsystems. Each
course provides specific knowledge that is a part of the overall educational system
and contributes to its goals. In a business system, various functions are the
subsystems.

Outputs and inputs: the inner workings of a system or subsystem are organized to
produce outputs from inputs. In this conversion process, some value, or utility,
should be added to the inputs. For example, a training program should produce
trained employees with certain skills, knowledge, or behavior from its inputs –

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untrained employees. The outputs of one subsystem usually become inputs into the
next.

An interface is a connection at system or subsystems boundaries. Two typical

business systems that interface with each other are inventory control and
purchasing.

Systems and their environment: the system's environment consists of its goals,
needs and activities.

Open and closed systems: open systems operate in an external environment and
exchange information and material with that environment. The external
environment consists of the activities external to the system boundary with which
the system can interact. An open system needs to receive feedback to change and
continue to exist in its environment.

In contrast, a closed system is relatively self-contained; exchange with its

environment does not occur. Closed systems do not get the feedback they need
from the external environment and tend to deteriorate. For instance, if a training
program administrator does not respond to the needs of environment for trained
graduates, students will no longer be able to get jobs and will go elsewhere for
training. Eventually, the training program will be discontinued

Systems feedback: a system needs feedback to do its job. Feedback is form of

control, because it requires continuing adjustments in the activities of the system.
Employees need feedback to learn how they are doing job goals. Students receive
grades or other kinds of evaluations from instructors to be whether they are
meeting course objectives. the good thing about feedback it that it usually increases
effort.

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System entropy and negative entropy: systems can become run down if they are
not maintained. If employees do not have opportunities to learn new concepts and
techniques, the skills they apply to performing job tasks will become out of date.
The process of maintaining a system is negative entropy. Sending automobile
mechanic to training classes to learn new diagnostic techniques is an example of
negative entropy. Negative entropy can be achieved through preventive
maintenance checks, such as a yearly physical examination for an employee or a
routine tune up for an automobile.

Systems may be abstract or physical: an abstract system is conceptual, a product

of the human mind. That is, it cannot be seen or pointed to as an existing entity.
Social, technological, cultural systems are abstract systems. None of these entities
can be photographed, drawn, or otherwise physically pictured. However, they do
exist and can be discussed, studied and analyzed. A subsystem is part of a larger
system with which we are concerned. A physical system, in contrast, is a set of
elements – rather than ideas or constructs – that operate in relation to one another
to accomplish a common goal or purpose.

Examples of physical systems include:

 Computer systems: collection of hardware elements that work

interdependently under some means to control to process data and
produce output reports.
 Communication system: collections of components that can represent
and transmit bits of information from one pointer to another.

 Marketing systems: collection of people, equipment, and procedures

that develop, produce, and distribute commodities, ideas and other
entities to consumers or users.

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A system must have an objective or goal. It is probably true to say that all systems
have more than one objective. A business organization, for example, might list as
its objectives:

 to generate a reasonable financial return for shareholders

 to maintain a high market share

 to increase productivity annually

 to offer an up-to-date product range of high quality and proven reliability

 to be known as responsible employers

 to acknowledge social responsibilities

 to grow and survive autonomously;

Information Vs Data

Data must be distinguished from information, and this distinction is clear and
important for our purpose. Data are facts and figures that are not currently being
used in a decision process and usually take the form of historical records that are
recorded and field without immediate intent to retrieve for decision-making.

Data are collections of facts or events represented in the form of symbols, such as
digits, alphabets, pictures, graphs, etc. Capturing, processing and storage of data
are the essential functions of any IT infrastructure. Data are the basic raw materials
in the process of generation of information. Data may be collected from internal
sources as well as external sources.

Information consists of data that have been retrieved, processed, or otherwise used
for informative or inference purposes, argument, or as a basis for forecasting or
decision-making.

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Information is knowledge that one derives from facts placed in the right context
with the purpose of reducing uncertainty. From the manager's point of view,
information serves the purpose or reducing uncertainty regarding the alternative
course of action, in the process of decision-making. Availability of information
regarding the alternative improves the odds in favor of making a correct decision.
Information is recognized as one of the most important corporate resources.

Information as corporate resource has the following features.

 Information is a value added resource. Just as value is added to a
product as it moves from raw material stage to final product; the same
is true of conversion of data into information.
 Information has a specific cost associated with it just as if it were
acquired from the market. Therefore, it is as essential to acquire and
utilize information efficiently as it would be for any other resource.
 Information is meant to be shared by all associated with the
attainment of company's common goals and they, in turn, contribute to
the corporate stock of information.
 Information is exposed to a variety of security risks. Therefore, it has
to be protected by implementing appropriate security policies and
procedures without hindering its seamless flow across its users.
 Most of the information is organization specific and its value depends
upon its use by the decision maker.
 It has a high rate of obsolescence and thus, it must reach the user as
early as possible. Redundant part of this resource must be weeded out
of the total stock of information.

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Information Systems

In many ways, information systems have the same characteristics as systems in

general. The major purpose of an information system is to convert data into
information; information is data with meaning. In a business context, an
information system is a subsystem of the business system of an organization.
Information system can be defined as a set of interrelated components that sense,
communicate, analyze, and display information for the purpose of enhancing our
perception, understanding, control and creative ability.

The information system

a) takes in data from the environment using of the sensing and communication
technologies (INPUT);

b) Analyzes this information using computer hardware and software

(PROCESS);

c) Displays this information using computer hardware and software

(OUTPUT);

d) Either you or the computer uses this information to act on the environment
(FEEDBACK).

An information system, like any other system, receives inputs of data and
instructions, processes these data according to these instructions, and produce
outputs.

Hierarchy of subsystems: the subsystems within an information system can also be

organized into a hierarchy that represents their functions within the overall system.
Each subsystem performs a specialized function.

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An information system is an example of both a technical system and a social
system. It is a technical system in that it may contain a large number of machinery
(computers, telephones etc), but it is also a social system given that it may reflect,
in the way it is used, the social structure of the organization. For example, an
information system not only exists to record transactions but also it is used to
provide summary information to senior management to assess whether the
organization is following its long-term strategic objectives. The information
system links the disparate parts of the organization together (persons, groups,
departments, or organization to another).

1.3. ELEMENTS OF INFORMATION SYSTEMS

Computer Hardware
Computer hardware refers to computer systems and other associated equipment
including the communication links that a modern IT installation may need. With
the rapid advancement in computer hardware technology, a large variety of
computer systems with varying sizes, speeds, and functional feature are available.
To be able to determine the hardware resource requirements, it is necessary to
properly assess the nature of IT needs, the volume of data to be processed, sources
of data, complexity of data analysis and impact of other related factors. Such an
assessment should also make provisions for expected changes in these factors in
the future.

The following list presents computing power from the least expensive and least
powerful to the most expensive and most powerful.

i) Microcomputers (sometimes called personal computers). Based on a

single tiny silicon chip called a microprocessor that contains all the
essential elements of a computer.

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  Desktops

 Portables (like laptop, notebook, and palmtop or handheld computers)

ii) Workstations: faster and more powerful than microcomputers,

workstations are used by engineers, architects, scientists, commercial
artists, and others who heed computers for speedy number crunching and
graphics

iii) Minicomputers: generally have more speed and power than workstations,
but less than mainframes. They can handle several hundred simultaneous
users and can run multiple programs concurrently.

iv) Mainframes: are the standards for large business and government
agencies, although computer networks composed of smaller computers
are threatening to surpass them.

v) Supercomputers: are the largest and powerful computers.

Software

Putting it simply, sets of interrelated computer programs are collectively called

computer software. A program is a set of instructions, which enable particular
processes to be performed by a computer. Software is lifeline of the IT
infrastructure and it makes the computer hardware function. Software determines
what the hardware does and makes the hardware perform. Software, thus, is a very
important IT resource and must be carefully selected and properly maintained.
Software, being intangible, sometimes gets a back seat in planning for an IT
infrastructure. In fact, improper selection of software may become a major cause of
failure of an IT infrastructure in achieving its objectives. There are two types of
software:

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 1. System software: programs that control and coordinate the operation
of the various types of equipment in a computer system.

2. Applications software: programs that allow you to apply the

computer to solve a specific problem or perform a specific task (i.e.,
word processing, spreadsheet, graphics, database programs).

Procedures

Formal operating procedures are physical components because they exist in a

physical form such as a manual or instruction booklet. Three major types of
procedures are required:

1. User instruction (for users of the application to record data, employ a

terminal to enter or retrieve data, or use the result)

2. Instructions for preparation of input by data preparation personnel

3. Operating instructions for computer operations personnel

The procedures play an important role in the smooth and effective utilization of
information resource. They also protect the information resource and maintain its
quality. Thus, the procedures as element of information system refer to the
instructions to users regarding the use of IT infrastructure for normal day-to-day
activity and also for handling special situations such as systems failures and
crashes. They include user access permissions and disaster recovery procedures as
well.

Human resources

The effectiveness of an IT infrastructure is a function of the type of IT personnel

available to it. In fact, best of computer hardware, software and data may be
spoiled and may cause havoc if the human resources are not competent, honest or
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reliable. Qualities like competence, honesty and reliability are critical to any work
environment. These include computer operators, systems analysts, programmers,
data preparation personnel, information systems management, data administrators,
etc.

1.4. MANAGEMENT INFORMATION SYSTEM (MIS)

The term management information system (MIS) is possible to define in a number
of different ways, some of which are listed below:

(a) 'A computer system or related group of systems which collects and presents
management information to a business in order to facilitate its control.'

(b) 'A system to convert data from internal and external sources into information
and to communicate that information, in an appropriate form, to managers at
all levels in all functions to enable them to make timely and effective
decisions for planning, directing and controlling the activities for which they
are responsible

(c) Management information system (MIS): is an integrated, user machine

system for providing information to support operations, management, and
decision making functions in an organization. The system utilizes computer
hardware and software; manual procedures; models for analysis, planning,
control and decision making; and a database (Davis and Olson: 1985). The
fact that it is an integrated system does not mean that is a single, monolithic
structure; rather, it means that the fact parts fit into an overall design. The
elements of the definition are highlighted below:

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Management information system is

 an integrated user machine system (some can be performed using

machine, other without machines)
 for providing information
 to support the operations, management, analysis, and decision making
functions
 in an organization
The system utilizes

 Computer hardware and software

 manual procedures
 models for analysis, planning, control, and decision making and
 a database

Importance of MIS
In today's scenario management information system (MIS) plays a pivotal role in
organizations and organizations worldwide make extensive use of it. Because of
the vast nature of MIS there are various importance’s and here only some of them
are presented.

 An organization that uses MIS is able to record, process, route, and tabulate
all important business transactions. When need arises the organization is
able to incorporate the needed changes and improvements in the area of
concern.
 MIS facilitates informed decision making by usually representing a number
of options from which one can choose the best.
 The top management analyzes whether its resources are being utilized
optimally.

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  A two way communication flow will be enhanced by the MIS. The
management freely tells the job responsibilities to its employees and
employees in turn discuss their doubts and grievances.
 MIS supports the planning and controlling function of managers in the
organization. Managers use past or historic data as well as the current data
to analyze the performance and hence apply controlling measures.
 MIS encourages decentralization in the organization. Decentralization is
possible when there is a system to measure operations at the lower levels.
 MIS brings coordination and it facilitates integration of specialized
activities by keeping each department aware of the problems and
requirements of other departments.

Scope of MIS

What is common to these definitions is presented to management. However, this is

not the only function of an organization's information systems. A number of tasks
might be performed simultaneously:

(a) Initiating transitions (e.g., automatically making a purchase order if stock

levels are below a specified amount);
(b) Recording transactions as they occur (e.g., a sale is input to the sales ledger
system);
(c) Processing data;
(d) Producing reports (e.g., summaries);
(e) Responding to enquires.

The objective of an MIS is to provide information for decision making on

planning, initiating, organizing, and controlling the operations of the subsystems of
the firm and to provide a synergistic organization in the process.

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1.5. SUBSYSTEMS OF MIS
MIS has been introduced as a broad concept referring to a federation of
subsystems. Two approaches to defining the subsystems of an MIS are according
to the organizational functions, which they support, and according to managerial
activities for which they are used.

Organizational Function Subsystems

Because organizational functions are somewhat separable in terms of activities and

are defined managerially as separate responsibilities, MIS may be viewed as a
federation of information system – one for each major organizational function.
There may be common support systems used by more than one subsystem, but
each functional system is unique in its procedures, programs, models, etc., typical
subsystems for a business organization engaged in manufacturing are:

Major functional subsystem Some typical uses

Marketing Sales forecasting, sales planning, customer and sales
analysis
Manufacturing Production planning and scheduling, cost control
analysis
Logistics Planning and control of purchasing, inventories,
distribution
Personnel Planning personnel requirements, analyzing
performance, salary administration
Finance & accounting Financial analysis, cost analysis, capital requirements
planning income measurement
Information processing Information system planning, cost effectiveness
analysis
Top management Strategic planning, resource allocation

The database is the primary means of integration of the various subsystems. A data
item that is stored or updated by one subsystem is then available to the other

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subsystems. For instance, the sales and inventory information used by the
marketing subsystem is supplied through the logistical subsystem; the same data is
used by the manufacturing subsystem for production planning and scheduling.
Activities Subsystem
Another approach to understanding the structure of an information system is in
terms of the subsystem, which perform various activities. Some of the activities
subsystems will be useful for more than one organizational function subsystem;
others will be useful for only one function.

Activity subsystem Some typical uses

Transaction processing Processing of orders, shipments, and receipts

Operational control Scheduling of activities and performance reports

Management control Formulation of budgets and resource allocation

Strategic planning Formulation of objectives and strategic plans

1.6. CONTEMPORARY APPROACHES TO MIS

Multiple perspectives on information systems show that the study of information
systems is a multidisciplinary field and no single theory or perspective dominates.
In general, the field can be divided into technical and behavioral approaches.
Information systems are socio-technical systems. Though they are composed of
machines, devices, and “hard” physical technology, they require substantial social,
organizational, and intellectual investments to make them work properly. In the
same token the field of MIS is composed of behavioral and technical elements. The
various contemporary approaches to MIS development can be summarized as
follows.

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1.7. TECHNICAL APPROACH
The technical approach to information systems emphasizes on mathematically
based models to study information systems, as well as the physical technology and
formal capabilities of these systems. The disciplines that contribute to the technical
approach are computer science, management science, and operations research.
Computer science is concerned with establishing theories of computability,
methods of computation, and methods of efficient data storage and access.
Management science emphasizes the development of models for decision-making
and management practices. Operations research focuses on mathematical
techniques for optimizing selected parameters of organizations, such as
transportation, inventory control, and transaction costs.

Figure 1.1: contemporary approaches to MIS (Laudon and Laudon, 2006)

1.8. BEHAVIORAL APPROACH

An important part of the information systems field is concerned with behavioral
issues that arise in the development and long-term maintenance of information
systems. Issues such as strategic business integration, design, implementation,
utilization, and management cannot be explored usefully with the models used in

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the technical approach. Other behavioral disciplines contribute important concepts
and methods. For instance, sociologists study information systems with an eye
toward how groups and organizations shape the development of systems and also
how systems affect individuals, groups, and organizations. Psychologists study
information systems with an interest in how human decision makers perceive and
use formal information. Economists study information systems with an interest in
what impact systems have on control and cost structures within the firm and within
markets. The behavioral approach does not ignore technology. Indeed, information
systems technology is often the stimulus for a behavioral problem or issue. But the
focus of this approach is generally not on technical solutions. Instead, it
concentrates on changes in attitudes, management and organizational policy, and
behavior.

Socio-technical Approach

In the beginning, this approach was found hard to survive but now it is being
accepted worldwide and is also being implemented at a very large scale. This
approach includes the key involvement of both behavioral and technical
approaches in order to improve the performance of the information system as a
whole.

1.9. THE EVOLUTION AND CHARACTERISTICS OF THE

INFORMATION AGE
Information Technology
Information Technology (IT) has become a strategic necessity. Unless we believe
in IT and act on it, there is every chance of becoming a footnote in the annals of
History. IT has become a vital component of successful businesses and
organizations. Managers are expected to identify opportunities to implement
information systems to improve the business processes. Managers are also required
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to lead IS projects in IT. Information Technology has become a major facilitator of
business activities. It is also a catalyst of fundamental changes in the structure,
operations and management of organizations. IT can be used to:

1. Perform high-speed, high-volume, numeric computations.

2. Provide fast, accurate and inexpensive communication within and between
organizations.
3. Store huge amounts of data in an easy-to-access yet small space and allow quick
and easy access.
4. Automate semi-automatic business processes and manually done tasks.

IT has been used for improving productivity, reducing cost, enhancing decision
making process, enhancing customer relationships, and developing new strategic
applications. The business paradigm has completely shifted from being sellers
market to buyers market. Customers have become the focal point of any business.
The business environment is no more as stable as it used to be and has become
much more competitive. It became mandatory on the part of the organizations to
make full use of IT to survive.
IT has become one of the standard components of an organization. The individuals
are supported by IT to fulfill their roles. The management and the business
processes have become IT oriented. Organization structure and strategy are also
supported by IT. Whenever an external or internal pressure is felt by an
organization, IT helps the organization to plan critical response activities. The
changed government policy may create a pressure on an organization. But such a
pressure is distributed over a long period as government gives enough time to
organizations to respond to changed policies. But if there is a change in the
behavior of consumers, the organization should be able to identify the change.
Moreover, they should be able to come up with a solution fast. IT helps an

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organization to anticipate and stay ahead of problems. The organization can take
proactive measures rather than firefighting measures.

Information Technology means the collection, storage, processing, dissemination,

and use of Information. It is not confined to hardware and software but
acknowledges the importance of man and the goals he sets for his technology, the
values employed in making these choices, the assessment criteria used to decide
whether he is controlling the technology and is being enriched by it.

1.10. TYPES OF INFORMATION SYSTEM

There are various types of information systems as listed below.

Transaction Processing Systems (TPS)

A TPS is used primarily for record keeping which is required in any organization
to conduct the business. Examples of TPS are sales order entry, payroll, and
shipping records etc. TPS is used for periodic report generation in a scheduled
manner. TPS is also used for producing reports on demand as well as exception
reports.

Decision Support System (DSS)

DSS serves the management of an organization. A decision support system has

sophisticated data analysis tools, which support and assist all aspects of problem
specific decision-making. DSS may use data from external sources such as current
stock prices to enhance decision-making. DSS is used when the problem is
complex and the information needed to make the best decision is difficult to obtain
and use.DSS is developed with the help of decision makers. DSS helps in decision-
making process and does not make any decision.

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Executive Information System (EIS)
An Executive Information System is also called Executive Support System. Senior
managers of an organization use the EIS. Therefore, it must be easy to use so that
executives can use it without any assistance. EIS can do trend analysis, exception
reporting and have drill down capabilities. The results are usually presented in a
graphical form tailored to executive’s information needs. EIS has on-line analysis
tools and they access a broad range of internal and external data.
Management Information Systems (MIS)
MIS provides the management routine summary of basic operations of the
organization. The basic operations are recorded by the TPS of the organization and
MIS consolidates the data on sales, production etc. MIS provides routine
information to managers and decision makers. The main objective behind installing
an MIS in the organization is to increase operational efficiency. MIS may support
marketing, production, finance etc.
Work Flow System
A workflow system is a rule based management system that directs, coordinates,
and monitors execution of an interrelated set of tasks arranged to form a business
process. A workflow system is also known as a document image management
system. For example, a workflow system is used by banks for loan sanction
process. An applicant fills out an electronic application form for a bank loan at a
bank’s web site. The application is then uploaded to the bank loan officer’s site.
The loan officer conducts an interview and fills in his feedback and passes the
application form to the credit check unit. The credit unit checks the credit limit and
fills in the details. The application is now complete and a final decision is made.

There are three types of workflow software. Administrative workflow systems

focus on the tracking of expense reports, travel requests, messages. An Ad-hoc

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workflow system deals with the shaping of product, sales proposals, and strategic
plans. Production workflow systems are concerned with mortgage loans and
insurance claims. A workflow system may be Internet based and may be combined
with e-mail. A workflow system may be based on client/server architecture that
may use a database/file server.
Enterprise Resource Planning (ERP)

ERP system is a set of integrated programs capable of managing a company’s vital

business operations for an entire multi-site, global organization.

Expert Systems

The system has the ability to make suggestions and act like an expert in a particular
field. An expert system has an extensive knowledge base.

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1.11. THE CAREER SIDE OF INFORMATION TECHNOLOGY

E-mail, personal computers, and the Internet are products of the information age
that have become common currency among working professionals. They make our
life simpler by enabling faster communication, providing tools for more effective
work, and giving us an access to vast information with the click of a mouse. But
they also introduce a risk factor that isn't totally within our control. If our computer
fails or the network connection goes down, we lose time and possibly money.
Information technology (IT) brings people the information and applications-such
as word-processing, spreadsheet, and presentation software that office worker
severywhere rely on to do their jobs. IT specialists create such products, set up and
maintain such systems. Their work varies widely: They upgrade computer
software; get office computer network, or computer, up and running again after it
crashes; set up and maintain the servers on which the company's internal
applications run; create and customize the software products; build websites; and
build and maintain the databases that organizations rely on to gather information to
serve customers.

IT professionals wear many hats and go by different names, depending on their

area of expertise-engineer, programmer, website producer, and network
administrator, to name a few. The range of IT jobs is vast and the skills needed to
set up an office network-install the cables, configure the computers, and keep them
running-are quite different from those required to set up and customize an
automated-payroll software system. A database specialist needs still other skills to
administer the ever-changing complex of information generated by enterprise
software applications and the company website, including files on visitors who
have signed on as members or purchased something.

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But no matter what job they do, all IT professionals focus on improving the
usability and efficiency of technological systems and processes. Their goal is a
smoothly functioning computer network-free of bugs, glitches, and interruptions-
that provides an effective flow of information so the company can keep on
improving its work processes, customer retention and acquisition, and other
aspects of its business. There's a broad range of jobs in IT, and not all positions
require technical skills. The following are some of the jobs vacancies and their
associated descriptions in IT field.

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Technical producer  The producer acts as both the nerve center and lightning rod.
For projects such as entertainment software, the producer is
like the director of a movie, setting the tone as well as the
overall look and feel, and taking responsibility for the final
version. All the art, content, administrative, and other
decisions go through the producer-it can be stressful but
rewarding when it works. The producer may report to the
product manager, who's in charge of commercial concerns, or
to a technical manager.

Web developer  Web developers are masters of HTML, and they know how to
create Web pages that will look good in any browser on any
platform. In addition to knowing applications such as
Photoshop, Illustrator, and Flash, a Web developer
understands databases, JavaScript, XML-and how to work
with both designers and engineers. Tight deadlines can make
this work tough at times, but for those who love to work with
rapidly evolving tools and challenges, this job is ideal.

Web master  Smaller companies in particular tend to roll the areas of Web
architecture, design, implementation, and management into
one position: the webmaster. Webmasters may even be
responsible for content creation and editing, working in
conjunction with marketing. If you hold this job, be prepared
to know and do a little bit of everything.

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Software engineer  Junior software engineers mainly do the dirty work of
inputting code, connecting application modules and
functionalities, debugging, and porting to other OS platforms.
However, the junior position is a stepping-stone to the senior
position, which offers the potential of having a say in the end
product. Senior engineers also work with end users, OEM
customers, and others; they also take a more supervisory role
in team structure.
Application programmer  This type of programmer/engineer works specifically on a
particular application that will either end up as a shrink-
wrapped product or as a module that will interact with final
products. This position entails documentation, product
development, and product integration-one example would be
writing or revising software that addresses a specific task,
such as calibrating color monitors.
Database administrator  Database administrators, or DBAs, participate in database
design and maintain, develop, and test database environments.
Often, the DBA is responsible for making backups and
ensuring that information is recoverable in the event of a
disaster.
Administrators may also plan, coordinate, and implement
security measures to safeguard information. It's also crucial to
have the right certifications to get your foot in the door-these
are often more important than academic degrees.

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 CHAPTER TWO
2.1. FOUNDATIONAL CONCEPTS IN MIS
Management Information System (MIS) can be described as computer based system
that provides flexible and speedy access to accurate data. Such a definition would suit
any personal, professional, organizational, national or global information system.
Obviously, the organizational information systems-those pertaining to the planning,
operation and control of enterprise are the most important amongst these. Management
Information System refers primarily to such organizational information systems, which
are generally large, sophisticated, structured and dynamically evolving, and of immense
commercial value.

Management information systems are expected to provide information for functions

such as planning, control and decision making. The type of information support
required would depend on various factors such as level in the organization structure
where the activity is being performed, the type of activity such as operational control or
managerial control, degree of risks involved and so on. The management information
systems are expected to provide for information support that is appropriate for the
managerial activity being performed. The managerial functions and the activities
related with them would be influenced by the factors influencing the business
organization. Management information systems are expected to be flexible in order to
adopt to these changes in the managerial functions and the associated activities and to
the changing support requirements.

2.2. BUSINESS AND MANAGEMENT FUNCTIONS

The Business Function of MIS
The new digital firm business environment requires companies to think more
strategically about their business processes. Business processes refer to sets of logically
related activities for accomplishing a specific business result. Business processes also

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refer to the unique ways in which organizations and management coordinate these
activities. A company’s business processes can be a source of competitive strength if
they enable the company to innovate better or to execute better than its rivals. Business
processes can also be liabilities if they are based on outdated ways of working that
impede organizational responsiveness and efficiency. Some business processes support
the major functional areas of the firm, others are cross-functional. The following table
describes some typical business processes for each of the functional areas.

Functional area Business process

 Assembling the product
Manufacturing and production  Checking for quality
 Producing bills of materials
 Identifying customers
 Making customers aware of the
Sales and marketing
product
 Selling the product
 Paying creditors
Finance and accounting  Creating financial statements
 Managing accounts
 Hiring employees
Human resources  Evaluating employee's job
performance
Functions of Management

Regardless of the type, size and objective of the firm, all managers have certain basic
functions. These are planning, organizing, staffing, leading/directing/, and controlling.
The nature and scope of these functions differ from manager to manager and from firm
to firm.

Planning
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It is a decision making process which involves selection of missions and objectives and
choose the best course of action to achieve them from among alternatives. It is an
intellectual task, which bridges the gap between the present and future conditions of the
organization (from where we are to where we want to be in a desired future). Planning
is a decision making process that determines what to be done, how it is to be done, why
it is done, when it is to be done, and by whom it is to be done.

The first step in planning is determination of the objective of an organization and then
objectives are established for the sub units of the organization- its departments,
divisions, etc. Once the objectives are determined, programs are established for
achieving them in a systematic manner.

Top level managers set plans for the entire company; while lower level managers
prepare plans for their immediate areas of responsibility. Planning doesn't occur in a
vacuum. It is done in light of budgetary constraints, personnel requirements,
competition, and other factors. Planning, as a managerial function, is the process of
integrating the future activities of an organization, and requires the ability to foresee,
visualize, and look ahead purposefully.

Organizing

It is a managerial activity that involves establishing an intentional structure of roles for

people to fill in an organization. In other words, it is the process of creating an
environment for human performance depending on the objectives set. In short,
organizing is the process of determining the role by which an individual plays and the
individual roles are related and integrated to achieve the common organizational goal.
Organizing, thus involves:

 Identification of activities to achieve the predetermined objective;

 Grouping these activities into working units;

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  Assignment of responsibility to each unit with corresponding authority; and

 The creation of intentional organizational relationship so as to enhance

coordination.

Staffing

It is the process of filling and keeping filled the positions in the organization structure.
This is done by identifying work force requirements, inventorying the people available,
recruiting, selecting, placing, promoting, compensating, training and developing both
candidates and current job holders to accomplish their tasks effectively and efficiently.

Leading

It is influencing, motivating and directing people so that they will contribute to

organization and group goals; it has to do predominantly with the interpersonal aspect
of managing. To be effective leader managers need to understand individual and group
behavior, techniques of motivation, and effective styles of leadership. Mangers must
develop relationships that ensure adequate communication with their subordinates.
Leading also includes managing personal conflict, helping employees, deal with
changing conditions, and in some cases disciplining employees. Leadership requires
good interpersonal skills. Leading /directing has the following three elements:

(i) Motivation

(ii) Leadership styles

(iii) Communication

Controlling

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It is the measuring and correcting of activities of subordinates, to ensure that events
conform to plans. It also involves taking corrective measures (actions) if negative
deviations exist.

The controlling function involves the following steps:

 Establishing standards of performance:

 Measuring actual performance and comparing it against the plan the goal /the
established standard;
 Taking corrective measures if there are deviations (taking corrective actions
when standards are not met or in anticipation that they may not be met).

Actual results may differ from desired results in any area, but the three that require the
most attention are product quality, worker performance, and cost control.

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2.3. DATA, INFORMATION, KNOWLEDGE, AND WISDOM
According to Russell Ackoff, a systems theorist and professor of organizational change,
the content of the human mind can be classified into five categories; however for the
sake of this course we will take a look at four of them:

1. Data: data is raw. It simply exists and has no significance beyond its existence
(in and of itself). It can exist in any form, usable or not. It does not have meaning
of itself. In computer parlance, a spreadsheet generally starts out by holding data.
2. Information: information is data that has been given meaning by way of
relational connection. This "meaning" can be useful, but does not have to be. In
computer parlance, a relational database makes information from the data stored
within it.
3. Knowledge: knowledge is the appropriate collection of information, such
that it's intent is to be useful. Knowledge is a deterministic process. When
someone "memorizes" information (as less-aspiring test-bound students often
do), then they have amassed knowledge. This knowledge has useful
meaning to them, but it does not provide for, in and of itself, an
integration such as would infer further knowledge. For example, elementary
school children memorize, or amass knowledge of, the "times table". They can
tell you that "2 x 2 = 4" because they have amassed that knowledge (it being
included in the times table). But when asked what is "1267 x 300", they cannot
respond correctly because that entry is not in their times table. To correctly
answer such a question requires a true cognitive and analytical ability that is only
encompassed in the next level... understanding. In computer parlance, most of the
applications we use (modeling, simulation, etc.) exercise some type of stored
knowledge.

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 4. Wisdom: wisdom is an extrapolative and non-deterministic, non-probabilistic
process. It calls upon all the previous levels of consciousness, and
specifically upon special types of human programming (moral, ethical codes,
etc.). It beckons to give us understanding about which there has previously been
no understanding, and in doing so, goes far beyond understanding itself. It
is the essence of philosophical probing. Unlike the previous levels, it asks
questions to which there is no (easily-achievable) answer, and in some cases, to
which there can be no humanly-known answers period. Wisdom is therefore,
the process by which we also distinguish, or judge, between right and
wrong, good and bad.

Ackoff indicates that the first three categories relate to the past; they deal with what has
been or what is known. Only the fourth category, wisdom, deals with the future because
it incorporates vision and design. With wisdom, people can create the future rather than
just grasp the present and past. But achieving wisdom isn't easy; people must move
successively through the other categories.

Illustration

Data represents a fact or statement of event without relation to other things.

Ex: It is raining.

Information embodies the understanding of a relationship of some sort, possibly cause

and effect.

Ex: The temperature dropped 15 degrees and then it started raining.

Knowledge represents a pattern that connects and generally provides a high level of
predictability as to what is described or what will happen next.

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Ex: If the humidity is very high and the temperature drops substantially the
atmospheres is often unlikely to be able to hold the moisture so it rains.

Wisdom embodies more of an understanding of fundamental principles embodied

within the knowledge that are essentially the basis for the knowledge being what it is.
Wisdom is essentially systemic.

Ex: It rains because it rains and this encompasses an understanding of all the
interactions that happen between raining, evaporation, air currents, temperature
gradients, changes, and raining.

2.4. THE INFORMATION NEEDS AND SOURCES OF MANAGERS

Information is needed for decision making at all levels of management. Managers at
different organizational levels make different types of decisions, control different types
of processes, and have different information needs. Three classical levels of
management include:
 Operational
 Tactical (middle), and
 Strategic
i. Operational information
Operational information relates to the day to day operations of the organization and
thus, is useful in exercising control over the operations that are repetitive in nature.
Since such activities are controlled at lower levels of management, operational
information is needed by lower management.
For example, the information regarding cash position o day to day basis is monitored
and controlled at lower levels of management. Similarly, in marketing function, daily
and weekly sales information is used by lower level manager to monitor the
performance of the sales force.

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It may be noted that the operational information pertains to activities that are easily
measurable by specific standards. The operational information mainly relates to current
and historical performance, and is based primarily on internal sources of data. The
predictive element in operational information is quite low and if at all it is there, it has a
short term horizon.
ii. Tactical information
Tactical information helps middle level managers allocating resources and establishing
controls to implement the top level plans of the organization. For example, information
regarding the alternative sources of funds and their uses in the short run, opportunities
for deployment of surplus funds in short term securities, etc. may be required at the
middle level of management.

The tactical information is generally predictive, focusing on short-term trends. It may

be partly current and partly historical, and may come from internal as well as external
sources.
iii. Strategic information
While the operational information is needed to find out how the given activity can be
performed better, strategic information is needed for making choices among the
business options. The strategic information helps in identifying and evaluating these
options so that a manager makes informed choices which are different from the
competitors and the limitations of what the rivals are doing or planning to do.

Strategic information is used by managers to define goals and priorities, initiate new
programs and develop policies for acquisition and use of corporate resources. For
example, information regarding the long-term needs of funds for ongoing and future
projects of the company may be used by top level managers in taking decision
regarding going public or approaching financial institutions for term loan.

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Strategic information is predictive in nature, relies on external sources of data, has long
term perspective, and is mostly in summary form. It may sometimes include what if
scenarios. However, the strategic information is not only external information. For long,
it was believed that strategic information is basically information regarding the external
environment. But, it is now well recognized that the internal factors are equally
important/responsible for success or failure of strategies and thus, internal information
is also required for strategic decision making.

2.5. A FRAMEWORK FOR INFORMATION SYSTEMS

The activities of an organization are of three kinds: operational, tactical and strategic
planning. Operations are the day-to-day activities of the firm that involves acquiring
and consuming resources. First-line supervisors must identify, collect and register all
transactions that result in acquiring and expending these resources. When sales are
made or goods are shipped, a department manager needs to record these vents. These
day-to-day transactions produce data that are the basis for the operational systems.

The tactical function of an organization is the responsibility of its middle-level

managers. They review operational activities to make sure that the organization is
meeting its goals and not wasting its resources. The time frame for tactical activities
maybe month to month, quarter to quarter, or year to year. For example orders for raw
materials might be monitored monthly, productivity might be assessed quarterly, and
department budgets might be reviewed annually. Managers responsible for control have
to decide how to allocate resources o achieve business objectives. Data that can be used
to predict future trends help managers make these resource allocation decisions.

The top management of the organization carries out strategic planning. Though
managers responsible for operational and tactical decision making are primarily
involved in reviewing internal data, the managers responsible for planning are also

35
interested in external information. They need to set the organization’s long range goals,
for example, by deciding whether to introduce new products, build new physical plant
facilities, or invest in technology. For making these decisions they need to know the
activities of the competing firms, interest rates, the trends in government regulations.
Strategic planners address problem that involves long-range analysis and prediction and
often require months and years to resolve. Hence, the framework for information
systems consists of operational, tactical, and strategic levels.

Operational level systems

At the operational systems level the primary concern is to collect, validate, and record
transactional data describing the acquisition or disbursement of corporate resources.
Financial data on accounts receivable; accounts payable, payroll, and cash receipts must
be recorded as they occur. When a sale occurs, data on the items ordered are recorded,
the inventory level for these items is adjusted, a shipping label and packing slip are
prepared, and an invoice is generated. The original transaction-the sale of the item-
creates numerous transactions in order processing, inventory, and billing. Operational-
level information systems often have the following characteristics.

 Repetitiveness: The information operational-level information systems produce

is usually generated repetitively at periodic intervals, such as daily, weekly, or
monthly.
 Predictability: The information usually does not contain any surprises or
unexpected results for the manager or other users of the system. That is, people
are paid what they were expected to be paid, and customers are billed for what
they purchased during the month.
 Emphasis on the past: The information usually describes past activities of the
organization. For example, the output of a payroll system describes employees’
past work. The checks to vendors describe past purchases by the organization.

36
 Customer invoices describe past sales to them. Stock reports describe past
changes in inventory.
 Detailed nature: The information is very detailed. That is, paychecks provide
de-tailed information on the workweek of each employee and the specifics of
each employee’s gross and net pay. Customer invoices specify details regarding
purchases made during the period, the terms under which the purchases must be
repaid, and the total amount, including taxes and other charges, due.
 Internal origin: The data for operational systems usually spring entirely from
internal sources. That is, the data for paychecks come from internal documents
such as time cards and employee master records. The data for customer invoices
come from sales orders and shipping documents.
 Structured form: The form of the data used as input and the form of the
information produced by operational-level systems are usually very structured.
That is, the data on time cards are carefully formatted in identical fashion on
each, or the data on each customer invoice are carefully formatted in identical
fashion. In short, the form and format of the data input and the information output
of the systems are highly structured.
 Great accuracy: The accuracy of the data used as input to such systems and of
the output produced by such systems is usually very high. The data input and
information output are carefully checked.

Tactical systems

Tactical information systems differ from operational information systems in their basic
purpose. The purpose of tactical information systems is not to support the execution of
operational tasks, but to help the manager control these operations. As a result, the types
of data used as inputs and the information produced as outputs also differ from the types
of data involved in operational information systems. Tactical systems provide middle-

37
level managers with the information they need to monitor and control operations and to
allocate their resources effectively. Tactical information systems may also produce
information when it is needed, that is, on an ad hoc basis. For instance, once the credit
manager has identified a problem with overdue accounts, he or she may wish to query
the accounting system database to find out what customer data, if any, correlate with
those who have credit problems. In tactical systems, transactions data are summarized,
aggregated, or analyzed. Tactical systems generate a variety of reports, including
summary reports, exception reports, and ad hoc reports.

1. Summary Reports: provide management with important totals, averages, key

data, and abstracts on the activities of the organization. An example of a summary
report might be a list of the total regular and overtime hours earned at each plant
for the week by job classification. Another example is the list of total weekly
sales, by salesperson, by product, and by sales region.
2. Exception Reports: warn managers when results from a particular operation
exceed or do not meet the expected standard for the organization. An example of
an exception report is a list of all plants that have logged more overtime hours
than expected for a week. Another example is a list of those sales personnel whose
sales fall in the top and bottom 10% of the organization.
3. Ad hoc reports are reports that managers need, usually quickly, that may never
be needed again. Ad hoc reports present information that the manager needs to
solve a unique problem. An example of this type of report might be a list of the
total number of employees absent during the week arranged by plant and by job
title along with the hours or days missed. Another example might be a report that
presents the production record of each plant for the week. A manager might
request these reports only when an exception report shows high overtime earnings

38
 at certain plants. The manager may ask for a number of ad hoc reports such as
these to identify the nature of the overtime problem

The following are characteristics of tactical information system.

 Periodic nature: The information from a tactical system is sometimes produced

periodically. For example, a branch credit manager for an organization may
receive a weekly report showing the total dollar amount of accounts that are more
than 60 days
 Unexpected findings: A tactical information system may produce unexpected in-
formation. For example, in querying the accounting system database, the credit
manager may find that the major customer characteristic correlating with credit
difficulty is the relationship between type of position and type of employer.
Further investigation may reveal that organizations in a particular industry have
cut their workforces and have laid-off selected workers in certain positions. Such
findings may lead to a review of all customers who work in similar positions in
that industry to find ways to solve or ease their credit problems and to prevent
them from becoming bad debts to the organization.
 Comparative nature: The information is usually comparative in nature rather
than merely descriptive. Tactical information systems should provide managers
with information that alerts them to variance from accepted standards or to results
that are out-side the normal range so that they can take remedial action swiftly.
This type of tactical information system is analogous to process control systems
that monitor output constantly and provide feedback when output parameters are
at variance with accepted standards.
 Summary form: The information is usually not detailed, but in summary form.
The credit manager is not interested in a detailed listing of each customer account
and its balance. In large organizations, that would be an enormous quantity of

39
 data and would not, therefore, be useful information tothe manager. The manager
needs only summary information relating to credit performance or balances of
accounts that are overdue or in collection.
 Both internal and external sources: The data used for input to the system may
extend beyond sources internal to the organization. The credit manager may
compare the information pertaining to problem of customers to other branches, to
other periods from the same organization, or to a goal set by top management.
The credit manager might also have compared the branch’s credit information
with the average overdue account experience reported for the whole industry of
which the organization is a part. Such a comparison might show that though the
branch is experiencing an increase in credit problems, so is the whole industry.
Further investigation may reveal that a down turn in the economy is the likely
culprit, not any unusual credit policies of the organization.

Strategic planning system

Strategic planning information systems are designed to provide top managers with
information that assists them in making long-range planning decisions for the
organization. The distinction between strategic planning information systems and
tactical information systems is not always clear because both types of information
systems may use some of the same data. For example, when middle-level managers
use budgeting information to allocate resources to best meet organizational goals,
budgeting becomes a tactical decision activity. When top management uses
budgeting information to plan the long-term activities of an organization, budgeting
becomes a strategic planning activity. In either case, accurate budget information
delivered in a timely fashion to managers is an important function of the financial
information system of the organization. However, the key differences between the
40
systems have to do with who uses the data and what they are using it for. Top
management ordinarily uses strategic planning information systems for setting long
term organizational goals. Middle managers typically use tactical information
systems to control their areas of supervision and to allocate resources to meet
organizational goals set by top management. Though the data used in tactical and
strategic planning information systems sometimes overlap, usually differences exist
in the data that the two information systems use. Strategic planning information
systems often have these characteristics.

 Ad hoc basis: The information may be produced either regularly or periodically.

For example, top management uses periodic accounting system reports such as
the income statement, balance sheet, statement of sources and uses of funds, and
capital statement in its planning function. However, strategic planning
information is more often produced on an ad hoc basis. For example,
organization planners may request marketing analysis information pertaining to a
new product or to a new cluster of stores when they are considering the addition
of several new stores in a new region.
 Unexpected information: The system may produce unexpected information. For
instance, economic forecast information may be requested for the economy as a
whole and for the industry in particular. The results of the economic forecast may
be a surprise to organization planners. Or the marketing survey described above
may produce store locations that the planners had not predicted or expected.
 Future Perspective: These systems are future oriented and predictive in nature.
For example, forecasts of future economic conditions, projections of new product
sales, and forecasts of the changing demographic characteristics of target
customer groups are all forms of strategic planning information that help planners
make decisions.

41
  Summary form: The information is usually not detailed, but in summary form.
Long-range planners are not usually interested in detailed information; they are
usually concerned with more global data. For instance, long-range planners are
not ordinarily concerned about the details of customer invoices. They are more
likely to be interested in the overall buying trends reflected in the summaries of
sales by product group. In addition, long-range planners are not usually interested
in the specific demographic characteristics of a particular customer. They are
more likely to be concerned

2.6. E- BUSINESS SYSTEMS

Many companies today are using information technology to develop integrated cross-
functional enterprise systems that cross the boundaries of traditional business functions
in order to reengineer and improve vital business processes all across the enterprise.
These organizations view cross-functional enterprise systems as a strategic way to use
IT to share information resources and improve the efficiency and effectiveness of
business processes, and develop strategic relationships with customers, suppliers, and
business partners.

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 1.1.1. E- business

Contrary to popular opinion, e-business is not synonymous with e-commerce. E-

business is much broader in scope, going beyond transactions to signify use of the
Internet, in combination with other technologies and forms of electronic
communication, to enable any type of business activity.

E-business, a term originally coined by Lou Gerstner, CEO of IBM, is the use of the
Internet and other networks and information technologies to support e-commerce,
enterprise communications and collaboration, and Web-enabled business processes,
both within a networked enterprise and with its customers and business partners.E-
business includes e-commerce, which involves the buying and selling, marketing and
servicing of products, services, and information over the Internet and other networks.

Instead of concentrating on traditional business functions or supporting only the internal

business processes of a company, enterprise applications focus on accomplishing
fundamental business processes in concert with a company’s customer, supplier,
partner, and employee stakeholders.

Thus, enterprise resource planning (ERP) concentrates on the efficiency of a firm’s

internal production, distribution, and financial processes. Customer relationship
management (CRM) focuses on acquiring and retaining profitable customers via
marketing, sales, and service processes. Partner relationship management (PRM)
aims to acquire and retain partners who can enhance the sale and distribution of a firm’s
products and services. Supply chain management (SCM) focuses on developing the
most efficient and effective sourcing and procurement processes with suppliers for the
products and services that a business needs. Knowledge management (KM)
applications provide a firm’s employees with tools that support group collaboration and
decision support.

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44
 CHAPTER THREE
3. INFORMATION TECHNOLOGY
3.1. Introduction
All computers are systems of input, processing, output, storage, and control
components. In this section, we discuss the history, trends, applications, and some basic
concepts of the many types of computer systems in use today, hardware and software
components of computer, people, procedure, communication technologies, and database
management.

3.2. HARDWARE: COMPUTING, STORING AND COMMUNICATING

Today we are witnessing rapid technological changes on a broad scale. However, many
centuries elapsed before technology was sufficiently advanced to develop computers.
Without computers, many technological achievements of the past would not have been
possible. To fully appreciate their contribution, we must understand their history and
evolution.

At the dawn of the human concept of numbers, humans used their fingers and toes to
perform basic mathematical activities. Then our ancestors realized that by using some
objects to represent digits, they could perform computations beyond the limited scope
of their own fingers and toes. Shells, chicken bones, or any number of objects could
have been used, but the fact that the word calculate is derived from calculus, the Latin
word for “small stone,” suggests that pebbles or beads were arranged to form the
familiar abacus, arguably the first human-made computing device. By manipulating the
beads, it was possible with some skill and practice to make rapid calculations.

Blaise Pascal, a French mathematician, invented what is believed to be the first

mechanical adding machine in 1642. The machine partially adopted the principles of the
abacus but did away with the use of the hand to move the beads or counters. In-stead,

45
Pascal used wheels to move counters. The principle of Pascal’s machine is still being
used today, such as in the counters of tape recorders and odometers. In 1674, Gottfried
Wilhelm von Leibniz improved Pascal’s machine so that the machine could divide and
multiply as easily as it could add and subtract.

When the age of industrialization spread throughout Europe, machines became fixtures
in agricultural and production sites. An invention that made profound changes in the
history of industrialization, as well as in the history of computing, was the mechanical
loom, invented by a Frenchman named Joseph Jacquard. With the use of cards punched
with holes, it was possible for the Jacquard loom to weave fabrics in a variety of
patterns. Jacquard’s loom was controlled by a program encoded into the punched cards.
The operator created the program once and was able to duplicate it many times over
with consistency and accuracy.

The ENIAC (Electronic Numerical Integrator and Computer) was the first electronic
digital computer. It was completed in 1946 at the Moore School of Electrical
Engineering of the University of Pennsylvania. With no moving parts, ENIAC was
programmable and had the capability to store problem calculations using vacuum tubes
(about 18,000).A computer that uses vacuum tube technology is called a first-generation
computer. The principal drawback of ENIAC was its size and processing ability. It
occupied more than 1,500 square feet of floor space and could process only one
program or problem at a time.

In the 1950s, Remington Rand manufactured the UNIVAC I (Universal Automatic

Calculator). It could calculate at the rate of 10,000 additions per second. In 1957, IBM
developed the IBM 704, which could perform 100,000 calculations per second.

46
In the late 1950s, transistors were invented and quickly replaced the thousands of
vacuum tubes used in electronic computers. A transistor-based computer could per-form
200,000–250,000 calculations per second. The transistorized computer represents the
second generation of computer.

It was not until the mid-1960s that the third generation of computers came into being.
These were characterized by solid-state technology and integrated circuitry coupled
with extreme miniaturization.

In 1971, the fourth generation of computers was characterized by further

miniaturization of circuits, increased multi-programming, and virtual storage memory.
In the 1980s, the fifth generation of computers operated at speeds of 3–5 million
calculations per second (for small-scale computers) and 10–15 million instructions per
second (for large-scale computers).

The age of microcomputers began in 1975 when a company called MITS introduced the
ALTAIR 8800. The computer was programmed by flicking switches on the front. In
1977 both Commodore and Radio Shack announced that they were going to make
personal computers. They did, and trotting along right beside them were Steve Jobs and
Steve Wozniak, who invented their computer in a garage while in college. Mass
production of the Apple began in 1979, and by the end of 1981, it was the fastest selling
of all the personal computers. In August 1982 the IBM PC was born, and many would
argue that the world changed forever as a result.

Computer Processing Speeds

After the history of computer the next important point is the processing speed. In order
to measure the speed of computer systems peoples use different techniques. Early
computer processing speeds were measured in milliseconds (thousandths of a second)
and microseconds (millionths of a second). Now computers operate in the nanosecond

47
(billionth of a second) range, with Picoseconds (trillionth of a second) speed being
attained by some computers.

We have already mentioned the teraflop speeds of some supercomputers. However,

most computers can now process program instructions at million instructions per second
(MIPS) speeds. Another measure of processing speed is megahertz (MHz), or millions
of cycles per second, and gigahertz (GHz), or billions of cycles per second. This rating
is commonly called the clock speed of a microprocessor because it is used to rate
microprocessors by the speed of their timing circuits or internal clock rather than by the
number of specific instructions they can process in one second.

However, such ratings can be misleading indicators of the effective processing speed of
microprocessors and their throughput, or ability to perform useful computation or data
processing assignments during a given period. That’s because processing speed depends
on a variety of factors, including the size of circuitry paths, or buses, that interconnect
microprocessor components; the capacity of instruction-processing registers; the use of
high-speed cache memory; and the use of specialized microprocessors such as a math
coprocessor to do arithmetic calculations faster.

Moore’s law

Gordon Moore, co-founder of Intel Corporation, made his famous observation in 1965,
just four years after the first integrated circuit was commercialized. The press called it
“Moore’s law,” and the name has stuck. In its form, Moore observed an exponential
growth (doubling every 18 to 24 months) in the number of transistors per integrated
circuit and predicted that this trend would continue. Through a number of advances in
technology, Moore’s law, the doubling of transistors every couple of years, has been
maintained and still holds true today.

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Computer Peripherals: Input, Output, and Storage Technologies

Peripherals is the generic name given to all input, output, and secondary storage
devices that are part of a computer system but are not part of the CPU.The major types
of peripherals and media that can be part of a computer system are discussed as follows.

Input technologies

Input technologies now provide a more natural user interface for computer users. You
can enter data and commands directly and easily into a computer system through
pointing devices like electronic mice and touch pads and with technologies like optical
scanning, handwriting recognition, and voice recognition.

Output technologies

Computers provide information in a variety of forms. Video displays and printed

documents have been, and still are, the most common forms of output from computer
systems. Yet other natural and attractive output technologies, such as voice response

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systems and multimedia output, are increasingly found along with video displays in
business applications.

Storage technologies

Data and information must be stored until needed using a variety of storage methods.
For example, many people and organizations still rely on paper documents stored in
filing cabinets as a major form of storage media. However, other computer users are
more likely to depend on the memory circuits and secondary storage devices of
computer systems to meet your storage requirements. Progress in very-large-scale
integration (VLSI), which packs millions of memory circuit elements on tiny semi-
conductor memory chips (primary storage), is responsible for continuing increases in
the main-memory capacity of computers. Secondary storage capacities are also
escalating into the billions and trillions of characters, due to advances in magnetic
(floppy disk and hard disk drive) and optical media.

3.3. SOFTWARE
Software is the general term for various kinds of programs used to operate and
manipulate computers and their peripheral devices. One common way of describing
hardware and software is to say that software can be thought of as the variable part of a
computer and hardware as the invariable part. There are many types and categories of
software. The two major categories of software are application software and system
software.

Application software includes a variety of programs that can be subdivided into

general-purpose and function-specific application categories. General-purpose
application programs are programs that perform common information processing jobs
for end users. For example, word processing, spreadsheet, database management, and
graphics programs are popular with microcomputer users for home, education, business,

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scientific, and many other purposes. Function specific application software packages
are available to support specific applications of end users in business and other fields.
For example, business application software supports the reengineering and automation
of business processes with strategic e-business applications like customer relationship
management, enterprise re-source planning, and supply chain management.

System software consists of programs that manage and support a computer system and
its information processing activities. We can group system software into two major
categories;

 System Management Programs: Programs that manage the hardware,

software, network, and data resources of computer systems during the
execution of the various information processing jobs of users. Examples of
important system management programs are operating systems, network
management programs, database management systems, and system utilities.
 System Development Programs: Programs that help users develop
information system programs and procedures and prepare user programs for
computer processing. Major software development programs are
programming language translators and editors, and a variety of CASE
(computer-aided software engineering) and other programming tools.

3.4. COMMUNICATION TECHNOLOGIES

When computers are networked, two industries - computing and communications -
converge, and the result is vastly more than the sum of the parts. Suddenly, computing
applications become available for business-to-business coordination and commerce, and
for small as well as large organizations. Network means an interconnected or
interrelated chain, group, or system.

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Communications is the transmission of a signal by a way of particular medium from a
sender to a receiver. For example in human speech, the sender transmits a signal
through the transmission medium air.

Telecommunications is the exchange of information in any form (voice, data, text,

images, audio, and video) over networks. The Internet is the most widely visible form
of telecommunications in our daily lives. Early telecommunications networks did not
use computers to route traffic and, as such, were much slower than today’s computer
based networks. Major trends occurring in the field of telecommunications have a
significant impact on management decisions in this area. You should thus be aware of
major trends in telecommunications industries, technologies, and applications that
significantly increase the decision alternatives confronting business managers and
professionals.

Industry trends: Toward more competitive vendors, carriers, alliances, and network
services, accelerated by deregulation and the growth of the Internet and the World Wide
Web.

Application trends: Toward the pervasive use of the Internet, enterprise intranets, and
inter organizational extranets to support electronic business and commerce, enterprise
collaboration, and strategic advantage in local and global markets.

Technology trends: Toward extensive use of Internet, digital fiber-optic, and wireless
technologies to create high-speed local and global internetworks for voice, data, images,
audio, and video communications.

Generally, a communications network is any arrangement in which a sender transmits a

message to a receiver over a channel consisting of some type of medium. It consists of
five basic categories of components:

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Terminals: such as networked personal computers, network computers, net boxes, or
information appliances. Any input/output device that uses telecommunications networks
to transmit or receive data is a terminal, including telephones and the various computer
terminals.

Telecommunications processors: support data transmission and reception between

terminals and computers. These devices, such as modems, switches, and routers,
perform a variety of control and support functions in a telecommunications network.

Telecommunications channels: over which data are transmitted and received.

Telecommunications channels may use combinations of media, such as copper wires,
coaxial cables, or fiber-optic cables, or use wireless systems like microwave,
communications satellite, radio, and cellular systems to interconnect the other
components of a telecommunications network. Summary of the different channels is
given in the table below.

Computers: of all sizes and types are interconnected by telecommunications networks

so that they can carry out their information processing assignments.
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Telecommunications control software: consists of programs that control
telecommunications activities and manage the functions of telecommunications
networks.

Figure 3.2: summary of the five basic components of telecommunication network.

Many different types of networks serve as the telecommunications infrastructure for the
Internet and the intranets and extranets of inter-networked enterprises. However, from
an end user’s point of view, there are only a few basic types, such as wide area and
local area networks and client/server, network computing, and peer-to-peer networks.

Wide Area Networks: Telecommunications networks covering a large geographic area

are called wide area networks (WANs). Networks that cover a large city or metropolitan
area (metropolitan area networks) can also be included in this category.

Metropolitan Area Network: When a wide area network optimized a specific

geographical area, it is referred to as a metropolitan area network (MAN). Such
networks can range from several blocks of buildings to entire cities.

Local Area Networks: connect computers and other information processing devices
within a limited physical area, such as an office, classroom, building, manufacturing
plant, or other worksite.

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Virtual Private Networks: Many organizations use virtual private networks (VPNs) to
establish secure intranets and extranets.

Client/Server Networks: have become the predominant information architecture of

enterprise wide computing. In a client/server network, end-user PC or NC workstations
are the clients. They are interconnected by local area networks and share application
processing with network servers, which also manage the networks.

Peer-to-Peer Networks: The emergence of peer-to-peer (P2P) networking technologies

and applications for the Internet is being hailed as a development that will have a major
impact on e-business and e-commerce and the Internet itself. Whatever the merits of
such claims, it is clear that peer-to-peer networks are a powerful telecommunications
networking tool for many business applications.

Network Topologies

There are several basic types of network topologies, or structures, in

telecommunications networks. The three basic topologies that are used in wide area and
local area networks are;

i. A star network topology ties end-user computers to a central computer.

ii. A ring network topology ties local computer processors together in a ring on
a more equal basis.
iii. A bus network topology is a network in which local processors share the
same bus, or communications channel.

3.5. DATABASE MANAGEMENT (DBM)

An effective information system provides users with timely, accurate, and relevant
information. This information is stored in computer files. When the files are properly
arranged and maintained, users can easily access and retrieve the information they need.

55
Well-managed, carefully arranged files make it easy to obtain data for business
decisions whereas poorly managed files lead to chaos in information processing, high
costs, poor performance, and little, if any flexibility. Despite the use of excellent hard
ware and software, many organizations have inefficient information system because of
poor file management.

Database technology can cut through many of the problems created by traditional file
organization. A more rigorous definition of a database is a collection of data organized
to serve many applications efficiently by centralizing the data and minimizing
redundant data. Rather than storing data in separate files for each application, data are
stored physically to appear to users as being stored in only one location. A single data
base services multiple applications.

File Organization Terms and Concept

A computer system organizes data in a hierarchy that starts with bits and bytes and
progresses to fields, records, files, and database. A bit represents the smaller unit of data
a computer can handle.

A group of bits, called a byte, represent a single character, which can be a letter, a
number or another symbol. A grouping of characters into a word, a group of words, or a
complete number (such as a person's name or age), is called a field. A group of related
fields, such as the student's name, the course taken, the date and the grade make up a
record. A group of records of the same time is called a file. A group of related files
make up a database.

A record describes an entity. An entity is a person, place, thing, or event on which we

maintain information. An order is a typical entity in a sales order file, which maintains
information on a firm's sales orders. Each characteristic or quality describing a

56
particular entity is called an attribute. For example, order number, order date, order
amount, item number, and item quantity would each be an attribute of the entity order.

Every record in a file should contain at least one field that uniquely identifies that
record so that the record can be retrieved, updated or sorted. This identifier field is
called a key field

A computer system organizes data in a hierarchy that starts with the bit, which
represents either a 0 or a 1. Bits can be grouped to form a byte to represent one
character, number of symbol. Bytes can be grouped to form a field and related fields
can be grouped to form a record. Related records can be collected to form a file and
related files can be organized into a database.

Entities and Attributes

Entity = Orders Attributes

Order Number Order Date Item Number Quantity Amount

1400 04/11/04 1540 10 150

The above record describes the entity called order and its attributes. The specific vales
for order number, order date, item number, quantity, and amount for this particular
order are the fields for this record. Order number is the key field because each order is
assigned a unique identification number.

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Accessing Records from Compute Files

Computer system store files on a secondary storage devices. Records can be arranged in
several ways on storage media, and the arrangement determines the manner in which
individual records can be accessed or retrieved.

One way to organize records is sequentially. In sequential file organization, data records
must be retrieved in the same physical sequence in which they are stored. In contrast,
direct or random file organization allows users to access records in any sequence they
desire without regard to actual physical order on the storage media.

Although records may be stored sequentially on direct access storage devices,

individual records can be accessed directly using the Indexed Sequential Access
Method (ISAM). This access method relies on an index of key fields to locate
individual records. An index to a file is similar to the index of a book, as it lists the key
field of each record and where that record is physically located in storage to expedite
location of that record. Records are stored on disk in their key sequence. ISAM is
employed in applications that require sequential processing of large numbers of records
but that occasionally require direct access of individual records.

The direct file access method is used with direct file organization. This method employs
a key field to locate the physical address of a record. However, the process is
accomplishing using a mathematical formula called a transform algorithm to translate
the key field directly into the record's physical storage location on disk. The algorithm
performs some mathematical computation on the record key, and the result of that
calculation is the records physical address.

This access method is most appropriate for applications where individual's records must
be located directly and rapidly for immediate processing only. A few records in the file

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need to be retrieved at one time, and the required records are found in no particular
sequence, i.e., on line hotel reservation system.

Problems with the Traditional File Environment

Most organizations began information processing on a small scale automating one

application at a time. Typically, each division of a multi-division company developed
its own applications. Within each division, each functional area tended to develop
systems in isolation from other functional areas. Accounting, finance, manufacturing,
and marketing all developed their own systems and data files.

In the company as a whole, this process led to multiple master files created, maintained
and operated by separate divisions or departments. The traditional file environment is a
way of collecting and maintaining data in an organization that leads to each functional
area or division creating and maintaining its own data files and programs.

Under this file environment, there is no central listing of data files, data elements or
definition of data. The organization is collecting the same information on far too many
documents. The resulting problems are data redundancy, program data dependence,
inflexibility, poor data security, and inability to share data among applications.

i) Data redundancy

It is the presence of duplicate data in multiple data files. Data redundancy occurs when
different divisions, functional areas, and groups in an organization independently
collect the same piece of information.

ii) Program data dependence

It is the tight relationship between data stored in files and the specific programs
required to update and maintain those files. Every computer program has to describe the
location and nature of the data with which it works. These data declarations can be

59
longer than the substantive part of the program. In a traditional file environment, any
change in data requires a change in all of the programs that access the data.

iii) Lack of flexibility

A traditional file system can deliver routine scheduled reports after extensive
programming efforts, but it cannot deliver ad hoc reports or respond to unanticipated
information requirements in a timely fashion. The information required by ad hoc
requests is "somewhat in the system" but is too expensive to retrieve. Several
programmers would have to work for weeks to put together the required data items in a
new file.

iv) Poor security

Because there is little control or management of data, access to and dissemination of

information are virtually out of control. What limits on access exist tend to be the result
of habit and tradition, as well as of the sheer difficulty of finding information.

v) Lack of data sharing and availability

The lack of control over access to data in this confused environment does not make it
easy for people to obtain information. Because pieces of information in different files
and different parts of the organization cannot be related to one another, it is virtually
impossible for information to be shared or accessed in a timely manner. The following
figure illustrates the traditional file processing.

Management System (DBMs)

A database management system (DBMS) is simply the software that permits an

organization, to centralize data, manage them efficiently, and provide access to the
stored data by application programs.

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The DBMs acts as an interface between application programs and the physical data
files. When the application program calls for data item such as gross pay, the DBMs
finds this item in the database and presents it to the application program. Using
traditional data files, the programmer would have to define the data and then tell the
computer when they are. The following figure illustrates the elements of a database
management system.

A database management system has three components:

 A data definition language

 A data manipulation language

 A data directory

 Data definition language: the data definition language is the formal language used
by programmers to structure of the database. The data definition language defines
each data element as it appears in the database before that data element is translated
into the forms required by the application programs.

 Data manipulation language: most DBMs have a specialized language called a data
manipulation language that is used in conjunction with some conventional third or
fourth generation programming languages to manipulate the data in the database.
This language contains commands that permit end users and programming
specialists to extracts data from the database to satisfy information requests and
develop applications. The most prominent data manipulation language today is
SQL, or structured Query language.

 Data dictionary: the third element of DBMs is a data dictionary. This is an

automated or manual file that stores definitions of data elements and data
characteristics such as usage, physical representation, ownership (who in the

61
 organization is responsible for maintaining the data), authorization, and security.
Many data dictionaries can produce lists and reports of data utilization, groupings,
program locations, and so on.

Advantages of Database Management System

The advantages of a DBMS are as follows:

 Complexity of the organization's information system environment can be reduced by

central management of data, access, utilization, and security

 Data redundancy and inconsistency can be reduced by eliminating all of the isolated
files in which the same data elements are repeated

 Data confusion can be eliminated by providing central control of data creation and
definitions

 Program data dependence can be reduced by separating the logical view of data
from its physical arrangement

 Program development and maintenance costs can be radically reduced

 Flexibility of information systems can be greatly enhanced/by permitting rapid and

inexpensive ad hoc queries of very large pools of information

 Access and availability of information can be increased

Designing Database

There are alternative ways of organizing data and representing relationship among data
in a database. Conventional DBMS uses one of three principal logical database models
for keeping track of entities, attributes, and relationships. The three principal logical
database models are hierarchical, network, and relational. Each logical model has
certain processing advantages and certain business disadvantages.

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 i) Hierarchical Data Model

The hierarchical data model presents data to users in a tree like structure. Within each
record, data elements are organized into pieces of records called segments. To the user,
each record looks like an organizations chart with one top level segment called the root.
An upper segment is connected logically to a lower segment in a parent-child, but a
child can have only one parent. Consider the following figure.

The Hierarchical Data Base

Employee
1st Child

Compensation Job Assignment Benefits

2nd Child

Salary Performanc Life Health

History e Rating Pension Insurance

ii) Network Data Model

The network data model is a variation of the hierarchical data model. Indeed data bases
can be translated from hierarchical to network and vice versa in order to optimize
processing speed and convenience. Whereas, hierarchical structures, despite one-to-
many relationships, network structures depict data logically as many to many
relationships. In other words, parents have multiple "children" and a child can have
more than one parent. A typical many to many relationships in which network DBMS
excels in performance is the student course relationship (See the following Figure).
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 Network Data Model

Course 1 Course 2 Course 3

Student 1 Student 2 Student 3 Student 4 Student 5

iii) Related Data Model

The relational data model, the most recent of these three database models, overcomes
some of the limitations of the other two models. The relational model represents all data
in the database as simple two dimensional tables called relations. The tables appear
similar to flat files, but the information is more than one file can be easily extracted and
combined. Sometimes the tables are referred to as files. Consider the following figure.

Relational Data Model

Table (Relation)
Column (Fields)

Order Order Delivery Part Order

Number Date Date Amount Total
Order 1230 04/11/04 24/11/04 3 240

1231 04/11/04 24/11/04 2 150

1232 04/11/04 24/11/04 4 125

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 Part Part Unit Unit
Number Description Price Price

Part 1230 Compressor 50 4025

1231 Door latch 24.50 2448

1232 Door handle 35.00 1200

Supplier Supplier Supplier Address

Number Name
Supplier 1200
ABC Co. P.O.BOX 2040 A.A
2040
XYZ Co. P.O.BOX 1200 A.A
4050
BCD Co. P.O.BOX 1050 A.A

Advantages and Disadvantage of the Models

The principal advantage of the hierarchical and network database models is processing
efficiency. For instance, a hierarchical model is appropriate for airline reservation
transactions processing systems, which must handle millions of structured routine
requests each day for reservation information.

Hierarchical and network structures have several disadvantages. All of the access paths,
directories, and indices must be specified in advance. Once specified, they are not easily
changed without a major programming effort. Therefore, these designs have low
flexibility.

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Both hierarchical and network systems are programming – intensive, time consuming,
difficult to install, and difficult to remedy if design error occurs. They do not support ad
hoc, English languages – like inquiries for information.

The strengths of relational DBMS are great flexibility in regard to ad hoc queries,
power to combine information from difficult sources, simplicity of design and
maintenance, and the ability to add new data and records without disturbing existing
programs and applications.

The weaknesses of relational DBMS are their relatively low processing efficiency.
These systems are somewhat slower because they typically require many accesses to the
data stored on disk to carry out the select, join, and project commands. Selecting one
part number from among millions, one record at a time, can take a long time. Of course,
the database can be indicated and "turned" to speed up pre-specified queries. Relational
systems do not have the large number of pointers carried by hierarchical systems.

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Requirements of Database System

Much more is required for the development of database systems than simply selecting a
logical database model. Indeed, this selection may be among the last decision. The
database is an organizational discipline, a method, rather than a tool or technology. It
requires organizational and conceptual change.

Without management support and understanding, database efforts fail. The critical
elements in a database environment are (1) data administration, (2) data planning and
modeling methodology, (3) database technology and management, and (4) users.

1) Data Administration

Database systems require that the organization recognize the strategic role of
information and begin actively to manage and plan for information as a corporate
resource. This means that the organization must develop a data administration function
with the power to define information requirements for the entire company and with
direct access to senior management.

Data administration is responsible for the specific policies and procedures through
which data can be managed as an organizational resource. These responsibilities include
developing information policy, planning for data, overseeing logical database design
and data dictionary development, and monitoring the usage of data by information
system specialists and end users groups.

An organization needs to formulate an information policy that specified its rules for
sharing, disseminating, acquiring, standardizing, classifying, and inventorying
information throughout the organization.

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2) Data Planning and Modeling Methodology

Because the organizational interests served by the DBMS are much broader than those
in the traditional file environment, the organization requires enterprise-wide planning
for data. Enterprise analysis, which addresses the information requirements of the entire
organization (as opposed to the requirements of individual applications), is needed to
develop databases. The purpose of enterprise analysis is to identify the key entities, and
relationships that constitute the organization's data.

3) Database Technology and Management

Database requires new software and a new staff specially trained in DBMS techniques
as well as new management structures. Most corporations develop a database design
and management group within the corporate information system division that is
responsible for the more technical and operational aspects of managing data. The
functions it performs are called database administration. This group does the following:

 Defines and organizes database structure and content

 Develops security procedures to safeguard the database
 Develop database documentation
 Maintains the database management software: in close cooperation with users, the
design group establishes the physical database, the logical relations among
elements, and the access rules and procedures.
 Users: a database serves a wider community of users than traditional systems.
Relational systems with fourth-generation query languages permit employees who
are not computer specialist to access large databases. In addition, users include
trained computer specialists.

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 CHAPTER FOUR
4. COMMON BUSINESS APPLICATION OF INFORMATION
SYSTEMS
4.1 INTRODUCTION
So far, you have learned about computer information systems, the decision making
process, and the basic computer resources available to the manager. What you learned
generally emphasized the organizations. You will apply what you have learned about
information systems, decision-making, and computer system resources to problems in
finance, marketing, manufacturing and production and human resources.

4.2 FINANCIAL INFORMATION SYSTEMS

Whether you are the chief operating officer of a large international organization or
merely the supervisor of a small department at one location in that organization, you
will find it necessary to make financial decisions. The financial decisions you may
encounter as a manager are diverse and could include decisions similar to these:

1. Should you purchase a large new piece of equipment or lease the equipment for a
three- year period?
2. How much of your department’s funds should you allocate to telephone usage
rather than travel expenses?
3. How much does your division have on hand at various times during the year and
is it enough to cover the cash expenditures you expect to incur at those times?
4. Should you invest money in new computer equipment or additional merchandise
for resale?
5. How will a 20% utility rate increase affect your budget for the coming year?
6. Should you allow a particular customer to make a large purchase on credit?
7. Should your organization decide to offer a new product or service, or should it
provide the same products and services in additional markets?

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To make these and similar decisions, you need to understand the basic financial
accounting systems found in most organizations. You must also understand how
financial information systems can help you make improve decisions about the financial
problems within your organization.

The Financial Management Function

The financial management functions of any organization encompass a number of
important responsibilities. These include monitoring and analyzing the organization’s
financial condition through the management of accounting systems and the preparation
of financial statements and reports. The financial management function is also
responsible for the budgeting process, the management of customer credit, the
calculation and payment of income, payroll, property, excise and other taxes; and the
management of appropriate insurance coverage for the organization’s personnel and
assets. Furthermore, the function must provide for an auditing process to ensure the
accuracy of the financial information kept and to protect the investor’s funds.

The financial management function is also responsible for the management of the
organization’s fixed assets, pension funds, and investment in existing plants and
equipment, subsidiaries, or other investments. The function also includes the evaluation
of new investments and the acquisition of borrowed funds or capital to pay for them.

The financial management function must manage the cash flow of the organization in
such a ways as to ensure that the organization has the necessary funds to operate, that
extra cash is not left idle, and that the organization has the borrowing power to meet its
cash needs when the cash flow is insufficient.

Clearly, the financial management function is very important to the organization.

Because of its importance, financial management personnel require information systems

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that provide them with accurate, timely and appropriate information to carry out their
functions.

Like all information systems, financial information systems may be categorized into
those that support operational tasks, those that support tactical decisions, and those that
support strategic planning decisions.
4.2.1 Operational Financial Information Systems
Typically, the applications first computerized by many organizations are accounting
systems designed to produce operational level output. The development of
computerized financial information systems for use in tactical decision making and
strategic planning is usually deferred until the basic operational level information
systems are in place and working.

Operational financial information systems produce the routine, repetitive information

products that every organization finds necessary. These products, or output, include
paychecks, checks to vendor, customer invoices, purchase orders, stocks reports, and
other regular forms and reports. Financial operating information systems are typically
task oriented. They focus on processing financial transactions to produce the financial
products just described.

Accounting Systems
The heart of an organization’s financial operating information system is the accounting
system. A computerized accounting system is composed of a series of software modules
or subsystems that may be used separately or in an integrated fashion. The subsystem
modules include:
1. general ledger
2. fixed assets
3. accounts receivable (credit limit, aged accounts receivable reports can be
generated)
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 4. order entry
5. accounts payable
6. inventory
7. purchase order
8. payroll
When these computerized accounting subsystems are integrated, each subsystem
receives data as input from other subsystems and provides information as output to
other subsystems. The accounting subsystems might be integrated.

4.2.2 Tactical Financial Information Systems

The computerization of accounting systems usually changes the way managers’ view
accounting information. Because a large database of information becomes available in
computerized form and can easily be extracted or manipulated, this information begins
to be viewed as a resource for tactical planning. Suddenly, it becomes possible for
managers to get important summaries and comparisons of accounting data easily and
swiftly. In the past this information would have taken a great deal of time to extract
from a manual accounting system. The result is that managers view the accounting
system as more than merely a producer of checks, invoices, and statements. It becomes
repository of important data that can assist management in decision-making. The
computerization of accounting system has helped to spawn the use by managers of
corporate databases to support tactical decisions and strategic planning. This has led to
the development of computer supported financial information systems for tactical
decision making and strategic planning information systems.

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The Nature of Financial Information Systems for Tactical Decision Making

Tactical financial information systems support management decision making by

providing managers with regular summary reports, regular exception reports, ad hoc
reports, and other information that will help them
1) control their areas of responsibility and
2) Deploy their resources to pursue organization goals. Whereas operational control
systems are focused on tasks, tactical information systems are focused on
resource allocation.
It is possible to design many computer supported tactical level information systems for
the financial decisions that managers must make. Common systems include budgeting
systems, cash management systems, capital budgeting systems, investment management
systems. Each of these systems will be briefly described.

Budgeting Systems

The general ledger subsystems of many computerized accounting systems permit the
user to enter budget amounts by account number. Periodically, (weekly, monthly,
quarterly, or annually) the budgeted amounts (allocations) and the actual amounts spent
or received (actual) for each account are compared and various reports are prepared. For
example, the general ledger subsystem of a mainframe accounting system may provide
the reports listed below.
1. current budget allocations by line item.
2. current budget allocations compared to year to date revenues and expenditures.
3. budget variances by line item type, or the differences between allocations and
actual
4. current budget allocations compared to the previous year’s allocations
5. current revenues and expenditures compared to the previous year’s revenues and
expenditures
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 6. current revenues and expenditures compared to the average of the other units or
divisions of the organization.

Reports such as these may be prepared for a department, a division, a subsidiary, or the
entire organization. The budgeting system permits managers to compare revenue and
expense data against the standard of the budget allocations. It also allows prior fiscal
period, other division or department, industry wide data to be used as standards against
which current budget amounts may be compared.

Cash Management Systems

Important functions of financial management include ensuring that the organization has
sufficient cash to meet its needs, putting excess funds from any period to use through
investments, and providing borrowing power to meet the organization’s cash needs in
those periods when there is an insufficient cash flow.
There are two major reasons why an organization needs cash: for working capital (cash
needed for day to day operations) and for the acquisition of long term assets. To
determine if adequate cash is available for its working capital needs and its long term
asset acquisition plans, the organization must prepare a report of its expected cash flow
for the time periods being considered. Typically this report shows the cash flow for
each month of the coming year.

A cash flow report shows the estimated amount of cash that will be received and spent
each month. The report shows in which months there will be cash received and spent
each month. The report shows in which months there will be excess funds that might be
put to use, and in which months there will be insufficient funds, required the
organization to borrow cash to meet its working capital or fixed asset acquisition needs.

The information provided by a cash flow helps the manager make decisions about
investing, purchasing, and borrowing money. If this information is placed on an

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electronic spreadsheet, the manager may stimulate a number of possible business
conditions, such as (1) increasing or decreasing revenue, (2) increasing or decreasing
customer credit problems, (3) deferring the acquisition of an asset, or (4) repairing
existing fixed assets instead of replacing them.

Capital Budgeting Systems

A capital budget contains information about the planned acquisition or disposal of
major plant assets during the current year. The manager may wish to compare the
various capital spending plans in terms of three commonly used evaluation tools: net
present value, internal rate of return, and payback period. These tools can easily be
calculated using computer systems. “What if?” games are performed using software
packages?

Investment Management Systems

Investment management – overseeing the organization’s investments in stocks, bonds,

and other securities – is an important part of cash management. Managing investment is
also an important part of an organization’s pension plan management. Whatever the
source of the funds for investments, most organizations invest money in securities of
one kind or another. Careful management of these investments is necessary to ensure
the achievements of organization goals.

Current information systems provide unique ways to manage stock and bond portfolios.
These ways typically involve the use of external databases that furnish immediate
updating of stock and bond prices, information about the history of each investment,
and various portfolio investment analysis tools to help the manager stay on top of the
organization’s investments. The system may be a simple one in which the manager’s
microcomputer is equipped with a modem and he or she is provided with a subscription
to an investment service. Possible information that can be generated are current

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dividend, price history, price stability index, projected changes earnings, current
earnings per share, debt as a percent of capital, dividends history, industry ranking, low
price per year and the like. Tactical financial information systems give the manager
increased control over the financial resources of a department or an entire organization,
and provide considerable support when he or she is deciding the allocation of financial
resources to meet organizational goals.

4.2.3 Strategic Financial Information Systems

You have learned that operational control level information systems are task oriented
and that tactical level information systems are resource allocation oriented. In contrast,
strategic information systems are goal oriented. That is, these systems are concerned
about goal and direction setting for organizations.
Strategic information systems typically include several types of information flows:
1. Financial condition analysis data or an analysis of internally generated
information describing the status of the organization
2. Economic, demographic, and social data or an analysis of externally generated
data describing the present and future environment for the organization
3. Forecasts of the future of that organization in those environments

Two major outcomes of financial strategic planning are the setting of financial goals
and directions for the organization. The former may include setting investment goals
and return on investment goals. The latter may involve deciding on new investment
opportunities or on the mix of capital sources used to fund the organization.

A major source of computerized information about the current and future status of the
organization is the organization’s own financial accounting database. A promising
source of computerized information pertaining to the present and future environment in
which the organization must operate are on line databases for economic, social,

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demographic, technological, and political information. Projecting likely scenarios for
the organization using these two categories of data is the art of forecasting. A major
purpose of strategic decision-making is to use long-range forecasts to reduce the risk
involved in major organization decisions.

Financial Conditions Analysis Systems

Computerized accounting systems provide the user with a variety of reports on which
many ratios and analysis tools may be applied.
Example, working capital = current assets – current liabilities.

Long Range Forecasting Systems

Strategic planners demand forecasts on a variety of factors that will affect organization
performance in the future.
 Forecasting the sales revenue of a potential new product makes important
information available to planners considering the development and marketing of
the new the product.
 Forecasting the financial health of the organization through the long rage budget
estimates – including a variety of possible wage negotiation settlement, actions
by competitors, interest rate fluctuations, fuel costs changes, and different
inflation rates provide planners with opportunities to consider actions that will
help the organization survive bad times or take advantage of a future
environment.
 The types of information used in forecasting the future environment of the
organization are many and diverse. They include descriptions of the present
economy and forecasts of the future economy, information on the present
demographic structure of the region or country and forecasts of the demographic
structure of the region or country, and descriptions of the current social structure

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 and social mores and predictions on the future structure of society and societal
mores.
4.3. MARKETING INFORMATION SYSTEMS
Marketing information systems support the major activities of a marketing organization.
The information systems collect data that describe marketing operations, process those
data, and make marketing information available to marketing managers to help them
make effective decisions.

4.3.1 Operational Marketing Information Systems

Operational marketing information systems primarily produce routine, repetitive,
expected, and regular data that describe past marketing activities. The information they
produced is usually detailed, highly structured, and accurate, and is derived from
internal sources.
Sales Information Systems
Salespeople are responsible for many sales activities. They must identify potential
customers, make the customer contact, call on the customer, make the sales, close the
sale, and follow up on the sale. These are the bread-butter sales activities of the
salesperson. There are many information systems that support the salesperson in these
activities. Among these information systems are the following:
Prospect Information System
Locating potential customers is often a time consuming and frustrating part of the
salesperson’s work. The sources of information used to obtain leads about prospective
customers are frequently diverse and may include other customers, other vendors who
sell supporting or ancillary products, newspapers notices, telephone directories, and
direct customer inquiries. The search of directories and other lists of customers may be
very time consuming and yield few customers.

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Files of sales leads are often called prospect files. When these files are stored on
magnetic media, they are easier for the salesperson to search or summarize. Outputs of
prospect information systems may include lists of prospects by location, by product
category, by gross revenue, or by other classifications important to the sales force.

Contact Information Systems

Customer contact information systems provide information to the sales force pertaining
to customers, their product or service preferences, sales history data, and a historical
record of sales calls and/or visits. One output of these systems may be a call report
showing the number of sales calls made by a salesperson categorized by size of
organization, previous sales, or some other characteristics, and the number of sales
made per customer, per visit, and or per category.
Inquiry Information Systems
When customers make inquiries about the products and services the organization offers,
the inquiries need to be processed, recorded, and stored for analysis or for sales contact.
It is important that inquiries be associated with the actual or potential customer who
made the inquiry, what products or services the query pertained to, when the inquiry
was made, and where the potential customer was located. It is also very important to
record these data on a medium that will allow analysis easily at some future time.
Document Information Systems
 Sales form letters for salespeople so that they can mail well written, clear and
effective letters
 Quotation documents are frequently produced. A document information system
provides marketing personnel with ready-to-adapt documents for their
operations. The system also improves the quality of the documents developed by
marketing personnel, and is likely to increase sales revenue.

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Order Entry Systems
A great deal of marketing data is created through the financial accounting system of the
organization. For example, the order entry system provides the marketing manager with
the raw data from which to obtain gross sales by time period, salesperson, product, and
territory. This information may be used for a variety of marketing decisions at several
marketing decision levels. Analysis of product sales through analysis of the sales orders
provides the marketing managers with some of the information on which sales forecasts
can be based, for instance.
Telemarketing Systems
Using the telephone for selling is referred to as telemarketing. Using telemarketing has
become a very important means by which companies have improved the productivity of
their sales force. Using the telephone to initiate contacts, offer products and services,
follow up on sales eliminates travel costs and travel time and lets salespeople reach
many more customers in a given time period than they could have through conventional
means.
Some telemarketing systems include computer support for the automatic calling of
parties and/or the automatic delivering of a voice message to the answering party under
the control of computer system.
Direct Mail Advertising Systems
Many firms generate sales by mailing sales brochures and catalogs directly to
customers. To distribute sales documents rapidly to large numbers of potential
customers, most marketing departments maintain customer mailing lists that are used
for mass mailings. The lists may be drawn from customer files, accounts receivable
records, or prospect files, or they can be purchased from other documents.
Inventory Information Systems
Inventory subsystems of the financial accounting system provide information about
inventory levels, stock outs conditions, stock receipts, stock issues, stock damage, and
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the location and distribution of stock within the organization. For example, salespeople
should be able to check the amount of available stock in inventory before closing a sale
with a customer. Thus, the inventory information system provides important data
regarding stock levels to the order entry system.

Distribution Information Systems

If the organization uses its own distribution system, information about its effectiveness
must be collected and reported to management. Information should also be maintained
about the acquisition, repair, use and allocation of equipment.

Credit Information Systems

An operational level credit information system usually provides the salesperson or
credit manager with information pertaining to the maximum allowable credit that
should be granted to a customer. This information is ordinarily integrated with the order
entry subsystem of the financial accounting system. The credit information system may
manage information on the credit history of customers; this data can include
information from external sources, such as credit agencies.

4.3.2 Tactical Marketing Information Systems

Tactical information systems differ from operational marketing information systems in
that they may provide produce information not only on a regular basis but also generate
ad hoc reports, create unexpected as well as expected output, produce comparative as
well as descriptive information, provide summary information as opposed to detailed
data, included both internal and external data sources, and processes subjective as well
as objective data.

Examples of tactical marketing information systems that will be discussed in this part of
the paper include those that support the development and management of the sales

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force, the management of advertising and promotion campaigns, the distribution and
delivery of products sold, and product pricing.
Sales Management Information System
A major objective of sales manager is to reach the sales goals set by top management.
To accomplish this objective, sales managers must make many tactical decisions, such
as sales territories should be shaped, how the sales force should be allocated within
those territories, and what emphasis should be placed on the products offered and
customers served. Sales managers must decide how to reward salespeople to encourage
increased sales efforts, which market segments should be emphasized to best reach sales
goals, and which products and services will best appeal to each segment. They also
must monitor the progress of the sales effort to determine if their decisions were correct
or if they need to change their tactical plans.

To make these decisions effectively, sales managers should have at their disposal a
great deal of data about the sales histories of each salesperson, territory, product, and
market segment. Managers can use these data – provided by sales management
information systems – to develop reports analyzing sales activities that help them make
decisions about salespeople, territories, products, and customers. Analysis of past sales
efforts might reveal, for instance that the greatest volume of sales is obtained when
certain products are emphasized with certain market segments. This information may be
obtained from a report that correlates product or service categories with customer
categories.

Through the use of these reports, marketing managers may adjust advertising media,
promotion schemes, sales calls, and sales approaches to emphasize selected products to
very narrowly defined market segments to maximize gross sales.

In addition to planning future campaigns, sales managers need information to control

current campaigns. The manager monitoring sales progress may wish to recursive daily,
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weekly, or monthly reports on the sales achievement of each salesperson with averages
calculated for the entire sales force. This information might be used to evaluate
salesperson effectiveness, the success of the sales reward system, or the appropriateness
of the shape of the territories assigned. A report showing the percentage of each
salesperson’s sales by market segment and by product along with averages for the total
sales force would display the current effectiveness of each salesperson in selling the
organization’s products to each customer group.

The manager can compare sales, product, customer, and territory information from one
department against external benchmarks of success, such as the organization as a whole
or industry averages. The manager, for example, may wish to compare staff deployment
to the deployment of marketing staffs in other marketing departments within the
organization or to the industry as a whole. The marketing manager might also view the
amount of money spend in the department on salespeople versus support staff and then
compare those amounts to the amounts spend by other marketing departments in the
organization or to the industry as a whole. If sales data are added to expense data, the
marketing manager can compare the productivity of the industry. Comparisons that
indicate poor productivity might lead the marketing manager to compare the
productivity of each salesperson to the average for the department. This comparison, in
turn, might lead to decisions changing the configuration of sales territories, training for
specific salespeople, product emphasis for certain territories, market segment emphasis
for certain sales personnel, or a variety of other remedies.

These examples should not imply that the marketing manager’s job can be performed
merely by projecting historical information on current problems. If all marketing
decisions could be made merely by referring to the past performance of salespeople
with customers and products within territories, marketing managers would not be
needed at all. The marketing manager must bring to the table not only historical

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information, trends, and probabilities, but also considerable knowledge of the current
environment. In the end, the marketing manager must make decisions based on less than
all of the information desirable. Marketing information systems do not make the
decisions for marketing managers, they provide information to support those managers
in the decision making process.
Advertising and promotion information systems

Advertising and promotional tactics also need to be developed by marketing managers

to implement strategic sales goals set by top management. Managers must decide which
advertising media and promotional devices to use to reach the selected market
segments, when these media and devices should be used, and what overall mix of
promotional activities should be deployed to achieve sales goals. Advertising and
promotion information systems assist managers in these tasks.

To decide what advertising and promotional tactics to use, marketing managers need
such information as market segment history, the effectiveness of previous advertising
and promotional efforts on each market segment, and the sales history of products by
market segment. Historical data on the effectiveness of various advertising and
promotional instruments and the sales of products by market segment are not foolproof
methods for forecasting future success. Past profiles and trends may not necessarily be
projected into the future. The areas of advertising and promotion contain too much
managerial art for projection of past data to be perfectly successful. However, the past
success of specific advertising and promotion campaigns for specific products and
customers is very important information for the manager.

Production Pricing Information Systems

Product pricing information systems are important because the price of a product or
service affects the sales volume and profitability of the organization. While the
marketing manager usually selects a price that will at least recover production costs, the
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price chosen is constrained by the prices of competitors for similar products or services
and for alternative products or services. To make pricing decisions, the marketing
manager should have information pertaining to the expected demand for the product or
similar products, the desired profit margin for the organization, the costs of producing
the product or providing the service, and the prices of competing products.

To help marketing manager price products and services, some organizations develop a
pricing model that allows him or her to input data on a variety of forces affecting prices
such as expected competitive prices, expected consumer price indexes, expected
consumer disposable income, volume of expected advertising expenditures. The model
then uses arithmetic algorithms that represent the organization’s assumptions about the
interrelationship of each of these factors. This makes it possible for the manager to
“play” with the inputs to identify the recommended price for a product under a variety
of possible conditions.
Distribution Channel Decision Support Systems
Deciding how the organization’s products and services will be delivered to the ultimate
consumer is another important tactical decision that must be made. The organization
needs to determine if it wishes to sell all or some of its products and services directly to
its customers, use middlemen, or both. If direct sales are considered, then the choice of
trade channels or channels within that delivery mode – for example, sales force, direct
mail, telemarketing, and so on – must be decided on. If middlemen are chosen to
distribute the product or service, the choice of the channel will be affected by how well
the channel distributes the products or services among the organization’s targeted
market segments.
To support the marketing manager, the marketing information system should provide a
distribution channel decision support systems. This system should provide information
such as the costs of using the various distribution channels, the time lags caused by the

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various channels, the reliability of the various channels in delivering the products and
service, and the marketing segment saturation provided by the channels.
4.3.3 Strategic Marketing Information Systems
To develop an overall marketing plan, an organization may engage in a verity of tactical
and strategic planning activities. The strategic activities include segmenting the market
into target groups of potential customers based on common characteristics or needs or
wants, selecting those market segments the organization wishes to reach, planning
products and services to meet those customers’ needs, and forecasting sales for the
market segments and products.
Sales Forecasting Information System
Strategic sales forecasting usually includes several varieties of forecasts: forecasts of
sales for the entire organization, forecasts of sales for each product or service, and
forecasts of sales for a new product of service. The results of these sales forecasts will
often be further categorized by sales territory and sales division. Regardless of the type
of forecasts, sales forecasts are usually based on more than historical data; they are not
merely projections of past trends. Sales forecasts are also based on assumptions about
the activities of the competition, government action, shifting customer demand,
demographic changes and movements, and a variety of other pertinent factors, including
even the weather. Errors in sales forecasting will have many implications in the other
aspects of the organization.
Product Planning and Development Information Systems
The major objective of product planning and development information systems is to
make information about consumer preferences obtained from the marketing research
system available for the development of new products. The primary output of planning
and development activities is a set of product specification. The specifications will
serve as inputs for other decisions such as product design.

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4.3.4 Tactical and Strategic Marketing Information Systems

Two important information gathering systems provide support for both tactical and
strategic marketing decisions. These two information systems are marketing research
systems and information systems that collect data about the organization’s competitors.
Marketing Research
In large organizations, research departments conduct and manage marketing research.
In small companies, marketing research may be completed by outside consultants or by
personnel who must wear several hats. Regardless of how the function is completed, the
results of marketing research provide important inputs to tactical and strategic decision
making.

Inputs to marketing research are heavily derived from sources external to the
organization. These inputs include such widely diverse sources of customers as
customers, potential customers, census and demographic data, industry or trade data,
economic data, social trend data, environmental data, and scientific and technological
data. These data may be obtained through such means as direct mail surveys of
customers, personal and telephone interviews of consumers, library searches of
governmental and industry reports, searches of the databases of information utilities,
and reports filed by sales personnel.

Marketing research personnel make heavy use of statistical methodology in analyzing

the data collected and in reporting the information to the organization. Obtaining totals,
counts, and averages in terms of consumer responses to questions, correlating social and
economic characteristics of customers with their buying practices, completing times
series analysis of past industry wide sales to determine the projected sales of a product,
and testing hypothesis about consumer response to differing product packaging
represent only some of the statistical procedures that are used to analyze information for
marketing managers.
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Typical of the activities of a marketing research department are:
1. conducting trend analysis of the sales of products and services identical or similar
to those offered by the organization to identify products or services that are on
the ascent or descent
2. analyzing population and target group characteristics, especially for trends or
changes in data that could affect the organization
3. analyzing and identifying consumer preferences, including the testing of products
and services
4. determining and analyzing customer satisfaction with the organization's existing
products and services
5. estimating market share for all or each product and service offered.
The results of marketing research are often presented graphically, in the form of tables,
charts, and graphs.
Competitive Tracking Information Systems
To ensure that the marketing mix offered by your organization will continue to be
effective in satisfying customers, you must keep abreast of major competitors and their
marketing activities. Market share is likely, in the end, to be the greatest for the
organization that provides the marketing mix most closely matching a given market
segment's needs and wants. Thus, knowledge of competitor prices, products, sales,
advertising, and promotions must be gathered if the organization is to avoid falling
behind the competition in the eyes of the customers. This task is carried out through
competitive tracking information systems.
Information about competitor activities is also obtained from informal sources, through
such activities as reading trade journals and newspapers, visiting competitor distribution
outlets, and talking to competitor offers and employees at conventions. Salespeople in
most organizations are encouraged to provide feedback about competitor activities by
filing field reports. The information they obtain may be gathered through observation of
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competing salespeople or by seemingly casual questions that addressed to customers.
Information about the competition may also be gathered more systematically by
conducting keyword searches in external databases or information utilities.

4.4 .Manufacturing and production information systems

Purpose: manufacturing systems encompasses all the activities necessary to ensure
production. These activities may include the evaluation of sites for production; the
planning, development, and maintenance of production facilities; and the setting of
production goals to meet the requirements of the sales forecast generated by the
marketing system.
Manufacturing and Production Information Systems
Manufacturing and production information systems provide the data necessary to plan,
organize, operate, monitor, control and otherwise manage production systems.

4.4.1 Operational Production Information Systems

There are numerous operational production information systems. Many are part of the
financial accounting system of organization. For example, purchasing, accounts
payable, inventory, order entry, accounts receivable, and payroll subsystems of the
accounting system provide information to support manufacturing and production
activities. The next section briefly describes some major operational production
information systems.
Purchasing Information Systems
To produce goods and services, you must have the right quantity of raw materials and
production supplies on hand. Furthermore, you will want to procure these materials and
supplies at the lowest cost and have them delivered at the right time. To assist in this
function, the purchasing information system has to maintain data on all phases of the
acquisition of raw materials and purchased parts used in production.

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Receiving Information Systems
When shipment of purchased goods and supplies are received, they must usually be
inspected and verified and the information about their status passed on to the accounts
payable, inventory, and production departments. Delivery dates should also be noted so
that data on delivery times can be collected. This type of information is supplied by
receiving information systems.

Quality Control Information Systems

Quality control information systems provide information about the status or production
of goods as they move from the raw material state, through goods in process, to the
finished goods inventory.

Shipping Information System

At the other end of the production process, there is a need to place finished goods
produced into inventory and to ship those on order to customers. There are many
records and documents that are used to assist and monitor in the inventorying and
shipping processes – for example, shipping reports and packaging slips. The
information from the shipping system affects the inventory and accounts receivable
systems.

Cost Accounting Information Systems

A variety of operational information subsystems of the financial accounting system

collect and report information about the resources that are used in the production
processes so that accurate costs of production can be obtained on products and services.
Cost accounting systems monitor the three major resources used in production:
personnel, materials, and equipment and facilities. Payroll information systems and
materials information systems provide information about the costs of these resources.

4.4.2 Tactical Manufacturing and Production Information Systems

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Tactical information systems include inventory management and control systems,
capacity planning, production scheduling, and product design and development.

Inventory Management and Control Information Systems

The management and control of raw materials, goods in process, and finished goods
inventories is an important part of production system. Careful management and control
of these inventories will usually provide considerable savings to the organization.
Inventory management and control systems use information from operational
information systems, such as the shipping and receiving systems, purchasing systems,
and order entry systems.

Maintaining inventories at their proper level eliminates production shutdowns from lack
of materials and lost sales from lack of finished goods. Ordering too much and ordering
too little are costly in terms of inventory carrying costs and ordering costs respectively.
Thus, the best or economical order quantity (EOQ) strikes a balance between carrying
costs and procurement costs.

The computation of EOQ for each item in inventory would be a very large and tedious
task if done manually. Also, for many inventory items, the manager may wish to play
"What if?" formulas games with the values in the EOQ. Without computers, these tasks
would be laborious and may prove to time consuming to keep the order process fine-
tuned to current data.

Capacity Planning Information Systems

In addition to ensuring that there will be enough raw materials on hand for forecasted
production, the production manager must also see to it that there will be enough
production capacity available to meet production goals. The purpose of capacity
planning is to make certain that there is sufficient personnel, space, machines, and other
production facilities available at the right time to meet the organization's planned

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production. Managers also utilize capacity to minimize capacity in excess of planned
production needs.

Production Scheduling Information Systems

The purpose of the production schedule is to allocate the use of specific production
facilities for the production of finished goods to meet current or forecasted orders. To
manage the scheduling process, a number of scheduling tools have been developed.
Two of these are Gantt and PERT charts and there are project software packages at this
time.

Product Design and Development Information Systems

Numerous tactical decisions must be made to design and develop a product, especially a
new product. The design engineering team usually depends on product specification
information derived from customer surveys, target population analysis, or other
marketing research information systems. The team also depends on data from the
quality control information systems. Teams may use other computerized systems for
designing new products as well. Software used for design, testing and manufacture of
product is commonly available these days

4.4.3 Strategic Planning Manufacturing Information Systems

As we just discussed, production information systems are primarily operational and
tactical in nature. They are concerned with providing information to monitor and
control the production of goods and services and to allocate resources to complete
production processes. Manufacturing information systems are typically strategic in
nature.

For example, the decision to construct a plant addition or a totally new plant, the
selection of the plant site, and the creation of general plans for the design and layout of
the facility are top management decisions. Decisions of this magnitude will require the

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commitment of a large amount of capital and other resources over a long period of time
and thus are strategic planning decisions. Such decisions are not made lightly.

The decision to locate a plant site requires a great deal of information that is external to
the organization. Facilities planning information systems support top management
decisions in this area. Some of the information needed is relatively quantitative – for
example, the availability and cost of trained or experienced labor and the degree to
which it is unionized, the availability and cost of transportation for raw materials and
finished goods, the availability of suitable sites and the cost of land, the proximity of
raw materials suppliers and/or finished goods customers, the availability and costs of
power, and the rate of property and incoming taxation.

Other information used in locating a plant may be qualitative in nature – for example,
community attitudes toward an organization of the type of wishing to locate there and
the quality of community services, such as education and training opportunities.

The final decision concerning plant may be made using some form of weighted average
technique, in which factors such as those listed above are ranked and the total scored for
several potential sites computed. It may also be made on largely emotional factors by
top management.
4.5. HUMAN RESOURCE INFORMATION SYSTEMS
The human resource management function is concerned with the individuals who
constitute the organization. From the standpoint of the organization, the function is
responsible for the acquisition and effective use of the individual, the function is
concerned with the well-being, growth, and development of each worker. To achieve
these ends, human resource management departments perform a variety of activities.
The major activities of the personnel function in an organization include:
1. recruiting employees
2. evaluating applicants and employees
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 3. selecting, placing, promoting, terminating, and transferring employees
4. analyzing and designing jobs
5. training and development reports
6. producing required governmental reports
7. managing employee wage and benefit plans
8. planning short and long term staffing needs
To perform these activities, managers rely on a number of operational, tactical, and
strategic information systems.

4.5.1 Operational Information Systems

Operation human resource information systems provide the manager with data to
support the routine, repetitive personnel decisions that occur regularly. There are
several operational level information systems that collect and report personnel data.
These include information systems pertaining to the organization's positions and
employees, and about governmental regulations.

Payroll Information Systems

The financial information system, through its payroll subsystems, collects and reports
data pertaining to human resources that is largely operational in nature. Payroll files
often contain a great deal of information about employees – including information
about employees pay rates, wage classifications, and seniority – that can be used to
managers making human resource decisions.

Position Information Systems

A job is usually defined as a group of like or similar positions. A position, on the other
hand, consists of tasks performed by one worker. The purpose of a position information
system is to identify each position in the organization, the job category in which the
position is classified, and the employee currently assigned to the position. Reference to

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the position information system allows a personnel manager to identify the details about
unfilled positions. Position information systems also allow the personnel manager to
identify human resource problems.

Employee Information Systems

The personnel department must maintain information on each of the organization's
employee for a variety of reporting purposes. One part of this information system is a
personnel file, which usually contains personal and organization related information
such as name, address, sex, material status, citizenship, years of service or seniority
data, education and training, previous experience, employment history within the
organization, salary rate, salary or wage grade, and retirement plans.

Another part of an employee information system is an employee skills inventory. The

skills inventory contains information about every employee's work experience, work
preference, test scores, interests, and special skills or proficiencies. The skills inventory
system provides information for many decisions.

Employee Evaluation Information Systems

Many organizations review the work of employees on a regular basis to make decisions
regarding merit pay, pay increases, transfer, or promotion. Typically, a new employee is
evaluated at the end of the first four months and other employees are evaluated
semiannually. These reviews provided by the employee evaluation information systems
are often called performance appraisals. The data for performance appraisals are
frequently collected by administrating employee appraisals forms to each employee’s
immediate superior. The forms may also be given to peers, the employees themselves,
and even customers or clients.

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Applicant Selection and Placement Systems

After job and the employee requirements for those jobs have identified and after a
suitable pool of job candidates has been recruited, the candidates must be screened,
evaluated, selected and placed in the positions that are open. To ensure compliance with
federal, state, and local employment laws, these procedures must be fully documented
and carried out in a structured manner. Thus, data pertaining to interviews,
examinations, and placement decisions should be collected and kept according to the
requirements of the various laws and regulations of acts.

4.5.2 Tactical Human Resource Information Systems

Tactical information systems provide managers with support for decisions that
emphasize the allocation of resources. Within the human resource management area,
these decisions include recruiting decisions, job analysis and design decisions, training
and development decisions, employee compensation plan decision, and labor
negotiation decisions.

Job Analysis and Design Information Systems

The information inputs to the job analysis and design information system include data
obtained from interviews of supervisors and workers and affirmative action guidelines.
Inputs also include information from sources externals to the firm, such as labor unions,
competitors, and governmental agencies. The outputs of the job analysis information
system are job descriptions and job specifications.

Recruiting Information Systems

To develop recruitment plan and monitor its success, a recruiting information system is
necessary to collect and process the many different types of information needed to
construct the plan. These include a list of unfilled positions; the duties and requirements
of these positions; lists of planned employee retirements, transfers or terminations;

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information about the skills and preferences of current employees; and summaries of
employee appraisals. The source of recruitment, affirmative action plans, information
about the success of recent recruitment activities must also be included in the
information systems.
Compensation and Benefits Information Systems
Fringe benefit is anything in addition to the basic salary and overtime pay to an
employee. Information on the benefits and compensation packages will help managers
to make informed decisions.

Employee Training and Development Systems

To support the management and training function, it is important to keep information
about current and potential instructors; current and potential students; the content and
scheduling of courses, seminars, and workshops; and the success of past efforts, as
measured by tests, student ratings, and supervisor follow ups. This information system
should permit tactical decisions regarding the nature of training and development
programs. This system must use the other sources of human resource information
systems.

Labor Negotiations Information Systems

Negotiating with the union requires information gathered from many of the human
resource information systems already discussed. In addition, negotiators need
information from the financial accounting system and from external spruces including
competitor wage agreements and appropriate economic data for the industry, employee
group, and geographical region.

The personnel team completing the negotiating needs to be able to obtain numerous ad
hoc reports that analyze the organization’s and union’s positions within the framework
of the industry and current economic situation. it is also important that the negotiating

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team be able to receive ad hoc reports on a very timely basis, since additional questions
and tactics will occur to the team while the negotiations are underway.

4.5.3 Strategic Human Resource Information Systems

Human resource planning is conducted to ensure that the organization has the right
kinds and the right numbers of people at the right places at the right time to achieve its
objectives. There are two types of human resource planning that are strategic in nature.
These are manpower planning, or staffing planning, and program planning.

Manpower Planning
Organizations that are involved in long term strategic planning, such as those planning
to expand into new market areas, or to construct new factories or offices in new
locations, or to add new products, will need information about the quantity and quality
of the work force that is available to achieve their goal. Manpower planning serves this
purpose. This type of planning involves identifying the human resources needed to meet
the organizational objectives specified in the strategic plan. This means forecasting the
supply and demand of the required work force. These forecasts are estimates of the
characteristics, quantity, and pricing of the labor force needed to achieve the long-term
plants of the organization.

To forecast human resource needs, information will be required to answer a number of

planning questions, including the following:
1. What should the labor force of the organization look like to meet the strategic
plan? What kinds of skills, experiences, knowledge, and other qualities should
the organization’s human resources possess? In other words, what are the job
descriptions and specifications required by the strategic plan?
2. What quantities of human resource with the qualities already identified are
needed to carry out the strategic plan? In other words, how many positions for
each job title are needed for the strategic plan?
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 3. What are the current human resources of the organization and how do they help
the organization’s strategic needs for human resources?
4. What other human resources are available to achieve the strategic plan?

Identifying the types and quantities of workers needed for the strategic plan is
forecasting the demand for human resources. Identifying the human resources available
internally and externally is forecasting the supply of those human resources.
Forecasting demand and supply can be done on a macroeconomic level or a
microeconomic (more specific to the organization) level.
Program Planning

A second strategic planning function is to develop the policies, procedures, and

activities that will achieve the human resource needs spelled out in the manpower plan.
Two key activities in program planning are job analysis and design and recruiting. Job
analysis and design is essential to describe the work force required by the organization.

Recruiting plans must be developed to acquire the right kinds of workers in the right
amounts to fill the jobs described. Where there are insufficient workers with the right
skills, training programs may have to develop, or the jobs may have to be redefined to
fit the skills of the available work force.

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 CHAPTER FIVE
5. KNOWLEDGE MANAGEMENT
5.1. INTRODUCTION
There has been a surge of interest in knowledge management, and knowledge
management systems have become one of the fastest-growing areas of corporate and
government software investment. Knowledge management has become an important
theme at many large business firms as managers realize that much of their firm’s value
depends on the firm’s ability to create and manage knowledge.

There is an important distinction between data, information, knowledge, and wisdom.

Data is defined as a flow of events or transactions captured by an organization’s
systems that, by itself, is useful for transacting but little else. To turn data into useful
information, a firm must expend resources to organize data into categories of
understanding, such as monthly, daily, regional, or store-based reports of total sales. To
transform information into knowledge, a firm must expend additional resources to
discover patterns, rules, and contexts where the knowledge works. Finally, wisdom is
thought to be the collective and individual experience of applying knowledge to the
solution of problems. Wisdom involves where, when, and how to apply knowledge.

Knowledge is both an individual attribute and a collective attribute of the firm.

Knowledge is a cognitive, even a physiological, event, that takes place inside peoples’
heads, but it is also stored in libraries and records; shared in lectures; and stored by
firms in the form of business processes and employee know-how. Knowledge residing
in the minds of employees that has not been documented is called tacit knowledge,
whereas knowledge that has been documented is called explicit knowledge.

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5.2. ORGANIZATIONAL LEARNING AND KNOWLEDGE MANAGEMENT
Like humans, organizations create and gather knowledge using a variety of
organizational learning mechanisms. Through collection of data, careful measurement
of planned activities, trial and error (experiment), and feedback from customers and the
environment in general, organizations gain experience.

Organizations that learn then adjust their behavior to reflect that learning by creating
new business processes and by changing patterns of management decision making. This
process of change is called organizational learning. Arguably organizations that can
sense and respond to their environments rapidly will survive longer than organizations
that have poor learning mechanisms.

5.3. KNOWLEDGE MANAGEMENT PRACTICES

In order for organizations to improve their competitive advantage, they should have
knowledge management processes that can enable them to acquire new knowledge for it
to apply, share and preserve vital knowledge (Kridan and Goulding, 2005). There are
different authors, who forwarded the knowledge management process and let us look at
the three processes that knowledge management basically involves, which were
mentioned by Laudon and Laudon, 2006; knowledge acquisition, knowledge storage
and dissemination and responsiveness to knowledge.

KNOWLEDGE ACQUISITION
Organizations acquire knowledge in a number of ways, depending on the type of
knowledge they seek. The first knowledge management systems sought to build
corporate libraries of documents, reports, presentations, and best practices and
encouraged employees to create documents based on their experiences. These efforts
have been extended to include unstructured documents, such as e-mail (Laudon and
Laudon, 2006). In other situation organizations acquire knowledge by developing

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online expert networks so that employees can “find the expert” in the company who has
the knowledge in his or her head.

According to Mosoti and Masheka (2010), Firms capture and use knowledge obtained
from other industry sources such as industrial associations, competitors, clients and
suppliers and from public research institutions including universities and government
laboratories. Firms are dedicated resources to detect and obtain external knowledge and
communicate it in the firms and encourage workers to participate in project teams with
external experts.

KNOWLEDGE STORAGE
Once knowledge is discovered, documents, patterns, and expert rules must be stored so
they can be retrieved and used by employees. Knowledge storage generally involves the
creation of a database. Document management systems that digitize, index, and tag
documents according to a coherent framework are large databases adept at storing
collections of documents. Communities of expertise and expert systems also help
corporations preserve the knowledge that is acquired by incorporating that knowledge
into organizational processes and culture.

KNOWLEDGE DISSEMINATION
Knowledge dissemination is transmitting knowledge to target receivers for absorbing
and to be used by people (Bagorogoza and others, 2011). Knowledge dissemination
creates opportunities to maximize the organization’s ability to meet these needs and
generates solutions and efficiencies that provide a business with a competitive
advantage. This stage of knowledge management process deals with organizing and
applying knowledge that has been created or acquired in ways that make it formalized
and accessible. Sharing knowledge creates a more powerful company (Ibid). By

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creating a pool of knowledge and sharing it with others in the organization, employees
can develop knowledge faster and more effectively.
RESPONSIVENESS TO KNOWLEDGE
This phase refers to the processes of sharing, transferring, disseminating and
distributing knowledge once it has been organized and stored. Knowledge that is kept
solely in an individual’s domain is of little value to an organization. According to
Laudon, Regardless of what type of knowledge management system is involved,
knowledge that is not shared and applied to the practical problems facing firms and
managers do not add business value. Bagorogoza and others, citing Kholi and Jaworski,
defined organizational responsiveness as the actions taken in response to the knowledge
gathered and filtered. They also indicated that the more KM is used, the more valuable
it becomes for the people and the organization(s) involved.
5.4. TYPES OF KNOWLEDGE MANAGEMENT SYSTEMS
There are essentially three major types of knowledge management systems: enterprise
wide knowledge management systems, knowledge work systems, and intelligent
techniques.
Enterprise wide knowledge management systems
They include capabilities for storing both structured and unstructured data; tools for
locating employee expertise within the firm; and capabilities for obtaining data and
information from key transaction systems, such as enterprise applications and from
Web sites. They also include supporting technologies such as portals, search engines,
and collaboration tools (including e-mail, instant messaging, and groupware) to help
employees search the corporate knowledge base, communicate and collaborate with
others inside and outside the firm, and apply the stored knowledge to new situations.
Systems for managing employee learning are emerging as another supporting
technology for enterprise-wide knowledge management.

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Categories of enterprise wide knowledge management systems
Type of knowledge Knowledge content Category of knowledge
management system
Structured knowledge Formal documents Structured knowledge
systems
Semi structured e-mail, memos, and other Semi structured knowledge
knowledge unstructured documents systems
Network (tacit) Expertise of individuals Knowledge network
knowledge systems
Knowledge work systems
The enterprise-wide knowledge systems we have just described provide a wide range of
capabilities that can be used by many if not all the workers and groups in an
organization. Firms also have specialized systems for knowledge workers to help them
create new knowledge for the firm.
Knowledge Workers and Knowledge Work
Knowledge workers include researchers, designers, architects, scientists, and engineers
who primarily create knowledge and information for the organization. Knowledge
workers usually have high levels of education and memberships in professional
organizations and are often asked to exercise independent judgment as a routine aspect
of their work. For example, knowledge workers create new products or find ways of
improving existing ones.
Knowledge workers perform three key roles that are critical to the organization and to
the managers who work within the organization:
 Keeping the organization current in knowledge as it develops in the external
world-in technology, science, social thought, and the arts
 Serving as internal consultants regarding the areas of their knowledge, the
changes taking place, and opportunities
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  Acting as change agents, evaluating, initiating, and promoting change projects
Most knowledge workers rely on office systems, such as word processors, voice mail,
e-mail, videoconferencing, and scheduling systems, which are designed to increase
worker productivity in the office. However, knowledge workers also require highly
specialized knowledge work systems. These knowledge work systems (KWS) are
specifically designed to promote the creation of knowledge and to ensure that new
knowledge and technical expertise are properly integrated into the business. Moreover,
knowledge work is segmented into many highly specialized fields, and each field has a
different collection of knowledge work systems that are specialized to support workers
in that field.
Examples of Knowledge Work Systems
Major knowledge work applications include computer-aided design (CAD) systems,
virtual reality systems for simulation and modeling, and financial workstations.
Computer aided design (CAD) automates the creation and revision of designs, using
computers and sophisticated graphics software.
Intelligent techniques
Artificial intelligence and database technology provide a number of intelligent
techniques that organizations can use to capture individual and collective knowledge
and to extend their knowledge base. Expert systems, case-based reasoning, and fuzzy
logic are used for capturing tacit knowledge. Neural networks and data mining are used
for knowledge discovery. They can discover underlying patterns, categories, and
behaviors in large data sets that could not be discovered by managers alone or simply
through experience. Genetic algorithms are used for generating solutions to problems
that are too large and complex for human beings to analyze on their own. Intelligent
agents can automate routine tasks to help firms search for and filter information for use
in electronic commerce, supply chain management, and other activities.

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Expert systems are an intelligent technique for capturing tacit knowledge in a very
specific and limited domain of human expertise. These systems capture the knowledge
of skilled employees in the form of a set of rules in a software system that can be used
by others in the organization. The set of rules in the expert system adds to the memory,
or stored learning, of the firm. Loan Underwriting Expert System is one typical example
of expert systems.
In case-based reasoning (CBR), descriptions of past experiences of human specialists,
represented as cases, are stored in a database for later retrieval when the user encounters
a new case with similar parameters. The system searches for stored cases with problem
characteristics similar to the new one, finds the closest fit, and applies the solutions of
the old case to the new case. Successful solutions are tagged to the new case and both
are stored together with the other cases in the knowledge base. Unsuccessful solutions
also are appended to the case database along with explanations as to why the solutions
did not work.
Fuzzy logic is a rule-based technology that can represent such imprecision by creating
rules that use approximate or subjective values. It can describe a particular phenomenon
or process linguistically and then represent that description in a small number of
flexible rules. Organizations can use fuzzy logic to create software systems that capture
tacit knowledge where there is linguistic ambiguity.

For example, Ford Motor Company developed a fuzzy logic application that backs a
simulated tractor trailer into a parking space. The application uses the following three
rules:
 IF the truck is near jackknifing, THEN reduce the steering angle.
 IF the truck is far away from the dock, THEN steer toward the dock.
 IF the truck is near the dock, THEN point the trailer directly at the dock.

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