Basic conceptsData versus Information

Data refers to raw, unevaluated facts, figures, symbols, objects, events, etc. Data may be a collection of facts lying in storage, like a telephone directory or census records. Data is a representation of some fact.Information is data that have been put into a meaningful and useful context and communicated to a recipient who uses it to make decisions. Information involves the communication and reception of intelligence or knowledge. It appraises, notifies, surprises and stimulates, reduces uncertainty, reveals additional alternatives or helps eliminate irrelevant or poor ones, and influences individuals and stimulates them to action. An element of data may constitute information in a specific context; for example, when you want to contact your friend, his or her telephone number is a piece of information; otherwise, it is just one element of data in the telephone directory.

Computers have made the processing function much easier. Large quantities of data can be processed quickly through computers aiding in the conversion of data to information. Raw data enter the system and are transformed into the system's output, that is, information to support managers in their decision making.

Characteristics of Information

The characteristics of good information are relevance, timeliness, accuracy, cost-effectiveness, reliability, accessibility, usability, exhaustiveness, and aggregation level. Information is relevant if it leads to improved decision making. It might also be relevant if it reaffirms a previous decision. If it does not have anything to do with your problem, it is irrelevant. For example, information about the weather conditions in Paris in January is relevant if you are considering a visit to Paris in January. Otherwise, the information is not relevant.

Timeliness refers to the currency of the information presented to the users. Currency of data or information is the time gap between the occurrences of an event in the field until its presentation to the user (decision maker). When this amount of time is very short, we describe the information system as a real-time system.

Accuracy is measured by comparing the data to actual events. The importance of accurate data varies with the type of decisions that need to be made. Payroll information must be exact. Approximations simply will not suffice. However, a general estimate of how much staff time was devoted to a particular activity may be all that is needed.

Value of Information

Information has a great impact on decision making, and hence its value is closely tied to the decisions that result from its use. Information does not have an absolute universal value. Its value is related to those who use it, when it is used, and in what situation it is used. In this sense, information is similar to other commodities. For example, the value of a glass of water is different for someone who has lost his way in Arctic glaciers than it is to a wanderer in the Sahara Desert.

Economists distinguish value from cost or price of a commodity incurred to produce or procure the commodity. Obviously, the value of a product must be higher than its cost or price for it to be cost-effective.

The concept of normative value of information has been developed by economists and statisticians and is derived from decision theory. The basic premise of the theory is that we always have some preliminary knowledge about the occurrence of events that are relevant to our decisions. Additional information might modify our view of the occurrence probabilities and consequently change our

decision and the expected payoff from the decision. The value of additional information is, hence, the difference in expected payoff obtained by reduced uncertainty about the future event.

Information supports decisions, decisions trigger actions, and actions affect the achievements or performance of the organization. If we can measure the differences in performance, we can trace the impact of information, provided that the measurements are carefully performed, the relationships among variables are well defined, and possible effects of irrelevant factors are isolated. The measured difference in performance due to informational factors is called the realistic value or revealed value of information.

For most information systems, particularly those supporting middle and top management, the resulting decisions often relate to events that are not strictly defined and involve probabilities that cannot be quantified. The decision-making process often is obscure and the outcomes are scaled by multiple and incomparable dimensions. In such cases, we may either attempt to perform a multi-attribute analysis or derive an overall subjective value. The subjective value reflects people's comprehensive impression of information and the amount they are willing to pay for specific information.

Information as an Aid to Decision Making

Simon (1977) describes the process of decision making as comprising four steps: intelligence, design, choice, and review. The intelligence stage encompasses collection, classification, processing, and presentation of data relating to the organization and its environment. This is necessary to identify situations calling for decision. During the decision stage, the decision maker outlines alternative solutions, each of which involves a set of actions to be taken. Data gathered during the intelligence stage are now used by statistical and other models to forecast possible outcomes for each alternative. Each alternative can also be examined for technological, behavioural, and economic feasibility. In the choice stage, the decision maker must select one of the alternatives that will best contribute to the goals of the organization. Past choices can be subjected to review during implementation and monitoring to enable the manager to learn from mistakes. Information plays an important role in all four stages of the decision process. Figure 1 indicates the information requirement at each stage, along with the functions performed at each stage and the feedback loops between stages.

The term information system has the following meanings:

1. A system, whether automated or manual, that comprises people, machines, and/or methods organized to collect, retrieve, process, transmit, and disseminate data that represent user information.

2. RAW DATA + PROCESS = MEANINGFUL INFORMATION. This concept where Raw Data which has hardly any meaning is Processed and the Outcome which results in Meaningful information is simply understood as the Information System. For example adding of two numbers. The two numbers are just Raw Data that mean nothing for a start but the addition process when applied to the two numbers will result in a meaningful answer. Thus Information systems are born where syetems are created and put into place to filter raw data to produce sensible information.

3. Any telecommunications and/or computer related equipment or interconnected system or subsystems of equipment that is used in the acquisition, storage, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of voice and/or data, and includes software, firmware, and hardware

The simplest model that describes the Structure and Behaviour of an Information System takes five objects:

For Structure:

Repositories: hold data permanent or temporarily, such as buffers, RAM, hard disks, cache, etc.

Interfaces: exchange information with the non-digital world, such as keyboards, speakers, scanners, printers, etc.

Channels: connect repositories, such as buses, cables, wireless links, etc. A Network is a set of logical or physical channels.

For Behaviour:

Services: provide value to users or to other services via messages interchange.

Messages: carries a meaning to users or services.

Information System is a general name for the discipline covering the application of information technology to business problems.

As an area of study it is also referred to as information technology management. The study of information systems is usually a commerce and business administration discipline, and frequently involves software engineering, but also distinguishes itself by concentrating on the integration of computer systems with the aims of the organization. The area of study should not be confused with computer science which is more theoretical in nature and deals mainly with software creation, or computer engineering, which focuses more on the design of computer hardware. IT service management is a practitioner-focused discipline centering on the same general domain.

In business, information systems support business processes and operations, decision-making, and competitive strategies.

The functional support roleInformation system support business processes and operations by:

recording and storing accounting records including sales data, purchase data, investment data, and payroll data.

processing such records into financial statements such as income statements, balance sheets, ledgers, and management reports, etc.

recording and storing inventory data, work in process data, equipment repair and maintenance data, supply chain data, and other production/operations records

processing these operations records into production schedules, production controllers, inventory systems, and production monitoring systems

recording and storing such human resource records as personnel data, salary data, and employment histories,

recording and storing market data, customer profiles, customer purchase histories, marketing research data, advertising data, and other marketing records

processing these marketing records into advertising elasticity reports, marketing plans, and sales activity reports

recording and storing business intelligence data, competitor analysis data, industry data, corporate objectives, and other strategic management records

processing these strategic management records into industry trends reports, market share reports, mission statements, and portfolio models

The bottom line is that the information systems use all of the above to implement, control, and monitor plans, strategies, tactics, new products, new business models or new business ventures.

The decision support roleThe business decision-making support function goes one step further. It becomes an integral part -- even a vital part -- of decision -making. It allows users to ask very powerful "What if…?" questions: What if we increase the price by 5%? What if we increase price by 10%? What if we decrease price by 5%? What if we increase price by 10% now, then decrease it by 5% in three months? It also allows users to deal with contingencies: If inflation increases by 5% (instead of 2% as we are assuming), then what do we do? What do we do if we are faced with a strike or a new competitive threat? An organization succeeds or fails based on the quality of its decisions. The enhanced ability to explore "what if" questions is central to analyzing the likely results of possible decisions and choosing those most likely to shape the future as desired. "Business decision-making support function" is a phrase likely to quicken the pulse of no one but an accountant, but, in fact, it is all about turning wonderful dreams into solid realities.

The performance monitoring roleMIS are not just statistics and data analysis, but also assessment of human capabilities. They have to be used as an MBO (Management by objectives) tool. They help:

to establish relevant and measurable objectives

to monitor results and performances (reach ratios)

to send alerts, in some cases daily, to managers at each level of the organization, on all deviations between results and pre-established objectives and budgets.

Physical Components of information systemsThe main components of information systems are computer hardware and software, databases, telecommunications systems, human resources, and procedures.

Computer hardwareToday even the smallest firms, as well as many households, own or lease computers. These are usually microcomputers, also called personal computers. Large organizations typically employ multiple computer systems, from a few powerful mainframe machines (or even more powerful supercomputers) and minicomputers to widely deployed personal computers.

Computer softwareComputer software falls into two broad classes: system software and application software. The principal system software is known as the operating system. It manages the hardware, files, and other system resources and provides a systematic and consistent means for controlling the computer, most commonly via a graphical user interface (GUI).

DatabasesMany information systems are primarily delivery vehicles for databases. A database is a collection of interrelated data (records) organized so that individual records or groups of records can be retrieved that satisfy various criteria. Typical examples of databases include employee records and product catalogs.

Telecommunications

Data collection subsystem

Data validationData Storage

Data Retrieval

Data Processing

Data Dissemination

Telecommunications are used to connect, or network, computer systems and transmit information. Various computer network configurations are possible, depending on the needs of an organization. Local area networks (LANs) join computers at a particular site, such as an office building or an academic campus. Wide area networks (WANs) connect machines located at different localities.

Human resources and proceduresQualified people are a vital component of any information system. Technical personnel include development and operations managers, systems analysts and designers, computer programmers, and computer operators. In addition, workers in an organization must be trained to utilize the capabilities of information systems.

Functional components of an IS:

The following are considered as the functional components of any IS:

Subsystem for data collection Manual or Automated Subsystem for data validation Subsystem for data storage Subsystem for data retrieval DBMS Computer Technology Subsystem for data processing Subsystem for information presentation Subsystem for data dissemination Communication Tech.

These subsystems are organized as

Compiled by S.R.Roy.This script is only a supplement to the discussions in the classComponents of information systemsThe main components of information systems are computer hardware and software, databases, telecommunications systems, human resources, and procedures.Computer hardwareToday even the smallest firms, as well as many households, own or lease computers. These are usually microcomputers, also called personal computers. Large organizations typically employ multiple computer systems, from a few powerful mainframe machines (or even more powerful supercomputers) and minicomputers to widely deployed personal computers. Together with computer peripheral equipment, such as magnetic disks, input-output devices, and telecommunications gear, these constitute the hardware of information systems. The cost of hardware has steadily and rapidly decreased, while processing speed and storage capacity have increased vastly.Computer softwareComputer software falls into two broad classes: system software and application or productivity software. The principal system software is known as the operating system. It manages the hardware, files, and other system resources and provides a systematic and consistent means for controlling the computer, most commonly via a graphical user interface (GUI). Application software is programs designed to handle specialized tasks; many of these programs are sold as ready-to-use packages. Examples include general-purpose spreadsheet and word processing programs, as well as “vertical” applications that serve a specific industry segment—for instance, an application, that schedule, routes, and tracks package deliveries. Larger firms often develop their own application software or customize existing packages to meet specific needs. Some companies, known as application service providers (ASPs), have begun to rent specialized application software on a per-use basis over the Web.DatabasesMany information systems are primarily delivery vehicles for databases. A database is a collection of interrelated data (records) organized so that individual records or groups of records can be retrieved that satisfy various criteria. Typical examples of databases include employee records and product catalogs. Particularly valuable are customer databases that can be “mined” for information in order to design and market new products more effectively. Anyone who has ever purchased something with a credit card—in person, by mail order, or over the Web—is included within some of the numerous customer databases.TelecommunicationsTelecommunications are used to connect, or network, computer systems and transmit information. Various computer network configurations are possible, depending on the needs of an organization. Local area networks (LANs) join computers at a particular site, such as an office building or an academic campus. Wide area networks (WANs) connect machines located at different sites, and often within different organizations. The Internet is a network of networks, connecting millions of computers located on every continent. Through networking, personal computer users gain access to information resources, such as large databases, and to human resources, such as coworkers and people who share their professional or private interests.

Human resources and proceduresQualified people are a vital component of any information system. Technical personnel include development and operations managers, systems analysts and designers, computer programmers,

and computer operators. In addition, workers in an organization must be trained to utilize the capabilities of information systems. Hundreds of millions of people around the world are learning about information systems as they use the Web.

Information system typesInformation systems support operations, knowledge work, and management in organizations. The overall structure of organizational information systems is shown in the figure.

Operational supportAt the operational level are transaction processing systems through which products are designed, marketed, produced, and delivered. These systems accumulate information in databases that form the foundation for higher-level systems.

Support of knowledge workA large proportion of work in an information society involves manipulating abstract information and knowledge, rather than directly processing, manufacturing, or delivering tangible materials. Such work is called knowledge work. Three general categories of information systems support such knowledge work: professional support systems, office information systems, and knowledge management systems.

Management reporting systemA large category of information systems comprises those designed to support the management of an organization. Those systems rely on data obtained by transaction processing systems, as well as data acquired outside the organization (such as business intelligence) and data provided by business partners, suppliers, and customers.

Decision support systemsAll information systems support decision-making, however indirectly, but decision support systems are expressly designed for this purpose. The two principal varieties of decision support systems are model-driven and data-driven. A DSS helps users make decisions by providing useful information to support unstructured decisions. A DSS identifies potential solutions to a problem, analyses the solutions and simulate likely decisions. DSS applications are systems and subsystems that help people make decisions based on data that is culled from a wide range of sources.

For example: a national on-line book seller wants to begin selling its products internationally but first needs to determine if that will be a wise business decision. The vendor can use a DSS to gather information from its own resources (using a tool such as OLAP) to determine if the company has the ability or potential ability to expand its business and also from external resources, such as industry data, to determine if there is indeed a demand to meet. The DSS will collect and analyze the data and then present it in a way that can be interpreted by humans. Some decision support systems come very close to acting as artificial intelligence agents.

DSS applications are not single information resources, such as a database or a program that graphically represents sales figures, but the combination of integrated resources working together.

Group decision support systemsA GDSS is essentially a DSS that provides mechanism for exchange of expertise amongst decision makers. It is a kind of same-time-same-place conference, oriented toward business meetings and decision-making. In GDSS, with special computer software, the facilitator of each meeting will first make the agenda of the meeting, which will be projected onto a big screen that everyone can see. Then the participants will type simultaneously their ideas of the topic of discussion on the individual microcomputers next to them. Then the computer will sort the ideas, and then the participants will vote or comment on which ideas they like or they dislike. In the course of the whole meeting, GDSS stores, categorizes and prints out all the ideas, comments and vote tallies, so that each of the meeting participants will get a summary of the meeting when it ends.

What so special about GDSS is that it enables meeting participants to simultaneously "talk", when the computer sorts and sends ideas to each of the terminal, all at the same time. That saves a tremendous amount of time, because all these are done electronically instead of manually, and the time saved will enable participants to spend more time manipulating and expressing their ideas. This can consequently increase the productivity and efficiency of the group. The time-consuming benefit also has an added bonus: when productivity and efficiency in meetings increase, it is likely that the team spirit can be consolidated, resulting in an increase of the strength of binding among team members.

Besides, under this GDSS, no one can dominate the meeting. This is because of another feature of GDSS. GDSS provides an anonymous scheme, so that whatever you type in the terminal (i.e. your opinion) will be protected. Under this circumstance, no one really knows who is typing what. Because of this, not a single person can dominate the meetings. In the worst case, we might say "some ideas" are dominating the meeting, but this is perfectly fine because this is as a matter of fact an aim of the GDSS: to help meeting participants voice their opinions from an idea-oriented mindset. For example, simply because you have a prejudice against person A does not mean that you are going to reject the idea being proposed in the meeting, because you do not know who is proposing that idea.

Compiled by S.R.Roy for references only.

ORGANIZATIONS AND INFORMATION SYSTEMS

Information systems and organizations influence one another. Information systems are built by managers to serve the interests of the business firm. At the same time, the organization must be aware of and open to the influences of information systems to benefit from new technologies.The interaction between information technology and organizations is complex and is influenced by many mediating factors, including the organization’s structure, business processes, politics, culture, surrounding environment, and management decisions (see Figure 3-1). You will need to understand how information systems can change social and work life in your firm. You will not be able to design new systems successfully or understand existing systems without understanding your own business organization.

As a manager, you will be the one to decide which systems will be built, what they will do, and how they will be implemented. You may not be able to anticipate all of the consequences of these decisions. Some of the changes that occur in business firms because of new information technology (IT) investments cannot be foreseen and have results that may or may not meet your expectations. Who would have imagined ten years ago, for instance, that email and instant messaging would become a dominant form of business communication and that many managers would be inundated with more than 200 e-mail messages each day (Walker, 2004)?

WHAT IS AN ORGANIZATION?An organization is a stable, formal social structure that takes resources from the environment and processes them to produce outputs. This technical definition focuses on three elements of an organization. Capital and labor are primary production factors provided by the environment. The organization (the firm) transforms these inputs into products and services in a production function. The products and services are consumed by environments in return for supply inputs .An organization is more stable than an informal group (such as a group of friends that meets every Friday for lunch) in terms of longevity and routineness. Organizations are formal legal entities with internal rules and procedures that must abide by laws. Organizations are also social structures because they are a collection of social elements, much as a machine has a structure—a particular arrangement of valves, cams, shafts, and other parts. This definition of organizations is powerful and simple, but it is not very descriptive or even predictive of real-world organizations. A more realistic behavioral definition of an organization is that it is a collection of rights,

privileges, obligations, and responsibilities that is delicately balanced over a period of time through conflict and conflict resolution (see Figure 3-3).In this behavioral view of the firm, people who work in organizations develop customary ways of working; they gain attachments to existing relationships; and they make arrangements with subordinates and superiors about how work will be done, the amount of work that will be done, and under what conditions work will be done. Most of these arrangements and feelings are not discussed in any formal rulebook. How do these definitions of organizations relate to information systemtechnology?A technical view of organizations encourages us to focus on how inputs are combined to create outputs when technology changes are introduced into the company. The firm is seen as infinitely malleable, with capital and labor substituting for each other quite easily. But the more realistic behavioral definition of an organization suggests that building new information systems, or rebuilding old ones, involves much more than a technical rearrangement of machines or workers—that some information systems change the organizational balance of rights, privileges, obligations, responsibilities, and feelings that have been established over a long period of time.Changing these elements can take a long time, be very disruptive, and require more resources to support training and learning. For instance, the length of time required to implement effectively a new information system is much longer than usually anticipated simply because there is a lag between implementing a technical system and teaching employees and managers how to use the system.Technological change requires changes in who owns and controls information; who has the right to access and update that information; and who makes decisions about whom, when, and how. This more complex view forces us to look at the way work is designed and the procedures used to achieve outputs. The technical and behavioral definitions of organizations are not contradictory.Indeed, they complement each other: The technical definition tells us how thousands of firms in competitive markets combine capital, labor, and information technology, whereas the behavioral model takes us inside the individual firm to see how that technology affects the organization’s inner workings.

FEATURES OF ORGANIZATIONSAll modern organizations have certain characteristics. They are bureaucracies with clear-cut divisions of labor and specialization. Organizations arrange specialists in a hierarchy of authority in which everyone is accountable to someone and authority is limited to specific actions governed by abstract rules or procedures. These rules create a system of impartial and universal decision making. Organizations try to hire and promote employees on the basis of technical qualifications and professionalism (not personal connections). The organization is devoted to the principle of efficiency: maximizing output using limited inputs. Other features of organizations include their business processes, organizational culture, organizational politics, surrounding environments, structure, goals, constituencies, and leadership styles. All of these features affect the kinds of information systems used by organizations.

Routines and Business Processes

All organizations, including business firms, become very efficient over time because individuals in the firm develop routines for producing goods and services. Routines—sometimes called standard operating procedures—are precise rules, procedures, and practices that have been developed to cope with virtually all expected situations. As employees learn these routines, they become highly productive and efficient, and the firm is able to reduce its costs over time as efficiency increases. For instance, when you visit a doctor’s office, receptionists have a well-developed set of routines for gathering basic information from you; nurses have a different set of routines for preparing you for an interview with a doctor; and the doctor has a well-developed set of routines for diagnosing

you. Business processes, are collections of such routines. A business firm in turn is a collection of business processes.

HOW INFORMATION SYSTEMS IMPACTORGANIZATIONS AND BUSINESS FIRMSInformation systems have become integral, online, interactive tools deeply involved in the minute-to-minute operations and decision making of large organizations. Over the last decade, information systems have fundamentally altered the economics of organizations and greatly increased the possibilities for organizing work. Theories and concepts from economics and sociology help us understand the changes brought about by IT.ECONOMIC IMPACTSFrom the point of view of economics, IT changes both the relative costs of capital and the costs of information. Information systems technology can be viewed as a factor of production that can be substituted for traditional capital and labor. As the cost of information technology decreases, it is substituted for labor, which historically has been a rising cost. Hence, information technology should result in a decline in the number of middle managers and clerical workers as information technology substitutes for their labor.As the cost of information technology decreases, it also substitutes for other forms of capital, such as buildings and machinery, which remain relatively expensive. Hence, over time we should expect managers to increase their investments in IT because of its declining cost relative to other capitalinvestments. IT also obviously affects the cost and quality of information and changes the economics of information. Information technology helps firms contract in size because it can reduce transaction costs—the costs incurred when a firm buys on the marketplace what it cannot make itself. According to transaction cost theory, firms and individuals seek to economize on transaction costs, much as they do on production costs. Using markets is expensive because of costs such as locating and communicating with distant suppliers, monitoring contract compliance, buying insurance, obtaining information on products, and so forth. Traditionally, firms have tried to reduce employees, and buying their own suppliers and distributors, as both GeneralMotors and Ford used to do.Information technology, especially the use of networks, can help firms lower the cost of market participation (transaction costs), making it worthwhile for firms to contract with external suppliers instead of using internal sources. For instance, by using computer links to external suppliers, the Chrysler Corporation can achieve economies by obtaining more than 70 percent of its parts from the outside. Information systems make it possible for companies such as Cisco Systems and Dell Computer to outsource their production to contract manufacturers such as Flextronics instead of making their products themselves.As transaction costs decrease, firm size (the number of employees) should shrink because it becomes easier and cheaper for the firm to contract for the purchase of goods and services in the marketplace rather than to make the product or offer the service itself. Firm size can stay constant or contract even if the company increases its revenues. For example, when Eastman Chemical Company split off from Kodak in 1994, it had $3.3 billion in Information technology, by reducing the costs of acquiring and analyzing information, permits organizations to reduce agency costs because it becomes easier for managers to oversee a greater number of employees.Figure 3-7 shows that by reducing overall management costs, information technology enables firms to increase revenues while shrinking the number of middle managers and clerical workers. We have seen earlier where information technology expanded the power and scope of small organizations by enabling them to perform coordinating activities such as processing orders or keeping track of inventory with very few clerks and managers.

ORGANIZATIONAL AND BEHAVIORAL IMPACTS

Theories based on the sociology of complex organizations also provide some understanding about how and why firms change with the implementation of new IT applications.IT Flattens OrganizationsLarge, bureaucratic organizations, which primarily developed before the computer age, are often inefficient, slow to change, and less competitive than newly created organizations. Some of these large organizations have downsized, reducing the number of employees and the number of levels in their organizational hierarchies.Behavioral researchers have theorized that information technology facilitates flattening of hierarchies by broadening the distribution of information to empower lower-level employees and increase management efficiency. IT pushes decision-making rights lower in the organization because lower-level employees receive the information they need to make decisions without supervision. (This empowerment is also possible because of higher educational levels among the workforce, which give employees the capabilities to make intelligent decisions). . Information technology also can reduce internal management costs.According to agency theory, the firm is viewed as a “nexus of contracts” among self-interested individuals rather than as a unified, profit-maximizing entity (Jensen and Meckling, 1976). A principal (owner) employs “agents” (employees) to perform work on his or her behalf. However, agents need constant supervision and management; otherwise, they will tend to pursue their own interests rather than those of the owners. As firms grow in size and scope, agency costs or coordination costs rise because owners must expend more and more effort supervising and managing employees.

Information technology, by reducing the costs of acquiring and analyzing information, permits organizations to reduce agency costs because it becomes easier for managers to oversee a greater number of employees. Information technology enables firms to increase revenues while shrinking the number of middle managers and clerical workers. We have seen where information technology expanded the power and scope of small organizations by enabling them to perform coordinating activities such as processing orders or keeping track of inventory with very few clerks and managers.

Compiled by S. R. Roy for the purpose of references only.

Source MIS, Laudon & Laudon