Introduction to System Concepts

Unit 3

Unit 3

Introduction to System Concepts

Structure
3.0 Introduction
3.1 Decision Making Process and Information Systems
3.2 Study of Systems Theory
Types of Systems
3.3 Role of Information Systems in Business
Planning, Control, Decision Making
3.4 Types of Enterprise Information Systems
TPS, OAS, KWS, MIS, DSS, EIS and their interrelationship
3.5 Summary
3.6 Terminal Questions
3.7 Answers

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3.0 Introduction
In the earlier unit, you came to know about the interrelation between DataInformation-Knowledge
dimensions;
their
types,
interrelationship,
differences and characteristics; their importance in managerial process;
processing cycle & security aspects of data & information.
In this unit, we understand the Theory about Systems and their types; the
role of Information Systems in decision-making process and supporting
business functions; the spectrum of Enterprise Information Systems and
their inter-relationship. For a better understanding of this unit, prior
knowledge about the Information Technology for Management and
understanding of Data, Information and Knowledge interrelationship,
differences and characteristics is recommended.

(http://en.wikipedia.org/wiki/File:System_boundary.svg)
A system (from Latin systma, in turn from Greek systma, "whole
compounded of several parts or members, system") is a set of interacting or
interdependent components forming an integrated whole. Decision making
can be regarded as the mental processes (cognitive process) resulting in
the selection of a course of action among several alternative scenarios.
Every decision making process produces a final choice. The primary role of
Information Systems is to augment the process of decision making within
organizations and support various business functions. An enterprise

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information system is generally any kind of computing system that is of

"enterprise class". This means typically offering high quality of service,
dealing with large volumes of data and capable of supporting some large
organization ("an enterprise").
Objectives:
After studying this unit, you should be able to:
Understand Systems, their types, and behavior
Explain the Decision Making Process
Appreciate the role of Information Systems in business
Explain the types of Enterprise Information Systems and their interrelationship

3.1 Systems Concepts

A system is a set of elements (often called 'components' instead) and
relationships which are different from relationships of the set or its elements
to other elements or sets. Most systems share common characteristics,
including:

Systems have structure, defined by components/elements and their

composition;

Systems have behavior, which involves inputs, processing and

outputs of material, energy, information, or data;

Systems have interconnectivity: the various parts of a system have

functional as well as structural relationships to each other.

Systems may have some functions or groups of functions

The term system may also refer to a set of rules that governs structure
and/or behavior.

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(http://www2.kumc.edu/instruction/nursing/nrsg752/SystemModel.gif)
Systems Theory
Systems Theory is the trans-disciplinary study of the abstract organization
of phenomena, independent of their substance, type, or spatial or temporal
scale of existence. It investigates both the principles common to all complex
entities, and the (usually mathematical) models which can be used to
describe them. It involves in the interdisciplinary study of systems in
general, with the goal of elucidating principles that can be applied to all
types of systems at all nesting levels in all fields of research. The term does
not yet have a well-established, precise meaning, but systems theory can
reasonably be considered a specialization of systems thinking, a
generalization of systems science, a systems approach.
In this context the word systems is used to refer specifically to selfregulating systems, i.e. that are self-correcting through feedback. Selfregulating systems are found in nature, including the physiological systems
of our body, in local and global ecosystems, and in climateand in human
learning processes.

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What is an Information System?
An information system and MIS (IS) - or application landscape - is any
combination of information technology and people's activities that support
operations, management and decision making. In a very broad sense, the
term information system is frequently used to refer to the interaction
between people, processes, data and technology. In this sense, the term is
used to refer not only to the information and communication technology
(ICT) that an organization uses, but also to the way in which people interact
with this technology in support of business processes.
Some make a clear distinction between information systems, computer
systems, and business processes. Information systems typically include an
ICT component but are not purely concerned with ICT, focusing in instead,
on the end use of information technology. Information systems are also
different from business processes. Information systems help to control the
performance of business processes.

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(http://www.rogerclarke.com/SOS/ISDefn1.gif)
Alter argues for an information system as a special type of work system. A
work system is a system in which humans and/or machines perform work
using resources to produce specific products and/or services for customers.
An information system is a work system whose activities are devoted to
processing (capturing, transmitting, storing, retrieving, manipulating and
displaying) information.
As such, information systems inter-relate with data systems on the one
hand and activity systems on the other. An information system is a form of
communication system in which data represent and are processed as a
form of social memory. An information system can also be considered a
semi-formal language which supports human decision making and action.
Information systems are the primary focus of study for the information
systems (discipline) and for organizational informatics.

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Elements / Components of Information Systems

Following are considered as the elements of a system in terms of
Information systems:

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(A) Inputs & Outputs:
A major objective of a system is to produce an output that has value to its
user. Whatever the nature of the -output (goods, services, or information), it
must be in line with the expectations of the intended user. Inputs are the
elements (material, human resources, or data) that enter the system for
processing. Output is the outcome of processing. A system feeds on input to
produce output in the same way that a business brings in human, financial,
and material resources to produce goods and services. Determining the
output is the first step in specifying the nature, amount, and regularity of the
input needed to operate a system. For example, in systems analysis, the
first concern is to determine the user's requirements of a proposed
computer system i.e. specification of the output that the computer is
expected to provide.
(B) Processing:

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The processing is the element of a system that involves the actual

transformation of input into output. It is operational component of a system.
Processing may modify the input totally or partially, depending on the
specifications of the output. This means that as the output specifications
change, so does the processing.
(C) Control:
The control element guides the system. It is the decision making
subsystem that controls the pattern of activities governing input processing
and output. In an organizational context, management as a decision making
body controls the inflow and outflow of activities that affect the welfare of the
business. In computer system, the operating system and accompanying
software influence the behavior of the system.
In system analysis, knowing the attitude of the individual who controls the
area for which a computer is being considered can make a difference
between the success and failure of the installation.
Management support is required for securing control and supporting the
objective of the proposed change.

Open Loop Systems:

In these systems control is carried out by monitoring output and by

receiving environmental input. Some control is therefore exercised from
outside the system, by intervention administered externally.

Closed Loop Systems:

In these systems output is fed back to input and there is no input from
the environment. The output thus initiates the control activity to alter the
system's input or its activities.
(D) Feedback:
Control in a dynamic system is achieved by feedback. Feedback measures
output against a standard in some form of cybernetic (automatic, electronic,
streamlined) procedures that includes communication and controls.
Output information is fed back into the input and/or to management
(controller) for consideration, calculation, or reflection. After the output is
compared against performance standards, change can result in the input or
processing and, consequently, the output.

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Another form of feedback comes after the system is implemented. The user
informs the analyst about the performance of the new installation. This
feedback often results in enhancements to meet the user's requirements.
Following are the type of feedback:

Positive Feedback:

Very generally, this result in successively greater deviations from the

results actually sought. In fact, positive feedback results in some control
activity which causes performance or output to continue deviating (or
even increases the deviation) from what is required to happen. Positive
feedback is necessary for organizational growth.

Negative Feedback:

Negative feedback shows that the system is deviating from the intended
path and that some change is therefore required to correct this situation.
The control action to be taken generally reverses the trend.
(E) Environment:
The environment is the system within which an organization operates. It is
the source of external elements that disturb the system. In fact, it often
determines how a system must function. The environment is the collection
of elements; these elements surround the system and often interact with it.
(F) Boundaries:
A system should be defined by its boundaries, the limits that identify its
components, processes, and interrelationships when it interfaces with
another system. Systems are normally delimited by boundaries, which
separates them from its environment. Anything within the boundary is part of
system; any thing outside is part of the environment. What is included in the
system and what is included in the environment depend on the particular
problem being studied.

3.2 Decision Making Process and Information Systems

Decision making is the study of identifying and choosing alternatives based
on the values and preferences of the decision maker. Making a decision
implies that there are alternative choices to be considered, and in such a
case we want not only to identify as many of these alternatives as possible

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but to choose the one that (1) has the highest probability of success or
effectiveness and (2) best fits with our goals, desires, lifestyle, values, and
so on.

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Decision making is the process of sufficiently reducing uncertainty and
doubt about alternatives to allow a reasonable choice to be made from
among them. This definition stresses the information-gathering function of
decision making. It should be noted here that uncertainty is reduced rather
than eliminated. Very few decisions are made with absolute certainty
because complete knowledge about all the alternatives is seldom possible.
Thus, every decision involves a certain amount of risk. If there is no
uncertainty, you do not have a decision; you have an algorithm - a set of
steps or a recipe that is followed to bring about a fixed result.

Decision Making Strategies

As you know, there are often many solutions to a given problem, and the
decision maker's task is to choose one of them. The task of choosing can be
as simple or as complex as the importance of the decision warrants, and the
number and quality of alternatives can also be adjusted according to

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importance, time, resources and so on. There are several strategies used
for choosing. Among them are the following:

1. Optimizing. This is the strategy of choosing the best possible solution to

the problem, discovering as many alternatives as possible and choosing the
very best. How thoroughly optimizing can be done is dependent on:
A. importance of the problem
B. time available for solving it
C. cost involved with alternative solutions
D. availability of resources, knowledge
E. personal psychology, values
Note that the collection of complete information and the consideration of all
alternatives is seldom possible for most major decisions, so that limitations
must be placed on alternatives.

2. Satisficing. In this strategy, the first satisfactory alternative is chosen

rather than the best alternative. If you are very hungry, you might choose to
stop at the first decent looking restaurant in the next town rather than
attempting to choose the best restaurant from among all (the optimizing
strategy). The word satisficing was coined by combining satisfactory and
sufficient. For many small decisions, such as where to park, what to drink,
which pen to use, which tie to wear, and so on, the satisficing strategy is
perfect.

3. Maximax. This stands for "maximize the maximums." This strategy

focuses on evaluating and then choosing the alternatives based on their
maximum possible payoff. This is sometimes described as the strategy of
the optimist, because favorable outcomes and high potentials are the areas
of concern. It is a good strategy for use when risk taking is most acceptable,
when the go-for-broke philosophy is reigning freely.

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4. Maximin. This stands for "maximize the minimums." In this strategy, that
of the pessimist, the worst possible outcome of each decision is considered
and the decision with the highest minimum is chosen. The Maximin
orientation is good when the consequences of a failed decision are
particularly harmful or undesirable. Maximin concentrates on the salvage
value of a decision, or of the guaranteed return of the decision. It's the
philosophy behind the saying, "A bird in the hand is worth two in the bush."

Decision Making Process

(http://decision-quality.com/images/framework.jpg)
1. Defining the Problem: The first step towards a decision-making
process is to define the problem. Obviously, there would be no need
to make a decision without having a problem. So, the first thing one
has to do is to state the underlying problem that has to be solved.
You have to clearly state the outcome that you desire after you have
made the decision. This is a good way to start, because stating your
goals would help you in clarifying your thoughts.
2. Develop Alternatives: The situation of making a decision arises
because there are many alternatives available for it. Hence, the next
step after defining the main problem would be to state out the
alternatives available for that particular situation. Here, you do not

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have to restrict yourself to think about the very obvious options,

rather you can use your creative skills and come out with
alternatives that may look a little irrelevant. This is important
because sometimes solutions can come out from these out-of-thebox ideas. You would also have to do adequate research to come up
with the necessary facts that would aid in solving the problem.
3. Evaluate the Alternatives: This can be said to be one of the most
important stages of the decision-making process. This is the stage
where you have to analyze each alternative you have come up with.
You have to find out the advantages and disadvantages of each
option. This can be done as per the research you have done on that
particular alternative. At this stage, you can also filter out the options
that you think are impossible or do not serve your purpose. Rating
each option with a numerical digit would also help in the filtration
process.
4. Make the Decision: This is the stage where the hard work you have
put in analyzing would lead to a proper decision. The evaluation
process would help you with clearly looking at the available options
and you have to pick whichever you think is the most applicable. You
can also club some of the alternatives to come out with a better
solution instead of just picking out any one of them.
5. Implement the Solution: The next obvious step after choosing an
option would be implementing the solution. Just making the decision
would not give the result one wants. Rather, you have to carry out on
the decision you have made. This is a very crucial step because all
the people involved in implementation of a solution should know
about their implications. This is very essential for the decision to give
successful results.
6. Monitor your Solution: Just making a decision and implementing it,
is not the end of the decision-making process. It is crucial to monitor
your decision regularly once they are implemented. At this stage,
you have to keep a close eye on the progress made by
implementing the solutions. You may need to measure the results of
implementations against your expected standards. Monitoring of
solutions since early stage may also help you to alter your decisions,
if you notice deviation of results from your expectations.

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3.3 Types of Information Systems

For most businesses, there are a variety of requirements for information.
Senior managers need information to help with their business planning.
Middle management need more detailed information to help them monitor
and control business activities. Employees with operational roles need
information to help them carry out their duties.

As a result, businesses tend to have several "information systems"

operating at the same time. This revision note highlights the main categories
of information system and provides some examples to help you distinguish
between them. The main kinds of information systems in business are
described briefly below:

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(http://www.octium.eu/en/images/stories/octium/information_systems.gif)
Executive Support Systems
An Executive Support System ("ESS") is designed to help senior
management make strategic decisions. It gathers analyses and summarizes
the key internal and external information used in the business.
A good way to think about an ESS is to imagine the senior management
team in an aircraft cockpit - with the instrument panel showing them the
status of all the key business activities. ESS typically involves lots of data
analysis and modelling tools such as "what-if" analysis to help strategic
decision-making.
Management Information Systems
A management information system ("MIS") is mainly concerned with internal
sources of information. MIS usually take data from the transaction
processing systems (see below) and summarize it into a series of
management reports.
MIS reports tend to be used by middle management and operational
supervisors.
Decision-Support Systems
Decision-support systems ("DSS") are specifically designed to help
management make decisions in situations where there is uncertainty about
the possible outcomes of those decisions. DSS comprise tools and
techniques to help gather relevant information and analyse the options and
alternatives. DSS often involves use of complex spreadsheet and databases
to create "what-if" models.
Knowledge Management Systems
Knowledge Management Systems ("KMS") exist to help businesses create
and share information. These are typically used in a business where
employees create new knowledge and expertise - which can then be shared
by other people in the organization to create further commercial
opportunities. Good examples include firms of lawyers, accountants and
management consultants.

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KMS are built around systems which allow efficient categorisation and
distribution of knowledge. For example, the knowledge itself might be
contained in word processing documents, spreadsheets, PowerPoint
presentations. internet pages or whatever. To share the knowledge, a KMS
would use group collaboration systems such as an intranet.
Transaction Processing Systems
As the name implies, Transaction Processing Systems ("TPS") are
designed to process routine transactions efficiently and accurately. A
business will have several (sometimes many) TPS; for example:
- Billing systems to send invoices to customers
- Systems to calculate the weekly and monthly payroll and tax payments
- Production and purchasing systems to calculate raw material requirements
- Stock control systems to process all movements into, within and out of the
business
Office Automation Systems
Office Automation Systems are systems that try to improve the productivity
of employees who need to process data and information. Perhaps the best
example is the wide range of software systems that exist to improve the
productivity of employees working in an office (e.g. Microsoft Office XP) or
systems that allow employees to work from home or whilst on the

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move.

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3.4 Role of Information Systems in Business
The emergence of a global economy, transformation of industrial
economies, transformation of the business enterprise, and the emergence
of digital firm make information systems essential in business today.
Information system is a fondation for conducting business today. In many
businesses, survival and the ability to achieve strategic business goals is
difficult without extensive use of information technology. There are six
reasons or objectives why businesses use information system:
1. Operational excellence. Business improve the efficiency of their
operations in order to achieve higher profitability. Information systems are
important tools available to managers for achieving higher levels of
efficiency and productivity in business operations. A good example is Wal-

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Mart that uses a RetailLink system , which digitally links its suppliers to
every one of Wal-Mart's stores. As soon as a customer purchase an item ,
the supplier is monitoring the item , knows to ship a replacement to the
shelf.
2. New products, services, and business models. Information system is
a major tool for firms to create new products and services, and also an
entirely new business models. A business model describes how a company
produces, delivers, and sells a product or service to create wealth.
Example: Apple inc transformed an old business model based on its iPod
technology platform that included iPod, the iTunes music service, and the
iPhone.
3. Customer/supplier understanding. When a business serves its
customers well, the customers generally respond by returning and
purchasing more. This raises revenue and profits. The more a business
engages its suppliers, the better the suppliers can provide vital inputs. This
lowers the cost. Example: The Mandarin Oriental in Manhattan and other
high-end hotels exemplify the use of information systems and technology to
understand customer requirements they use computers to keep track of
guests' preferences, such as their preferred room temperature, check-in
time, television programs.
4. Improved decision making. Many managers operate in an information
bank, never having the right information at the right time to make an
informed decision. These poor outcomes raise costs and lose customers.
Information system made it possible for the managers to use real time data
from the marketplace when making decision. Example: Verizon Corporation
uses a Web-based digital dashboard to provide managers with precise real time information on customer complains, network performance.. Using this
information managers can immediately allocate repair resources to affected
areas, inform customers of repair efforts and restore service fast.
5. Competitive advantage. When firms achieve one or more of these
business objectives (operational excellence, new products, services, and
business models, customer/supplier intimacy, and improved decision
making) chances are they have already achieved a competitive advantage.
Doing things better than your competitors, charging less for superior

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products, and responding to customers and suppliers in real time all add up
to higher sales, and higher profits. Example: Toyota Production System
focuses on organizing work to eliminate waste, making continual
improvements, TPS is based on what customers have actually ordered.
6. Day to day survival. Business firms invest in information system and
technology because they are necessities of doing business. This necessity
is driven by industry level changes. Example: Citibank introduced the first
automatic teller machine to attract customers through higher service levels,
and its competitors rushed to provide ATM's to their customers to keep up
with Citibank. Providing ATMs services to retail banking customers is simply
a requirement of being in and surviving in the retail banking business. Firm
turns to information systems and technology for providing capability to
respond to these.
Information systems are the foundation for conducting business today. In
many industries, survival and even existence without extensive use of IT is
inconceivable, and IT plays a critical role in increasing productivity. Although
information technology has become more of a commodity, when coupled
with complementary changes in organization and management, it can
provide the foundation for new products, services, and ways of conducting
business that provide firms with a strategic advantage.

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