Types of Information Systems
An information system is a group of hardware, software, data, people, and procedures that are designed to produce information that helps the regular, small, and large activities of users in an organization.
Information systems are usually divided into five categories:
- Office information systems
- Transaction Processing Systems
- Management Information Systems
- Decision Support Systems
- Expert systems
Information systems work as a support system for operations, knowledge work, and management in organizations. Functional information systems that deliver a specific organizational function, such as marketing or production, have been replaced by cross-functional systems.
Such systems can be more useful in the development and delivery of products and can be gauged more thoroughly with respect to business outcomes.
Figure shows the types of information systems and their categories:
Figure shows different information systems, which lie in different categories. The Transaction Processing System (TPS) comes under the operational support category. Business Intelligence, Office Information Systems, and Knowledge Management Systems (KMS) fall under the category of knowledge support. The management support category contains Executive Support System, MSS, and Decision Support System (DSS).
Functional Information Systems
Functional Information System is a type of information system that is based on various business areas such as production, marketing, finance, and human resource. These areas are regarded as functional areas of business. Each functional area needs applications to execute all information processing related to the function. Popular functional areas of business organizations are:
Financial Information System
Financial information system is a part of organizational MIS. It helps in the decision-making process of financial functions at the level of an organization. It also helps in performing various activities such as financial planning and financial forecasting.
These activities determine the financial performance of an organization in the future. Therefore, an organization should have an effective and efficient financial MIS.
Marketing Information System
It provides information about various functions of the marketing system of an organization. Marketing is another functional area of a business organization. A marketing information system is a set of efficient procedures and methods that helps organizations to gather, evaluate, sort, and create reports for making effective marketing decisions.
Using a marketing information system, you can retrieve the following information related to the market:
It comprises information such as customer expectations, changing requirements, and the market share of the product. Organizations need this information on a daily basis.
It includes information related to the market. This information is obtained from various information sources such as magazines, articles, government reports, and annual reports.
It is the information that is generated in response to explicit requests by the marketing department of an organization. It may consist of information related to competition strategies and market share.
Production/Manufacturing Information System
Manufacturing or production information system delivers information on the production and operation activities of an organization. It simplifies the decision-making process of production managers of an organization. The main decisions to be taken in a manufacturing system are listed as follows:
- Product design
- Product development and maintenance
Human Resources Information System
It supports the functions of human resource management in an organization. The human resource management functions are also known as personnel management. HRIS delivers information to an organization about its workforce management.
It provides different human resource functions, such as recruitment, selection, training and development, performance evaluation and appraisal, and compensation, of an organization.
Other Types of Information Systems
There are various other supporting information systems. They are as follows:
- Expert System
- Strategic Information System (SIS)
- Business Information System (BIS)
- Integrated Information Systems
Let us discuss each of them further
An expert system is specialized computer software, which is designed to provide answers to a specific problem or clarify uncertainties in areas where normally human experts would need to be consulted. Expert systems use Artificial Intelligence (AI) to solve problems within a specialized domain. In another sense, these systems are a traditional application and/or subfield of AI.
The first expert system was developed by Edward Feigenbaum and Joshua Lederberg of Stanford University in California, US, in 1965. It was designed to analyze chemical compounds. In the current scenario, expert systems are being used for commercial applications in diverse fields such as medical diagnosis, petroleum engineering, and financial investing.
To achieve apparent intelligence, an expert system has two components to rely on:
- Knowledge Base: A knowledge base is an organized collection of facts related to a particular system’s domain.
- Inference Engine: An inference engine evaluates and interprets the organized collection of facts in the knowledge base to reach a conclusive answer.
- An expert system involves classification, diagnosis, monitoring, designing, scheduling, and planning tasks for specialized areas. A knowledge base acquires the contained facts from human experts through interviews and observations.
The facts are then represented in the form of “if-then” rules (production rules): “If a condition is true, then a particular inference can be made (or some action taken)”.
In an expert system, the knowledge base includes thousands of rules based on which conclusions are drawn. A conclusion is not a certainty, thus, a probability factor is attached to the conclusion of every production rule.
For example, a system for the diagnosis of eye diseases, based on information supplied to it, might conclude with a 90% probability that a person has glaucoma. There might be other conclusions with lower probabilities.
An expert system might display the sequence of rules through which it arrived at its conclusion. A user can use this sequence to appraise the credibility of its recommendation. This also proves to be useful for students as a learning tool.
Along with simple production rules, human experts also usually employ heuristic rules, or “rules of thumb”. For example, a credit manager might know an applicant with a poor credit history, but a clean record since acquiring a new job might actually be a good credit risk. Expert systems try to incorporate such heuristic rules.
They must be open to changes and must have the ability to learn from experience. In spite of their being experts in their domain, expert systems still remain supplements rather than replacements for human experts.
Knowledge Management System
With the continuous influx of information, a business has to deal with huge amounts of information on a daily basis. The summarised information on a specific subject develops into knowledge on that subject. This knowledge is stored and used by organizations for future reference in business activities.
Thus, this organized knowledge helps create a knowledge base for them. This knowledge base needs to be updated on a continuous basis so that any obsolete information does not mislead the management. Management refers to the knowledge base as and when required for an understanding of concepts incorporated by information.
Knowledge management is the effective management of knowledge in an organization and efficient communication of the same to the management. This efficient knowledge management results from acquiring, sharing, and updating knowledge across the organization.
The process of knowledge management involves sourcing internal and external information that is explicit as well as tacit and transforming it into valuable knowledge for the organization. This knowledge is made available to all the employees with a learning objective. In this way, knowledge management deals with communication and learning.
Thus, in a nutshell, knowledge management deals with acquiring knowledge from various knowledge sources and developing a knowledge base that fulfills the communication and learning requirements of an organization.
Acquisition of knowledge is the very first step in knowledge management. The process of acquiring knowledge is called ‘knowledge engineering’, and people involved in this task are called ‘knowledge engineers’. The flow of knowledge in an organization can be in two directions: top to bottom and bottom to top. There are two different approaches adopted by knowledge engineers while acquiring knowledge in these two directions.
The methods followed in knowledge acquisition from the top level to the bottom are as follows:
- Interview Method: It involves general interviews, personal interviews, object-oriented interviews and structured interviews.
- Questionnaire Method: It involves open and closed-ended questions to be answered.
- Group Discussion Method: It involves a knowledge-sharing discussion on some topic; the ideas and thoughts of participants help in knowledge creation.
The methods followed in knowledge acquisition from the bottom to the top level are as follows:
- Observation Method: It involves observation of the process and employee performance in the process.
- Protocol Method: It involves the identification of general formulae while solving a problem in an organization. This information helps in creating thumb rules in problem-solving.
- Expert Opinion: It involves an expert or a group of experts sharing their ideas and opinions about a particular situation. This information also helps in forming principles for solving problems.
Knowledge engineers, in the process of acquiring knowledge, must keep in mind some aspects, such as:
- Method selection and knowledge acquisition is a skills.
- Paper work and documentation are important. However, it should not be a time-consuming process in knowledge acquisition.
- Continuous improvement in knowledge acquisition methods with the feedback of participants is necessary.
Similar to a database, a knowledge base represents the organized storage of knowledge with or without the use of computers. A knowledge base facilitates accessing knowledge whenever required. The knowledge base, in addition to knowledge, also contains rules, principles, theories, best practices, and other forms to organize knowledge. For an organization, knowledge is a resource of efficiency improvement.
Knowledge resource is similar to any other natural resource. Let us take the similarities between a knowledge resource in an organization and a water resource in our nature. The water resource is a necessity of life, but it needs to be managed and stored properly. Similarly, in any organization, knowledge resource is also required to be managed and stored properly, so that the existing knowledge is used in an efficient manner.
A knowledge base is generally managed through computers. There are a number of knowledge-based software that an organization can develop to support its knowledge base. Thus, knowledge management requires developing a knowledge base to effectively manage knowledge in an organization.
Strategic Information System
Strategic systems are designed to give a competitive advantage to an organization. Strategic systems are information systems that have been developed in response to corporate business initiatives. Following a business perspective, strategically, these systems may deliver a product or service that is:
- Costs lower than others
- Can be differentiated from others
- Focuses on a particular market segment
- Shows innovation, to gain a competitive edge
SIS or strategic information management is a salient feature in the world of Information Technology (IT). It enables businesses and organizations in categorizing, storing, process, and transferring information they create and receive.
The system also includes tools for helping companies in applying metrics and analyzing tools to their information database. This enables the system to recognize opportunities for growth and focus on ways to improve operational efficiency.
An SIS alters the way an organization performs business. It offers an organization a clear competitive edge and leads to higher profits or increased market share. Most strategic systems enable an organization to be an effective competitor.
The rapid diffusion of technological change makes it difficult for an organization to maintain a competitive advantage, thus strategic development of information systems helps maintain the dynamic capability of an organization.
Characteristics of SIS are:
- It significantly changes business performance.
- It contributes to attaining a strategic goal.
- It fundamentally changes the way a company performs business.
- It changes the way it competes in the market and the way it deals with its customers or suppliers.
Competitive Advantages of Strategic Systems
Strategic systems link business and computer strategies. Using these systems, new business strategies are developed and realized using IT. There is general agreement that strategic systems are used for gaining competitive advantage. Some of the common ways of gaining competitive advantage are:
Providing a Service or a Product at a Lower Cost
Providing a service or a product at a lower cost does not necessarily mean the lowest cost in the market. It refers to a cost estimated with respect to the quality of the product or service that is both lucrative in the marketplace and still yields a sufficient return on investment. The cost considered here is the overall cost of all organizational activities for the delivery of that product or service.
Deliver a Product or Service that is Differentiated
Here, differentiation entails adding unique features to a product or service that creates a competitive edge in the market. Usually, adding such features might add to the cost of the product, because the lowest-cost product seldom has the best differentiation. Thus, a strategic system helps customers to perceive and decide that differentiation rather than focus on the cost.
Focus on a Specific Market Segment
Here, the idea is to identify and create something new in the market space that has not been captured yet. It is able to provide the capabilities to define, expand, and fill particular market segments.
Innovation deals with developing new and appreciably different products or services through the use of IT, for example, automatic credit card handling machines at service stations and Automatic Teller Machines (ATMs) at banks, etc. These innovative techniques not only attract customers but also open up entirely new fields of business
Business Information System
A business Information System can be defined as a group of interrelated components that works collectively to carry out input, process, output, storage, and control actions to convert data into information products. These products can then be used to support forecasting, planning, controlling, coordinating, and helping in decision-making and operational activities in an organization.
In terms of components that are required to undertake this activity, there are five basic resources: people, hardware, software, communication, and data. The people resource includes users and developers of information systems and also those who help in the maintenance and operation of the system such as information system managers and technical staff.
The hardware resource includes computer systems and other peripheral devices such as printers, scanners, etc. Software resources refer to software programs and associated manuals. Communication resources include computer networks and the hardware and software required to support them. A data resource refers to the data an organization has access to such as databases and files.
In most organizations, BIS makes extensive use of IT. Computerized BIS has become popular and widespread due to the speed, accuracy, and dependability they impart to the organization as a whole. They also have high degrees of flexibility due to their ability to be programmed to be able to carry out a variety of tasks.
However, BIS also has a few disadvantages such as the lack of creativity, which humans possess, and a lack of innovation and intuition in their decision-making processes.
Types of Business Information Systems
BIS can be divided into two categories of systems that support an organization’s everyday business activities. These systems also lend support to managerial the decision-making process. The two categories of BIS are:
- Operations Information System (OIS): These systems are concerned with process control, transaction processing, and communications.
- MIS: These systems are concerned with providing support to managerial decision-making.
This division of BIS has been useful for managers using BIS. However, with progress in inter-organizational e-commerce and Electronic Data Exchange (EDI), now this demarcation does not accurately reflect the system being used within an organization.
For example, e-business and enterprise planning systems cut across both operational and management systems to provide businesses with more integrated information systems.
Integrated Information Systems
An integrated information system can be explained as an expansion of a basic information system by incorporating a portion of the functional or technical elements of one information system into another. This can be achieved through the improvisation of the system design of an information system to inculcate broader capability by functionally or technically relating two or more information systems.
Benefits of Integrated Information Systems
In many organizations, a system grows gradually, adding new equipment or software as and when the need arises. This often leads to a confused mix of incompatible and inefficient systems.
Sometimes, different departments, such as marketing and finance, each enter the same or related data into a system separately. This results in duplication of efforts as well as data. This also leads to the wastage of storage space. Although separate data might hold information, summarising and bringing it together to get the whole picture can be a challenge. This can cause confusion or frustration for customers, suppliers, or employees.
Integrated systems help in minimizing these problems by planning ahead about how the needs of an organization might change in the future and how the systems should grow. To enable a smooth transition, one can take care of the following:
- The system should be designed such that information can be shared. For example, by using software applications that work on the local network.
- The system should enable the sharing of hardware, such as printers and scanners, by setting up a networking system in the organization
- The system should be studied thoroughly by system administrators and should take into consideration customer and supplier requirements for system expansion. These must be pre-judged to adjust any changes needed for expansion in the future.
t is in the interest of an organization to explore all the technologies on offer and choose the right solution for the business. This kind of planning helps an organization to develop a well-integrated system and be able to deliver major benefits, such as:
- Integrated systems grow with the growth of an organization rather than needing to be replaced at every step
- Robust systems that can handle errors and increase efficiency
- Systems that have better access to information, leading to more responsive service and enhanced relationships with customers and suppliers
- Systems utilizing the employees’ time optimally, leading to greater job satisfaction among employees
- Systems with reduced costs
To understand integrated systems, let us take the example of Canon, which prides itself on the research field and carries out the development of new technologies. Companies that set out, through their products and services, to help other companies become and remain efficient operators, need to be at the forefront of innovation and good practice themselves.
Canon has research centers located in Europe (for example, France, and the UK) the US, and Japan. It operates in a highly competitive environment and recognizes the importance of managing its processes to ensure that its new products come to market quickly, is of the highest technical specifications, and can be competitively priced.
To ensure this, Canon has an efficient information management strategy that is an essential component of business success. In the contemporary scenario, businesses have large amounts of documentation, e-mails, and other paperwork circulating around them.
Over time, Canon has developed skills and technologies to take control of this potential information overload, the know-how to manage it, and the ability to share it throughout the organization and beyond. Canon has used its technology, understanding, and systems integration skills to help improve its own business processes, to become more efficient, more productive, and more profitable.
It understands the important contribution of integration of information and communications systems for effective working, thus, Canon is well placed to help other organizations improve their own information management systems. With its history of technological innovation in the fields of state-of-the-art integrated IT, office, and imaging systems, Canon seeks to continually provide solutions that best meet customer requirements.